NIGERIAN POWER SECTOR REFORM. An Overview of Power Sector Reforms in Nigeria. PROF. BART NNAJI , CON, NNOM SPECIAL ADVISER TO THE PRESIDENT ON POWER CHAIRMAN, PRESIDENTIAL TASK FORCE ON POWER.
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NIGERIAN POWER SECTOR REFORM
An Overview of Power Sector Reforms
PROF. BART NNAJI, CON, NNOM
SPECIAL ADVISER TO THE PRESIDENT ON POWER
CHAIRMAN, PRESIDENTIAL TASK FORCE ON POWER
THE BANKERS’ COMMITTEE/BUREAU OF PUBLIC ENTERPRISES TECHNICAL WORKSHOP ON NIGERIAN POWER REFORM 25TH MAY 2011
Source: Presidential Retreat On Power
** Note: Whatever operational changes can be effected through the PTFP’s monitoring activities is going to be of limited marginal value compared to what the country needs over the coming years. We have more than 150 million people. To achieve the same per capita power consumption as South Africa, we would need 120,000 MW. We currently have less than 4,000 MW (available). The NIPP will eventually add an additional 4,700 MW. That is nothing to be sneezed at and it will make a substantial difference in the short term. But, taken on its own, it will do little to effect the radical transformation this is required.
The Nigerian Electricity Supply Chain needs vast amounts of investment – at each point in the value chain.
The capital required is enormous and the Government cannot fund even a fraction of the necessary investments. Only the private sector can provide the sums required.
But for these investments to take place (on the requisite scale) requires a complex series of interlocking reform interventions.
And the success of these interventions requires: the sequencing and prioritisation of the efforts of the PACP & PTFP in light of a real-politick understanding of the dynamics of reform.
These dynamics are illustrated in the diagrams overleaf.
The first diagram compares the current configuration of ownership & control of the NESI supply chain with the configuration that will need to be in place to attract the mammoth sums of urgently needed capital investment.
The second diagram illustrates the interlocking reform steps that need to be taken in order to: a) reconfigure the ownership and control of the NESI; and b) provide the enabling environment for large-scale investment to take place post-divestiture.
N.B. The amber boxes are the critical missing components. If we “fix” these 8 components, the dynamics of reform will be self-perpetuating.
WB & MIGA Guarantees (during transition)
Major tariff change
Completion of existing PHCN & NIPP capacity expansion projects
Change of ownership and control of Gencos and Discos
Modest & stable increase in generation &
Information pressure system
Major FGN investments in power transmission
Investment Pressure System
Major FGN investments in gas transportation infrastructure
Tens of billions of dollars of private sector investment
Momentum on EOIs, RFPs, Due Diligence
Other Medium Term Projects
Per 1 million head
Resuscitation of the NESI
Gas Grid Concession
We can use the force of the domestic and international capital markets not just to channel investment into the sector after the divestiture but also as a way to reinforce the government’s ongoing reform efforts.
More particularly, as shown in the preceding diagram, the very act of shifting the generating companies and distribution companies into the private sector will ensure that the FGN is subject to sustained pressure to make correlative investments in the two sectors where ownership remains in the Government’s hands, namely: gas transmission and power transmission.
And the Genco and Disco transactions will also serve to place added pressure on the government to complete the existing PHCN and NIPP expansion projects.
* But critical for meeting Roadmap service delivery targets
Presidential Task Force on Power
The sale of the gencos and discos is dependent on the operationalisation of the Bulk Trader. Investors will not sign a Sale and Purchase Agreement until they have a counterparty with whom they can contract. At this stage in the evolution of the electricity market, bilateral contracts between power producers and distribution companies are not possible. Only a bulk trader (with the ability to sign PPAs backed by bankable guarantees) can bridge this gap. Absent this entity, the entire reform process will grind to a halt, investor confidence will haemorrhage and there will no new procurement of power.
The transformation of the ownership and control of the Nigerian Electricity Sector is a massive undertaking.
And it requires supporting injections of capital by the Federal Government at various points in the supply chain.
The scale of this FGN investment is not a bottomless pit with unbounded dimensions.
On the contrary, an indicative balance sheet can be drawn up on the basis of estimates.
The other point to note about this indicative balance sheet is that the majority of the FGN liabilities that need to be incurred to leverage private sector investment (on a multiple of the FGN injections) are either “one-off” costs or strictly time-limited.
12 The Nine Levers Of Change
Valuations Of The Fgn’s Contingent Liability – In Respect Of The Indemnities For PRGs For IPPs
The table below reveals the likely value of the contingent liabilities to which the Government might be exposed in 2015 were it to provide PRG indemnities for PPAs signed on commercial terms* for 9,000 MW
* The example shown here assumes a wholesale tariff of N12/kWh.
13 The Nine Levers Of Change
The Opportunity Cost Of Not Incurring The Contingent Liability
The provision of PRGs for IPP investments will create a contingent liability that will not become an actual liability (if at all) for at least three years (i.e. until completion of the IPP projects).
The maximum actual risk to the government (if it indemnified PPAs for 9,000 MW of power generation)…is likely to be less than $1bn per annum.
The opportunity cost of not incurring this liability (and simply waiting until the sector, post-privatisation, becomes commercially viable) is the cost of the GDP that would be lost as a consequence of delayed investment decisions.
The cumulative cost of delayed investments – in terms of lost GDP – will be more than 10x higher than the actual cost of incurring the contingent liability.
16 The Nine Levers Of ChangeOther PTFP Strategic Initiatives
Off-Grid Generation to Unserved, Remote Communities
Power Growth via the Bulk Trader
Five Year Generation Capacity Projections
Proposed Allocation to Major Cities & Industrial Centres
Transmission Network Development Fund (TNDF)
Future Evacuation from Gbarain Power Station
Electric Power One Stop Shop (Investment Information Web Portal)
GIS Energy Map
Energy Efficiency/Electricity Demand Side Management
Issues with Emergency Power Plants
17 The Nine Levers Of Change
for further information.