PHCN! Offload You Freeloaders

It is that time of the year again – raging insecurity, increase in the cost of goods and services and almost 100% absence of power. A few months ago I had a hard time convincing friends that the power we were enjoying, since power is not a Nigerian’s right, was not due to the Obasanjo administration’s $16 billion investment in the power sector or to President Yar’adua’s phantom declaration of a state of emergency. It was simply due to a rise in water levels in the hydro dams due to the rains and this has been a recurring event over the last few of years – between July and September, power supply improves and towards Christmas, power supply worsens. Sadly I have been proved partially right. Once we entered November, power worsened but PHCN is not blaming the seasons. According to news reports of November 25, PHCN reported that we had lost 1000megawatts of power due to a shortage in gas which was caused by the vandalisation of the pipeline facilities. Fair enough…but I still wondered why the vandalisation did not take place between July and September, or were the vandals otherwise occupied in matters which required electricity?

The transformation of NEPA into PHCN and the unbundling of PHCN into distribution and generating companies was supposed to make the power situation better. It has not. Part of the problem is the Electric Power Sector Reform Act 2005 (the ‘Act’), the 1999 constitution and the National Electricity Regulatory Commission (NERC).

The fact that the 1999 Constitution gives both federal and state governments the right to legislate on electricity in Nigeria should be a good thing. However, the Act along with its regulator, NERC, has failed to consider this in regulatory requirements. Section 13 of the Concurrent List which gives the Federal Government its rights over power generation says that; ‘the National Assembly may make laws for the Federation or any part thereof with respect to (a) electricity and the establishment of electric power stations; and (b) the generation and transmission of electricity in or to any part of the Federation and from one State to another State’. The States get their coexisting rights in Section 14 which provides that State Houses of Assembly may make laws for: (a) electricity and the establishment of State electric power stations; and the generation, transmission and distribution of electricity to areas not covered by a national grid system within that State.

This simply means while both Federal and State governments have rights to generate electricity, States can only generate power which does not have to go through the national grid system. To put things in perspective; less than 33% of the population of Delta State is covered by the national grid. Which means Delta State should be able to provide electricity for 67% of its inhabitants without any interference from the Federal Government or any of its agencies. However, Section 63 (1) of the Act clearly states that ‘no person shall construct, own or operate an undertaking, or engage in the business of electricity generation, transmission, system operation, distribution, or trading in electricity, without a license issued pursuant to the Act or deemed to have been issued under the Act’. The only exception is for the generation of electricity which does not exceed one megawatt in one site or the distribution of electricity which does not exceed 100 kilowatts in one site. This exception does not recognise a State’s right to generate and distribute electricity outside the national grid and is so narrow that it means no one can generate commercial electricity - one megawatt is just enough electricity to carry ten 60watt light bulbs and two televisions.

Now if we know anything about Nigerian federal agencies it is that the rules and regulations are somehow designed to promote the most strangulating form of bureaucracy and corruption. Endless, meaningless forms which have to be filled out in triplicate, one year application processes, fees which have to be paid in foreign exchange and several layers of approvals from the Central Bank, the Economic and Financial Crimes Commission, the Federal Inland Revenue Service and sometimes just for fun, the NDLEA.
Unfortunately, troublesome licensing requirements are not the only reason why generating more electricity is difficult. According to power sector experts who spoke off the record, the power sector is simply not commercially viable. No one is willing to invest in more power generating plants in Nigeria because under the current tariff (the cost of electrical power) and distribution system, investors would not be able to break even. In modern systems, e.g., in the United Kingdom, it costs approximately $1 million to generate 1 megawatt of power. So to run a plant similar in size to the Egbin power station, which at 1000 megawatts supplies a quarter of Nigeria’s power, an investor would need $1 billion. This would arguably require a loan with interest requiring any investor to secure a guarantee from PHCN that the tariffs would be high enough and the revenue would be collected efficiently enough for the investor to manage the plant, make interest payments and make a little profit.

We have three major problems. One, eighteen cents is the recommended tariff but we pay six cents with government sometimes subsidizing. Two, most of the power generated and used in Nigeria is not paid for. Apart from dodgy consumers who bribe equally dodgy PHCN officials to take less, ex presidents, government agencies etc. all get electricity for free. And three, corruption within the system which ensures that funds meant to build generation plants and develop transmission grids get diverted into private accounts and party coffers.

In a nut shell solving the power sector problem is simple.
(1) Build generation plants (and thereby increase supply).
(2) Develop transmission grid (current network can only carry 4000 Mw).
(3) Improve distribution and collection system (i.e. get consumers to pay).

If it is so simple, why are we in such a mess?
(1) Generation – bureaucracy, regulation, corruption, fund mismanagement and unattractive tariffs
(2) Transmission – corruption and fund mismanagement
(3) Distribution – poor collection process, too many free loaders - including government

So, let us be thankful that we get any electricity at all.

Published December 16 2008