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Abstract
This research examines the restructuring of the Nigeria
electric power sector and the performance of the sector. The specific
objectives of this research includes: i. To ascertain whether or not
restructuring of Nigeria electric power sector has led to increase in
electricity generation and consumption in Nigeria. ii. To find out if
reform of Nigeria electric power sector has led to increase in revenue
generation by PHCN. iii. To enquire whether or not restructuring of
Nigeria electric power sector has led to increase of investment in the
sector. The theoretical framework applied in this study is Systems Theory
which empowers us to analyze Nigeria electric power sector as a system
which receives input of demand and support from its environment and
produces output in the form of supply of electricity to its environment.
The data for this study was obtained from secondary sources such as
text books, magazines, and internet materials and were analyzed with
simple percentage method of analysis. The findings of the study show
that the restructuring of the Nigeria electric power sector has led to
increase of investment in the power
sector; increase in revenue generation by PHCN; but has not led to
increase in electricity generation and consumption in Nigeria. Thus, we
have recommended for intensification of the fight against corruption;
gas industry reform; formulation of environmental policy; encouragement
of competition in the power sector; provision of favourable environment
for private investment; appropriate billing method; and intensive
consumer education.General Introduction
1.1 Introduction
The performance of Public Enterprises in both developed and developing
countries has been generally disappointing. There are widespread doubts
as to whether the benefits of public ownership are worth the cost.
According to Paul and Simon cited in Obadan (2000), in country after
country, unbridled state expansion has led to the following:
1. Economic inefficiency in the production of goods and services by the
public sector, with high costs of Production, inability to innovate, and
costly delays in delivery of the goods produced.
2. Ineffectiveness in the provision of goods and services, such as
failure to meet intended objectives, diversion of benefits to elite
group, etc.
Specifically, on power sector reform, Adoghe (n.d.:1) observes that the
reform that is taking place in the electricity sector is increasing
rapidly and the nature of the reforms that are being adopted is becoming
more sophisticated.
Thus, both developed and developing countries have embarked on a program
of liberalizing and reforming their power sectors while many large
countries like China and very small countries like Bolivia
have adopted earlier reform models according to there own needs and
circumstances. Adoghe (n.d.:1) maintains that a number of authors have
noted that some of the principle driving forces behind the need for the
reform movement include:
• The poor performance of the state-run electricity sector in terms of
high cost, inadequate expansion of access to electricity services for
the population, and/or unreliable supply.
• The inability on the state-owned sector to finance the needed expenditures on new investment.
Adoghe (n.d.:1) further maintains that in many countries in Africa
especially some West African countries, all the aforementioned factors
have presented at the same time with the exception of some developed
countries and although, some state-owned utilities have performed well,
there was awareness during the 1980s that a lengthy period of state ownership,
without the forces of competition or the incentives of the profit
motive to improve performance, will eventually result in excessive
costs, low services quality, poor investment decisions and lack of
sensitivity in supplying customers. Consequently, despite the fact that
rapid changes in technology have occurred in both the generation of
electricity and in the computing systems used to meter and dispatch
power which have made new industrial structures possible, state
utilities have been too slow in adopting these modern changes while the
private sector offers many new approaches to proving power at lower
cost, especially to consumers with low levels of demand through
innovations in customer services and cost recovery mechanisms.
Most public enterprises, of which Power Holding Company of Nigeria (PHCN), the successor of National Electric Power Authority
(NEPA) is one, operate at loss, and therefore, constitute a massive
drain on government resources through transfers and subsidies.
Umezuruike (2005), opined that the public enterprises in Nigeria enjoyed
the following transfers in 1998 alone:
A. Subsidized foreign exchange – N156.5 billion
B. Import duty waivers – N12.5 billion
C. Tax exemption arrears – N15.0 billion
D. Unremitted revenues – N29.5 billion
E. Loans and guarantees – N35.0 billion
F. Grants/subventions – N35.0 billion
In spite of all efforts by government, the performance of most public enterprises and PHCH in particular has been very poor.
It is in the light of this that the Federal Government of Nigeria
decided to embark on reform of electric power sector in Nigeria. Thus,
in March 2001, the Federal Executive Council received and approved from
the Electric Power Implementation Committee an electric power policy which became known as
the National Electric Power Policy (NEPP) of 2001. The policy provided
for corporate restructuring, unbundling and privatisation of National
Electric Power Authority (NEPA) through sale or license of all plants to
private operators or concessionaires and transfer of management,
ownership and control of selected distribution companies. This is aimed
at making electricity sector in Nigeria to become private sector driven
and to introduce competition in the sector (www.nigeriafirst.org, 2005:1).
Based on the National Council on Privatisation
approved implementation blueprint for the restructuring of NEPA
released on 26th August 2002, the restructuring will involve the
creation of six Generation
Companies (Gencos), an Independent Transmission Company that will also
be responsible for system and market operation, and eleven Distribution
Companies (Discos), matching NEPA’s existing zonal structure, with the
exception that the Lagos zone (which takes 45% of supply and provides up
to
60% of revenues) will be structured into two separate companies. While
the objective of this restructuring is that each one of these companies
will become a commercially viable independent company, the restructuring
programme is expected to be followed by a shadow trading period during
which the new Wholesale Electricity
Market will remain government-owned and work up to establish some track
record of performance. Then there will be divestiture of the Federal
Government’s interests in the Distribution Companies (Discos) followed
by the Generation Companies (Gencos). Consequently, on 29th November
2004, the power generating arm of NEPA was unbundled into six new
semi-independent companies, namely, Kainji/Jebba Hydro Power Plant
Business Unit, Shiroro Hydro Business Unit, Egbin Electric Power
Business Unit, Delta Electric Power Business Unit, Afam Electric Power
Business Unit, and Sapele Electric Power Business Unit. The power
generation companies
will generate and sale power to Transmission Company at bulk unit cost (www.nigeriafirst.org,
2005:4). According to Bello and Alike (2008:4), the Transmission
Company of Nigeria (TCN) was conceded to the Power Grid Corporation of
India Limited (PGCIL) on Management Contract by the administration of
former president Olusegun Obasanjo when the company emerged the
preferred bidder in the bid for the management contract of the TCN.
The Electric Power Sector Reform Act of 2005 upheld and legalized the
reforms already initiated in the electric power sector in Nigeria since
2001 and also broadened the reform process by not only abrogating the
monopoly of NEPA in the electric power sector, thereby providing for
private investment by
Independent Power Producers (IPPs), but also provided for replacement of
NEPA with Power Holding Company of Nigeria (PHCN) Plc. PHCN took over
the functions of NEPA and all its assets, liabilities and staff (www.nigeriafirst.org, 2005:3), (Federal Ministry of Power and Steel, 2006:6, 9).
Although the process of privatising PHCN was formally initiated in 2001,
PHCN still remains state-owned and has not been privatised. However,
the Electric Power Sector Reform initiated in 2001which if carried
through will lead to eventual privatisation of the Generation Companies
(Gencos) and Distribution Companies (Discos), has resulted in the
liberalization of electric power sector in Nigeria.
Therefore, what this study seeks to do is essentially an assessment of
the impact of the electric power sector reform in Nigeria on PHCN’s
performance as well as on electricity generation and consumption in
Nigeria as a whole.
1.2 Statement of Problem
The problem of inadequate and irregular electric power supply in Nigeria
coupled with constant power outage is no longer alarming but has gone
out of proportion. Many industries and manufacturing firms have closed
down while the smarter ones are daily relocating to neighbouring
countries where the cost of energy is not capable of crippling their
business (Orode, 2009:50).
Some other companies are operating at very low capacities. Public and
private institutions, artisans and households are not left out of the
electricity fiasco.
PHCN’s ineffectiveness has increased unemployment as employees of both
large and small organisations have been thrown out of jobs. Regular
power outage has also encouraged criminalities to thrive in the cities.
Incidents of inferno and loss of lives and properties have been on the
increase. Consumers of electricity in the country h0061ve lost hope and
become helpless as far as the issue is concerned.
i. As a way out, most people have resorted to the use of power
generating plants. However, it is a known fact that the use of these
generators is associated with a number of problems such as high cost of
fuel, noise, pollution and poisonous gas emitted by the plants.
The seriousness of PHCN’s problem has attracted the attention of the
Nigerian Government. This has forced the government to begin to
restructure the Nigeria Electric Power Sector. So far this reform has
led to the abrogation of monopoly hitherto enjoyed by NEPA and the
replacement of NEPA with
PHCN, and the liberalization of the electric power sector in Nigeria,
with a target of eventual privatisation of the Generation Companies
(Gencos) and the Distribution Companies (Discos) of PHCN. This reform of
electric power sector in Nigeria is aimed at achieving adequate,
efficient, and regular electricity generation and consumption in Nigeria
through introduction of private investment and competition in the
sector. The extent to which the reforms of the electric power sector has
achieved its goals remains a subject that deserves indepth inquiring.
Therefore, this study seeks to provide answers to the following research questions:
i. Has restructuring of Nigeria electric power sector led to increase in electricity generation and consumption in Nigeria?
ii. Has reform of Nigeria electric power sector led to increase in revenue generation by PHCN?
iii. Has restructuring of Nigeria electric power sector led to increase of investment in the sector?
1.3 Objective of the Study
The main objective of this study is to find out if restructuring of
Nigeria electric power sector has actually improved the performance of
the sector and PHCN.
However, the specific objectives of the study include:
i. To ascertain whether or not restructuring of Nigeria electric power
sector has led to increase in electricity generation and consumption in
Nigeria.
ii. To find out if reform of Nigeria electric power sector has led to increase in revenue generation by PHCN.
iii. To enquire whether or not restructuring of Nigeria electric power sector has led to increase of investment in the sector.
1.4 Significance of the study
The crisis on provision of electricity in Nigeria has been blamed on
among other things, poor revenue generation by the public utility in
charge of power sector in Nigeria, and inadequate investment in the
power sector. As a result, government embarked on restructuring of the
power sector in Nigeria in
order to reverse these ugly trends.
Therefore, an appraisal of the impact of such reform on electricity
generation and consumption, investment in the power sector as well as
revenue generation by PHCN is a very important exercise that has both
theoretical and practical significance.
Theoretically, this study will provide information that will help to
clarify whether it is more beneficial to pursue state-ownership approach
or liberalized approach on the provision of electricity in Nigeria.
Practically, the findings of this study will help to illuminate whether
or not the major problem with power sector in Nigeria has been really
that of legal framework of operation or the operators of the power
sector with reference to power generation and consumption, revenue
generation by the public utility in charge of the power sector, and
investment in the power sector. Thus, the result of the study will help
the government and the operators of Nigeria electric power sector to
fashion out policies that will ensure that there is adequate investment
in the power sector in Nigeria, adequate return on investments made
in the sector, and provision of adequate quantity and quality of
electricity in Nigeria for domestic, industrial, and commercial usages.
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