Electric Power Sector in Nigeria - 2010
Nigeria suffers from a serious crisis in electricity supply due to decades of poor management, planning, monopolistic inefficiency, and a lack of capital funding. In 2010, the country has less than 5000 MW actual power generation capacity to serve a population of 150 million resulting in a per capita consumption of 137 kWh per person – 4 times less than the African average and 19 times less than the world average.
The huge electricity deficit has meant that many Nigerian households, businesses and industries have had to resort to self power generation spending an estimated $1.5 billion to purchase large generator sets between 2002 and 2008 and spending around $3 billion on fueling and maintaining generators annually.
To chart a new beginning for the power sector, the Nigerian government has embarked on a program of reform starting from 1999. The Electric Power Sector Reform Act (EPSR) of 2005 which forms the basis of its reform agenda envisions three phases towards competitive market development - restructuring, privatization and liberalization.
The government has completed the first phase of restructuring the sector. It has transferred the assets of the old National Electric Power Authority (NEPA) into a holding company called the Power Holding Company of Nigeria (PHCN) and unbundled its generation, distribution and transmission units into separate corporate entities.
It has also created a new regulatory body Nigerian Electricity Regulatory Agency (NERC) to oversee the industry by licensing market participants, setting market rules and designing tariffs and pricing. NERC has licensed 19 independent power companies to generate power in the country together with the unbundled 9 generation, 11 distribution and 1 transmission company. Electricity tariffs have been set to reflect the cost of capital, depreciation and to provide a reasonable rate of return for generation, transmission and distribution companies. Under NERC's Multi-Year Tariff Order (MYTO) tariffs have risen from $ 0.04 per kWh in 2002 to $ 0.067 per kWh in 2008.
In steps leading to the second phase of privatization, the Nigerian government has engaged in rehabilitating older power plants and constructing seven new gas-fired power plants in the Niger Delta to double generation capacity and stabilize power in the medium-term. However, the new projects as well as older thermal plants face significant challenges in the form of inadequate gas supply infrastructure, vandalism of gas pipelines in the Niger Delta and kidnapping of workers.
The Jonathan administration has announced a May 2011 end date for the privatization of thermal generation and distribution companies with hydro power plants and the transmission company to be awarded by management concession. Towards winding down the PHCN, the Nigerian government has settled pension and labor liabilities, transferred creditor and debt obligations of the national power company to a state-owned debt management company and created a bulk trading company which will engage in wholesale electricity trading until distribution companies can achieve credit-worthiness.
It has also raised gas prices to near export parity to create greater incentives for gas suppliers to invest in domestic gas production, processing and transport infrastructure. Also, it has directed the NERC to undertake a review of the MYTO regime to ensure cost-reflective electricity tariffs. In addition, the Central Bank of Nigeria (CBN) has set aside a $2 billion credit facility to be issued by the Bank of Industry (BOI) to commercial banks in the country to finance new power projects.
There are concerns over the timing of privatization for 2011 which falls in an election year. There is no certainty that the current President will return and several investors cite the possibility of a policy reversal or worse. However, there is more consensus in Nigerian government today towards power sector privatization than the uncertain political environment suggests. This is because the crippling power shortage in the country has placed every democratic government under pressure from the electorate to resolve the problem and three previous state-directed attempts to meet minimal well-publicized targets have failed spectacularly. Today, the Nigerian government has acknowledged that it simply cannot afford the vast sums of money needed to meet the demand for power (estimated at around $3.5 billion annually).
For investors, privatization provides a significant opportunity to buy early into an under-serving sector which should grow strongly in the years ahead. Power generation is conservatively expected to double to 16,500 MW by 2015 and with increased urbanization this will expand electricity coverage and grow consumption to 32,000 GWh by 2015 according to our estimates. We forecast that electricity market prices will grow to an average of $ 0.15 per kWh with better bill collection propelling total industry revenues to around $3 billion by 2015.
The huge electricity deficit has meant that many Nigerian households, businesses and industries have had to resort to self power generation spending an estimated $1.5 billion to purchase large generator sets between 2002 and 2008 and spending around $3 billion on fueling and maintaining generators annually.
To chart a new beginning for the power sector, the Nigerian government has embarked on a program of reform starting from 1999. The Electric Power Sector Reform Act (EPSR) of 2005 which forms the basis of its reform agenda envisions three phases towards competitive market development - restructuring, privatization and liberalization.
The government has completed the first phase of restructuring the sector. It has transferred the assets of the old National Electric Power Authority (NEPA) into a holding company called the Power Holding Company of Nigeria (PHCN) and unbundled its generation, distribution and transmission units into separate corporate entities.
It has also created a new regulatory body Nigerian Electricity Regulatory Agency (NERC) to oversee the industry by licensing market participants, setting market rules and designing tariffs and pricing. NERC has licensed 19 independent power companies to generate power in the country together with the unbundled 9 generation, 11 distribution and 1 transmission company. Electricity tariffs have been set to reflect the cost of capital, depreciation and to provide a reasonable rate of return for generation, transmission and distribution companies. Under NERC's Multi-Year Tariff Order (MYTO) tariffs have risen from $ 0.04 per kWh in 2002 to $ 0.067 per kWh in 2008.
In steps leading to the second phase of privatization, the Nigerian government has engaged in rehabilitating older power plants and constructing seven new gas-fired power plants in the Niger Delta to double generation capacity and stabilize power in the medium-term. However, the new projects as well as older thermal plants face significant challenges in the form of inadequate gas supply infrastructure, vandalism of gas pipelines in the Niger Delta and kidnapping of workers.
The Jonathan administration has announced a May 2011 end date for the privatization of thermal generation and distribution companies with hydro power plants and the transmission company to be awarded by management concession. Towards winding down the PHCN, the Nigerian government has settled pension and labor liabilities, transferred creditor and debt obligations of the national power company to a state-owned debt management company and created a bulk trading company which will engage in wholesale electricity trading until distribution companies can achieve credit-worthiness.
It has also raised gas prices to near export parity to create greater incentives for gas suppliers to invest in domestic gas production, processing and transport infrastructure. Also, it has directed the NERC to undertake a review of the MYTO regime to ensure cost-reflective electricity tariffs. In addition, the Central Bank of Nigeria (CBN) has set aside a $2 billion credit facility to be issued by the Bank of Industry (BOI) to commercial banks in the country to finance new power projects.
There are concerns over the timing of privatization for 2011 which falls in an election year. There is no certainty that the current President will return and several investors cite the possibility of a policy reversal or worse. However, there is more consensus in Nigerian government today towards power sector privatization than the uncertain political environment suggests. This is because the crippling power shortage in the country has placed every democratic government under pressure from the electorate to resolve the problem and three previous state-directed attempts to meet minimal well-publicized targets have failed spectacularly. Today, the Nigerian government has acknowledged that it simply cannot afford the vast sums of money needed to meet the demand for power (estimated at around $3.5 billion annually).
For investors, privatization provides a significant opportunity to buy early into an under-serving sector which should grow strongly in the years ahead. Power generation is conservatively expected to double to 16,500 MW by 2015 and with increased urbanization this will expand electricity coverage and grow consumption to 32,000 GWh by 2015 according to our estimates. We forecast that electricity market prices will grow to an average of $ 0.15 per kWh with better bill collection propelling total industry revenues to around $3 billion by 2015.
Executive Summary
1. INDUSTRY OVERVIEW
1.1 Background & Regulatory Environment
1.2 Electricity Supply
1.3 Electricity Consumption
1.4 Electricity Pricing
2. REGULATION & POLICIES
2.1 Market Development
2.2 Nigerian Electricity Regulatory Commission (NERC)
2.3 Rural Electrification Agency (REA)
2.4 Multi-Year Tariff Order (MYTO)
3. PROFILE OF KEY PARTICIPANTS
3.1 Power Generation
3.2 Transmission
3.3 Electricity Distribution
4. INDUSTRY INVESTMENTS
4.1 National Integrated Power Project (NIPP)
4.2 IPP Projects
4.3 CBN Power Sector Intervention Fund
4.4 Nigeria Electricity & Gas Improvement Project (NEGIP)
5. INDUSTRY RISKS & CHALLENGES
5.1 Gas Supply Chain Constraints
5.2 Insecurity in the Niger Delta 6. KEY TRENDS & FORECASTS 2011 - 2015
6.1 Privatization of Generation & Distribution
6.2 Power Generation to Double but Shortages to Persist
6.3 Higher Electricity Prices
6.4 Urbanization will drive Growth in Electricity Consumption
APPENDIX – SOURCES
1. INDUSTRY OVERVIEW
1.1 Background & Regulatory Environment
1.2 Electricity Supply
1.3 Electricity Consumption
1.4 Electricity Pricing
2. REGULATION & POLICIES
2.1 Market Development
2.2 Nigerian Electricity Regulatory Commission (NERC)
2.3 Rural Electrification Agency (REA)
2.4 Multi-Year Tariff Order (MYTO)
3. PROFILE OF KEY PARTICIPANTS
3.1 Power Generation
3.2 Transmission
3.3 Electricity Distribution
4. INDUSTRY INVESTMENTS
4.1 National Integrated Power Project (NIPP)
4.2 IPP Projects
4.3 CBN Power Sector Intervention Fund
4.4 Nigeria Electricity & Gas Improvement Project (NEGIP)
5. INDUSTRY RISKS & CHALLENGES
5.1 Gas Supply Chain Constraints
5.2 Insecurity in the Niger Delta 6. KEY TRENDS & FORECASTS 2011 - 2015
6.1 Privatization of Generation & Distribution
6.2 Power Generation to Double but Shortages to Persist
6.3 Higher Electricity Prices
6.4 Urbanization will drive Growth in Electricity Consumption
APPENDIX – SOURCES
