Nigeria to Double Power Capacity This Year

Nigeria to Double Power Capacity This Year

Apr 15 - African Business

By Ford, Neil

At long last, it appears that Nigeria's power sector is about to undergo a revolution. If all goes according to plan, capacity is expected to double by the end of this year and triple within the next two.

Despite progress on several other fronts, the government of President Olusegun Obasanjo has thus far failed to improve Nigeria's dire power supply situation.

Even when all existing plants are fully operational, the country has far too little generating capacity to satisfy demand, while inadequate transmission and distribution infrastructure have resulted in inefficient and unreliable supplies, even to those customers who are connected. Yet there are finally signs of improvement on the horizon, as a raft of new independent power producers (IPPs) approaches completion.

The centrepiece of Abuja's power sector reform strategy has been the replacement of the National Electric Power Authority (Nepa) with the Power Holding Company of Nigeria (PHCN). State owned Nepa's monopoly of all levels of the power sector, from generation down to transmission and distribution, was largely a failure because of inadequate funding from the federal government. Years of underinvestment prevented development of new generating capacity, a more aggressive rural electrification campaign and even the maintenance of existing infrastructure. When Obasanjo came to power, the regulatory system was altered to allow private companies to set up IPPs, in order to boost national generating capacity.

However, Nepa's continued control of all downstream operations and the very poor condition of the transmission grid made this a relatively unattractive option. As a result, in July 2005 the government decided to transfer all of Nepa's assets to a new company, PHCN, which now acts as an umbrella organisation for all state owned assets in the country.

Eighteen separate power offshoots have been set up as Nepa's various subsidiaries are unbundled. The plan is for the single transmission operator to remain in state hands in order to control the purchase of electricity from generators and its sale to the 11 distribution companies, each of which will be responsible for supplying power to different parts of the state and each of which will be privatised.

It is hoped that a genuinely competitive generation market can be created, comprising various IPPs, which will mainly be owned by foreign investors, and the six generation companies that are being created out of PHCN's upstream assets. As with distribution, the Bureau of Public Enterprises (BPE) will oversee the privatisation of the generation firms.

The first privatisation - that of the Ikeja distribution company - was expected to take place in 2006 but was postponed because of delays in drawing up the sale procedure. The main problem appears to be a dispute between the federal and state governments over the distribution of any sale revenues.

The state governments want to be compensated for investments that they have made to prop up the power sector over the past few years. Abuja hopes to avoid making any monetary compensation and so has suggested that the state governments could take a stake in joint ventures with foreign companies that take over the distribution firms.

Power generation remains stagnant

National generating capacity has stubbornly refused to rise above 3,500MW during Obasanjo's two terms of office. Given that estimates of actual demand lie between 7,000MW and 10,000MW, it is clear that a step jump in capacity is required. Some new plants have been brought on stream but others have been taken out of operation for lengthy periods for long delayed maintenance work. However, investment in new IPPs should finally increase capacity over the next two years. It is estimated that 14 new gas fired and hydroelectric plants will be completed by 2010. Chevron is constructing a 780MW gas fired facility in Lagos State, close to an area of high consumption, while Shell is working to expand the 700MW Afam plant.

Other oil companies are also working on similar ventures, such as Eni-Agip's 450MW Delta State project and ExxonMobil's 388MW scheme on Bonny Island.

However, specialist power sector companies, such as ABB, Eskom and Siemens, are also building new power plants, demonstrating that it is the more attractive investment environment and not just the lure of upstream hydrocarbon acreage that is encouraging investment.

Abuja can take some of the credit for the turnaround. It has encouraged the foreign oil companies that dominate Nigeria's oil and gas industry to construct power plants and has even tied the award of upstream acreage to power sector investment. The 2008 ban on routine gas flaring has also concentrated minds and forced oil companies to find markets for associated gas on oilfields that is currently flared.

Some gas is being consumed by the growing liquefied natural gas (LNG) sector, while the West African Gas Pipeline (WAGP) will absorb more, but new thermal power plants will also require substantial supplies of gas feedstock.

The National Electricity Regulatory Commission (NERC) has been set up to oversee competition in the emerging Nigerian electricity market. At a joint NERC-United Bank for Africa conference in January, the minister of energy, Edmund Daukoru, commented: "The enthusiasm of the private sector for power business with the creation of NERC provides reassurance that our projections of 10,000MW generation capacity will be met." He confirmed that 10 IPP licences that had been granted would provide more than 5,000MW in new capacity.

After so many years of failed promises and lack of progress, it is difficult to accept that the Nigerian power sector is about to undergo a revolution, but it does seem that national capacity will be doubled by the end of this year and tripled within another two years. Yet it is vital that the required transmission and distribution investment is also put in place. Some work has already been carried out on developing new transmission interconnectors but additional generating capacity will require even more robust downstream support and the national power grid must begin to take shape.

Bringing the new IPPs on stream is not a complete solution in itself but it is at least part of the solution and should mark a major leap in the right direction.

Furious Lagos residents took to the streets to protest at erratic power supplies in the city.

The Minister of Energy, Edmund Daukoru, appears confident that the country can meet a 10,000MW generation capacity target.

The West African Power Pool

A step in the right direction

The West African Power Pool (WAPP) was devised to improve the power supply situation across West Africa and also to drive integration within the Economic Community of West African States (Ecowas) area.

Yet while the Southern African Power Pool (SAPP) has gone from strength to strength and is now increasingly encouraging short term trade in electricity, little progress has been made on turning the WAPP into a reality. A lack of investment in cross-border interconnectors, the lack of generating capacity in many countries, regulatory difficulties and conflict in parts of the region have all acted as breaks on development.

Yet the paralysis in the Nigerian power sector is one factor that is often overlooked. As by far the biggest economic power in the region, Nigeria would have been expected to take the lead on the development of the WAPP and many other strands of regional integration, yet it has been absorbed by its own domestic problems for many years. Now that the West African giant has become a more stable presence in the region, its greater prosperity and improving power supply prospects may also drive the development of the WAPP.

Abuja hopes that it can become a major power exporter over the next decade and needs to improve the WAPP in order to make this a realistic option.

The first step in this direction was made in February, when a new transmission line connecting Nigeria with Benin and Togo was completed, with initial transport capacity of 80MW, although this will be increased before the end of this year.

At the official ceremony to mark the completion of the project, Nigerian President Olusegun Obasanjo said: "This is an example of regional development where states unite to tackle the problems of underdevelopment, especially in the context of globalisation."

Nigeria spent $25m on the new 70km link, of which $16m was provided by the African Development Bank (AfDB). At present, Benin imports most of its electricity from Ghana but Accra is currently facing its own power supply problems, so the government of Benin is keen to secure additional sources of supply. Although Nigeria may have little spare electricity to export at present, Abuja believes that a generating capacity surplus will emerge over the next two years.

Nigeria could earn $14.4m a year from the new transmission link but Abuja hopes that greater capacity and more interconnectors to other countries will boost this figure.