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Electric Power Sector Reform: Privatisation, Regulation and Other Challenges. By Mrs. Irene N. Chigbue Director General Bureau of Public Enterprises Presentation at the National Workshop on Electric Power Sector Liberalisation 30th March, 2006. Outline. Introduction Why Reform?

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Electric power sector reform privatisation regulation and other challenges

Electric Power Sector Reform: Privatisation, Regulation and Other Challenges


Mrs. Irene N. Chigbue

Director General

Bureau of Public Enterprises

Presentation at the National Workshop on Electric Power Sector Liberalisation

30th March, 2006

Outline Other Challenges

  • Introduction

  • Why Reform?

  • Sector Investment Needs

  • Key Components of Reform

  • Reform Programme

  • Regulation

  • Establishment of NERC

  • Challenges

  • Conclusion

Overview of the nigerian power sector
Overview of the Nigerian Power Sector Other Challenges

  • Nigerian Power Sector: Pre-Reform

  • Significant mismatch between demand and supply in Nigerian electric power sector

    • Supply grossly inadequate, and of poor quality to meet demand

    • Inadequate/obsolete transmission & distribution facilities

    • Annual average per capita consumption of power in Nigeria is less than 200kWh (2004)

  • Inadequate and non-complementary investment in generation, transmission and distribution.

    • Inappropriate industry and market structure

    • Industry was hitherto fully owned, funded, operated, controlled and regulated by FG.

    • Vague delineation of roles and responsibilities of institutions

    • Incessant political intervention, non-commercial obligations, limited managerial know-how

Why reform
Why Reform? Other Challenges

  • Massive FGN investment into PHCN (NEPA):

  • Still only about 36% of Nigerian population have access to electricity

  • Consumers experience substantial and sudden power cuts per year (approx. 600)

  • Average generation availability stands at about 3500MW against a daily requirement of >6000MW

  • Available transmission capacity limited to 3000MW

  • High transmission losses implies even the little generated cannot be fully delivered

Why reform 2
Why Reform? - 2 Other Challenges

  • Distribution network inadequate; obsolete equipment; high technical losses

  • Inadequate billing and collection methodology

  • Electricity theft

  • Therefore low revenue ( a minus for sustainability & development)

  • Little or no sector regulation (reduces investor & consumer confidence)

  • Sector cannot be sustained and developed like this

  • Manufacturing, commercial, domestic front suffer

  • NESI inefficiency has probably had the largest negative impact on development of Nigerian economy – loses about $1b per annum

  • Generation needs about $3.2b; Transmission $1.5b; Distribution $ 4.5b to meet current demand

  • FGN resources face competing demand from other infrastructures

  • FGN NEEDS cannot thrive without sufficient electricity

Why reform 3
Why Reform? - 3 Other Challenges

  • Nigerian Power Sector Reform is aimed at:

  • Improving the performance and operation of the utility through increased private sector participation

  • Attracting private sector investments

  • Meeting current and future demand for electricity

  • Instituting new market structure/rules and trading arrangement

  • Redefining the roles of sector players i.e. FGN, FMP&S, Operators, and establishing an independent regulator to oversee affairs

  • Promotion of competition, transparency and efficiency

Sector investment needs
Sector Investment Needs Other Challenges

  • Investment of more than US$7.5billion needed to achieve target of generation and associated transmission and distribution infrastructure in 2006.

  • FG investing in host generation and encouraging development of IPPs

  • Generation

    • Additional capacity required to meet electricity demand

    • Efficiency improvements

  • Transmission

    • Expansion, upgrade and reinforcement of grid to support generation expansion

    • Reduction in T & D losses (energy audit and metering)

  • Distribution

    • Improvement in revenue collection

    • Additional investment in network to support generation and transmission plan

    • Appropriate and effective metering etc.

    • Energy conservation and demand side management

Key components of reform
Key Components of Reform Other Challenges

  • Reform in Power Sector

  • Components of reform

    • Restructuring and Privatisation

  • Privatisation is change in control (management) and/or ownership

  • Restructuring involves:

    • Change in industry structure to stimulate competition, choice & promote financial accountability

    • Unbundling into constituent functions (generation, distribution & transmission)

    • Establishing commercial trading arrangement

Reform programme
Reform Programme Other Challenges

  • Reform initiated in 2000 with the constitution of the Electric Power Implementation Committee (EPIC), which prepared sector policy (NEPP 2001) and Electric Power Sector Reform (EPSR) Act 2005.

  • The Reform encompasses restructuring & privatisation

  • Two pronged approach adopted for sector revitalisation

    • Priority action to address technical & commercial problems

      • Rehabilitation of existing plants and undertaking essential investments

      • Reinforcement and upgrading operations and transmission facilities etc

    • Holistic reform aimed at addressing structural, organisational and institutional issues

      • Appropriate industry structure & decentralisation of sector to foster choice and competition

      • Clear delineation of roles and responsibilities – FG (Policy, direction and monitoring & evaluation of implementation and performance), Private Sector (operations), Regulatory Commission (licensing, technical & economic regulation)

Reform programme 2
Reform Programme -2 Other Challenges

  • Nigerian Power Sector in Transition:

    • Establishment of an independent Regulator

    • Encourage private participation in the sector

    • Development of the electricity market to reflect market-based system and cost reflective pricing

    • As a minimum to improve supply, (10,000MW of generation capacity is targeted by 2007)

    • National Energy Development Project (NEDP)/TDP executed with World Bank to finance sector expansion, reinforcement & rehabilitation

    • Presidential Advisory Committee on Sustainable Energy Development Plan (25-year plan being developed)

    • Establishment of successor companies to promote competition, transparency, efficiency

Privatization update
Privatization Update Other Challenges

  • Privatization program for the NESI is unique

  • Essence of the program is to ensure improvement in existing infrastructure and service delivery

  • Privatization proceeds is not a primary objective of the program

  • Attracting quality investment rather than revenue to the government

  • Removal of the burden of funding the sector in the Short, medium to the long term

  • Development of system integrity through private sector driven industry

  • Preparation of the SC for privatization in advanced stage

Privatization update 2
Privatization Update - 2 Other Challenges

  • Strategy for privatization of the power sector different from other sectors

  • Working with World Bank to develop incentive package for investment in the successor companies and the power sector in general

  • Commenced corporatisation of SCs including engagement of new managers and development of corporate governance rules to ensure that companies meet international best practices.

  • Commenced privatization of the Transmission Company through a management contract.

  • Management expected to last between 3 to 5 years

  • Private managers to train local staff

  • Private manger to assist in developing transmission infrastructure and system integrity

  • Private operation of the TCN will increase investor confidence in the electricity sector

  • Privately managed TCN will assist in developing the market and make for early and orderly introduction of private sector participation

Strategies for privatisation
Strategies for Privatisation Other Challenges

  • Strategies to be adopted during privatisation include:

    • Core investor sale

    • Asset sale

    • Operate & Manage contract

    • Concessions

  • Core Investor Sale

  • Concession Arrangement



  • Operate and Management

  • Core Investor Sale

  • Asset Sale

  • Concession Arrangement


Proposed 2006 timelines
Proposed 2006 Timelines Other Challenges

Steps to achieve timelines
Steps to Achieve Timelines Other Challenges

  • Public awareness programme on investment opportunities in the sector

    • Direct marketing of successor companies through foreign embassies, chamber of commerce and internet to prospective investors

    • Showcasing potentials in Business summits/workshops, trade missions, stakeholder meetings, road shows etc

  • Preferred Strategy to diversify government ownership -

    • concessions

    • Asset sales

    • Management Contract for Transmission Company of Nigeria

  • Advert calling for EOIs for Management Contract of TCN is current out and some investors have expressed interest

  • Evaluation Committee inaugurated to review EOIs

Regulation Other Challenges

  • A firm, independent and well funded sector regulator is critical to the successful implementation of the power sector reform programme.

  • The key objective of the regulator is to umpire the affairs of sector participants.

  • Ensure rules, regulations, operating codes of sector and national grid are enforced in a fair, transparent and equitable manner.

  • Key regulatory tools of the sector are Economic (tariff, pricing and licensing) and technical (engineering, quality standards, environmental and maintenance of system integrity)

Establishment of nerc
Establishment of NERC Other Challenges

  • The EPSR Act 2005 establishes NERC and outlines the functions of the Commission as:

    • Promotion of electric market competition and private sector participation

    • Tariff setting to ensure prices are cost-oriented and consumers/competitors interests are protected

    • Establishment/approval of appropriate operating codes, safety, reliability and quality standards

    • Establishment of appropriate consumer rights and obligations regarding the provision and use of electricity services

    • Licensing and regulation of persons engaged in the generation, transmission, system operation, distribution and trading of electricity

    • Approving amendments to the market rules

    • Monitoring of the operation of the electricity market

Current focus of nerc
Current Focus of NERC Other Challenges

  • Developing an effective and orderly power sector transformation and tariffs

  • Licensing existing and new power operators

  • Developing a comprehensive and transparent rules governing grid code access and usage

  • Improving sector investment climate and the prospects of private sector participation

Challenges to effective regulation
Challenges to Effective Regulation Other Challenges

  • Funding to keep independence

  • Rules for licensing and tariff have to be fair, unambiguous and transparent

  • Deployment of appropriate information technology system for data gathering and analysis

  • Current regulation issues are complex creating a need for stakeholder dialogue and coherence in the application of rules

  • Build capacity of staff in various regulatory areas

  • Adherence to international best practices

Issues and challenges to privatization
Issues and Challenges to Privatization Other Challenges

  • Need to improve generation capacities

  • Devise an appropriate labour Strategy

  • Ensure appropriate and credible private sector investors take over the utilities

  • Establish an efficient industry market with appropriate energy trading and payment discipline

  • Establish appropriate incentive structure to attract private sector

Issues and challenges to privatization 2
Issues and Challenges to Privatization - 2 Other Challenges

  • Reversing the technical insolvency of the Discos

  • Need for efficient and effective independent regulation of sector

  • Institute a tariff structure that is cost reflective

  • Create sustainable fiscal and economic policy regimes

  • Decrease technical losses

  • Develop other renewable energy sources

  • Reducing revenue losses (of about N4,400 billion per month) of all Discos

  • Continue stakeholder support for the privatisation and reform programme

  • Ensuring adequate public understanding of on going reform

  • Continued government investment in transmission post NIPP

  • Introduction of adequate measures to check energy theft (executive & legislative)

Conclusion Other Challenges

  • The expected outcome of the reform programme is to transform the nation’s electric power sector industry into an efficient and effective sector that would meet the increasing energy demand.

  • Private sector participation is critical to sustainable growth and development of the sector.

  • A well structured power industry will stimulate private sector investment and drive to achieve investment target.

  • Effective regulation of the sector will sustain the gains of the reform in terms of quality standard, expansion of electricity infrastructure and attract the right private investment

  • We would collectively assure Nigerians that the reform of the sector will achieve its ultimate objective of improved standard of living and national socio-economic development and growth.

  • We urge all Nigerians to embrace this positive effort.

Thank you check our website www bpeng org for details and updates
THANK YOU Other ChallengesCheck our website:www.bpeng.orgFor details and updates