THE IMPACT OF ELECTRICITY DEREGULATION ON THE

PERFORMANCE OF NIGERIA POWER INDUSTRY

BY
OLANIYAN STEPHEN OLATOYE
MATRIC NO: 070853
A PROJECT REPORT SUBMITTED TO THE
DEPARTMENT OF ELECTRICAL AND ELECTRONIC ENGINEERING
FACULTY OF ENGINEERING
EKITI STATE UNIVERSITY, ADO-EKITI
EKITI STATE, NIGERIA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
AWARD OF THE DEGREE OF BACHELOR OF ENGINEERING IN
ELECTRICAL AND ELECTRONIC ENGINEERING
APRIL, 2013
CERTIFICATION
This is to certify that this project was carried out by Olaniyan
Stephen Olatoye with matric number 070853 of the Department of
Electrical and Electronic Engineering, faculty of Engineering, Ekiti State
University, Ado-Ekiti, Ekiti State Nigeria
________________ _____________
Engr. B. Adebanji Date
Supervisor
________________ _____________
Dr. V.S.A Adeloye Date
H.O.D (Elect/Elect)
________________ _____________
External Supervisor
ii
DEDICATION
This project is dedicated to Almighty God for giving me the
courage to do this work. Also dedicated to my beloved family as a
whole.
iii
ACKNOWLEDGEMENTS
I give glory and adoration to the most High God for his grace
upon my life and helping me so far.
My special gratitude goes to my supervisor Engr. B. Adebanji who
took time to train and impact knowledge in me.
My special thank goes to the head of department Dr. V.S.A
Adeloye and all entire staf in the department of electrical and
electronic engineering for given me the opportunity to advance
academically.
My special gratitude goes to my parents pastor and mrs
Olaniyan for their fnancial and moral support.
My sincere gratitude goes to my sisters and
brothers,Olaniyan tosin,Olaniyan yemi,Olaniyan nike, Olaniyan
ayo ,olaniyan tayo and every member of the entire family of
Olaniyan
My acknowledgement would not be complete if I dont
express my profound gratitude to my beloved friends Ogunleye
foluso folahan(FLAKES), Ajayi dipo timothy(DIPLOMACY),
Okafor Christopher, Fasola tosin, okonkwo ike, Oputteh
Benson, Avidime jonah, Okoh Raymond, Osi treasure, Bako for
being there for me through out my course of study in the
iv
citadel learning, I have learnt a lot from you guys. I love you all,
Thanks.
v
ABSTRACT
Many countries in the world today, are in the verge of deregulating
their power industry. Due to the increase in demand of most goods and
services, which electricity is not an exemption, appropriate men as
should be put in place at meeting this demand.
Some of these countries have started improving their electricity
industry by introducing deregulation as a prelude to ushering free
market competition.
This project will presents the deregulation status of the electric
supply industry in Nigeria. The historical overview of the Nigeria
electric supply industry in Nigeria. The historical overview of the
Nigeria electric supply industry will be noted. The motivation and
rationale for restructuring the electric supply industry will be presented.
The short, medium and long term goals of the deregulation process are
presented. The project gives suggestion that will be benefcial to the
ongoing privatization and restructuring exercise in Nigeria.
vi
TABLE OF CONTENTS
TITLE PAGE
CERTIFICATION ii
Dedication iii
Acknowledgements iv
Abstract vi
Table Of Contents vii
CHAPTER ONE 1
1.0 Introduction 1
1.1 Statement Of Research Problem 6
1.2 Research Objectives 7
1.3 Signifcance Of The Project 7
1.4 Justifcation 7
1.5 Scope Of The Study 9
1.6 Research Methodology 9
1.7 Defnition Of Operational Terms 9
CHAPTER TWO 12
2.0 Historical Overview Of Electric Supply Industry 12
vii
2.1 General Overview 12
2.1.0 Transmission 13
2.1.1 Voltage Policy Control 13
2.1.2 Frequency Control Policy 13
2.1.3 Distribution 13
2.1.4 Frequency Control 13
2.2 Deregulation And Current Scenario Around The World 18
2.3 Milestones Of Deregulation: 18
2.4 Latin America 18
2.5 The Uk 21
2.6 The Nordic Pool (Norway, Sweden) 24
2.7 Canada 27
2.8 California (Us) 29
2.9 Indian Scenario Of Deregulation 31
2.10The Electricity Act 2003: 32
2.11 Supply And Demand Imbalances 34
CHAPTER THREE 36
3.0 Restructuring Of The Esi: Policy And Status 36
viii
3.1 Needs And Reasons For Restructuring 36
3.2 Power Sector Reform Program 37
3.3 National Electric Power Policy Objectives 37
3.4 Status Of The Restructuring Process 38
3.5 New Power Station 40
3.6 Ipp Initiatives 41
3.7 Billing Collection 41
3.8 Structure Of Deregulated Industry 42
3.9 Diferent Entities In Deregulated Environment 45
3.10The Competition 48
CHAPTER FOUR 50
4.0 Impact Of Electricity Deregulation 50
4.1 Challenges And Opportunities 51
4.1.1 Economic And Social 51
4.1.2 Political 52
4.1.3 Technical 53
4.1.4 Environmental Factors 54
4.2 Opportunities 55
ix
4.3 Efciency And Reliability Of Service 55
4.4 Investment Opportunities 55
4.5 Employment Opportunities 56
4.6 Improvement Of Technical Manpower 57
4.7 Encouragement Of Research 57
4.8 Conclusion 58
CHAPTER FIVE 60
5.0 Conclusion 60
5.1 Recommendation 61
5.1.1 Build, Operate And Transfer Schemes. 62
5.1.2 Build Operate And Own Scheme 63
5.1.3 Transmission 63
5.1.4 Tarif Regulation 65
5.1.5 Market 66
5.1.6 Vandalism 69
5.1.7 Nigeria Electric Power Training And Research Institute (Neptri)71
REFERENCES 74
x
CHAPTER ONE
1.0 INTRODUCTION
Around the world, electric industries are undergoing extensive
restructuring. The trend, which started in the UK and Chile in the 1980s,
has rapidly spread too many countries in Latin America, Asia, Europe
and Africa. The main motivation and driving forces for restructuring the
electric industry in diferent countries are not the same. In some
countries, such as the U.K. and the Latin America countries,
privatization of the electric has provided a means of attracting funds
from the private sector to relieve the burden of heavy burden of heavy
government subsidies. In the countries formerly under centralized
control (central and eastern Europe), the process follows the general
trend away from centralized government control towards increased
privatization and decentralization. It also provides a vehicle to attract
foreign capital needed in these countries. In the United States and
several other countries where the electric industry has for the most part
been owned by the private sector, the trend is toward increased
1
competition and regulation J. Duncan Glover, and Mulukutla S. Sarma,
Power System Anaylsis and Design, 3rd ed, California: Brooks/Cole 2002.
The crisis of public sector managed electricity sector hit the
economies of several countries hard and the countries tried various
measures of reform with varying degrees of success. The privatization of
the power sector is a recent, but internationally widespread trend, which
has placed greater reliance on market forces and less dependence on
government in the allocation of resources. The privatization of the power
sector has been made possible after recognition that the sector could be
separated into generation, transmission and distribution sectors and
even these sectors could be broken into several companies, without
compromising the economic advantages of a vertically integrated
government monopoly, which earlier existed in most countries N.
Leeparechanon, S. S. Moorthy, R. D Brooks, A. K. David, A review of
major factors in restructuring power markets in Developing Countries,
Proceedings of the 5
th
international conference on advances in power
system control, operation.
2
In the restructured environment power sector is no longer based
on vertically integrated model. Substantially diferent economic
characteristics are recognized in the generation, dispatch, transmission,
distribution and supply stages. National, state owned, vertically
integrated companies have given birth to many companies in generation
and supply, which compete to provide electricity to the industrial
consumers and end consumers. Government role has been changed from
entrepreneurial role to regulatory one. Competitions among private
actors are established as the mechanism to assign resources in
generation and supply, with the state regulating dispatch, transmission
and distribution activities. Most of the prevailing electricity market
follows the model as shown in Figure 1.0.
Currently electric power supply in Nigeria is the responsibility of
the federal government owned National Electric Power Authority
(NEPA), which has been recently restructured into a holding company
named Power Holding Company of Nigeria, (PHCN) in preparation for
deregulation. NEPA was established in April 1972, with the
amalgamation of the former Electricity Corporation of Nigeria (ECN)
3
and Niger Dams Authority (NDA). NEPA supplies electricity power to
an estimated four million customers in Nigeria and the Niger Republic,
from a combination of hydroelectric dams, coal and gas powered
operating source.
Like most state-owned enterprises, NEPA has sufered from severe
under funding and under-capitalization, inappropriate capital structure,
excessive executive interference, and sub-optimality and decision-
making. The consequence of this trend is a structural unbalance
between electricity power demand (estimated at 10000MW in 2005,
forecasted to rise to 20,000MW in 2010), and supply. Although the
installed capacity is about 6000MW, the maximum load, ever recorded,
was 3083MW. With a 40% generation and distribution losses, the
resultant power outages cost the nation an estimated $1 billion per year
(2.5% of GDP). Anurag K. Srivastava, Service to Commodity: Which Way
to Follow in the Context of Indian Power Sector, Research Paper for ECE
650 at Illinois Institute of technology, 2002. Lack of adequate electric
power has caused the collapse of many industries that rely heavily on
adequate power supply. Small businesses and heavily machined
4
manufacturers are severely afected by the abysmal performance of
NEPA. The people in general are also afected socially, psychologically
and physically due to inadequate and unstable power supply. Overall
NEPA has contributed in no small way to the stagnation of Nigeria
economy.
In 1999, a new democratic government was elected into power
Nigeria. This regime under the leadership of President Olusegun
Obasanjo initiated sweeping reforms across the various sectors of the
Nigerian economy. The new administration recognized the fact that
National Public Enterprises (NEPA inclusive) have failed to meet public
expectation; they consume a large proportion of national resources
without discharging the responsibilities thrust upon them. The
administration also established the following facts about its NPEs: they
fail to allocate these resources efciently; they create economic
inefciencies; they incur huge fnancial losses; absorbed
disproportionate share of credit especially in the form of Paris and
London club loans, as well as domestic loans and advances; and
contributed to consistent fscal defcits. As a result the administration
5
has slated most of the NPEs for privatization or/and deregulation.
NEPA is one of the key NPEs slated for privatization and deregulation.
Sesan A Ayodele, Improving and Sustaining Power (Supply) for Socio-
Economic Development in Nigeria, 2003.
FIGURE 1.0: Restructured power system
1.1STATEMENT OF RESEARCH PROBLEM
Under regulated power system, problems of improper allocation of
system usage cost if the participants as well as high tarif on part of the
consumers are eminent, this work is thus to provide means of
overcoming this problems.
6
1.2RESEARCH OBJECTIVES
The objectives of this research are:
Firstly, it presents the deregulation status of the electric supply
industry in Nigeria.
Secondly, it will present the needs and reasons for restructuring
of the electric supply industry in Nigeria.
Thirdly, to recommend an efcient status of the deregulation
process of electric supply industry in Nigeria.
1.3SIGNIFICANCE OF THE PROJECT
The signifcance of this project is to : Encourage the entry and full
participation of private investors into the power industry in Nigeria.
Achieve the stability of price in the electricity market. It gives the
suggestion that might be benefcial to the ongoing privatization process
in Nigeria power industry.
7
1.4JUSTIFICATION
This wok will justify proper allocation of system usage cost
thereby providing proper means of compensating the wheeling utilities
and the customers.
8
1.5SCOPE OF THE STUDY
This study is fundamental at discussing the various methods used
in restructuring of the electric supply industry in Nigeria and does not
include issues concerning congestion management of such power
system.
1.6RESEARCH METHODOLOGY
Power system is an interconnection of diferent equipment from
the generating station to the end users. This equipment normally form a
complex network, hence analyzing such network tends to be
cumbersome.
For the purpose of this project, reviewing of journals and articles,
interviews and collection of data from the National Control Centre
Oshogbo are also some of the methodologies used in the project.
1.7DEFINITION OF OPERATIONAL TERMS
The defnitions of some of the terms frequently used in this
project are given below:
9
i) Customer: end user which purchases the power from the
distribution utilities.
ii) Deregulation: a system whereby new laws and regulations are
introduced to increase competition in a previously monopolized
industry.
iii) Firm transmission: transmission service that cannot be
interrupted for any reason except during an emergency where
continuous power delivery is not possible.
iv) Monopoly: a market structure in which a single entity controls
the production of goods and services which has no close
substitute e.g. electricity.
v) Network: an interconnected power system consisting of
transmission lines and equipments for the transmission of
electricity.
vi) Producer: owner of the generating station that generates
electrical energy.
vii) Transmission: process of transporting electrical energy at high
voltage from the supply source to the utilities.
10
viii)Transmission provider: the entity responsible for providing
transmission services subject to reliability, regulatory and
commercial requirement. A transmission provider may or may
not be the transmission owner.
ix) Vertical integrated utility: a traditional electric utility that has
direct control on the generation, transmission and distribution
facilities.

11
CHAPTER TWO
2.0 HISTORICAL OVERVIEW OF ELECTRIC SUPPLY INDUSTRY
IN NIGERIA
2.1GENERAL OVERVIEW
From 1972 to 2005, NEPA, the state owned, vertically integrated
monopoly, controlled about 94% of the generation capacity and 100% of
the transmission, system operation, distribution and marketing sector of
the industry. The transmission lines and generators are interconnected in
a common grid, with a single control center. Sesan A Ayodele,
Improving and Sustaining Power (Supply) for Socio-Economic
Development in Nigeria, 2003.
The national electric grid comprises of three hydro and six thermal
generating stations with a total installed capacity of 5906MW. Sesan A
Ayodele, Improving and Sustaining Power (Supply) for Socio-Economic
Development in Nigeria, 2003.
The generators types and capacities are presented in table 1. The
transmission and distribution networks include:
12
2.1.0TRANSMISSION
5000 kilometres of 330KV lines
6000 kilometres of 132KV lines
23 of 330/132KV sub-stations
91 of 132/33KV sub-stations
2.1.1VOLTAGE POLICY CONTROL
330KV + 5% & -15%, 132KV + 10% & -15%
2.1.2 FREQUENCY CONTROL POLICY
50Hz + 0.4% & - 0.4%
2.1.3DISTRIBUTION
23,753 kilometres of 33KV lines
19,226 kilometers of 11KV lines
679 of 33/11KV sub-stations
543 of 33/0.415KV or 11/0.415KV sub-stations
2.1.4FREQUENCY CONTROL
20, 50Hz: 33KV +/- 10%
13
In addition, there are 1790 distribution transformers and 680
injection sub- stations.
Table 2.1: Generation mix of PHCN
Generators Total Installed
Capacity
Types Fuel Location MW
Hydro -- Kanji 760
Hydro -- Jebba 570
Hydro -- Shiroro 600
Thermal Natural Gas Afam 709.6
Thermal Natural Gas Delta 912
Thermal Steam Egbin 1320
Thermal Steam and Gas Sapele 1020
Thermal AGO fuel Ijora 60
Total: 5951.6
14
While table 2.1 shows an installed capacity of 5951.6 MW it is sad
to note the current available capacity from generators is only about
2536.6MW, less than 50% of the install capacity. The transmission grids
are heavily overloaded, because transmission capability was not
expanded with increasing MW added to the transmission grid.
According to a study done by O.A Komolafe et al the transmission grid
is limited to a load supply of 4000MW. This limit includes the efect of
Var Injections and Voltage control equipments. If all the available
capacity of 5951.6MW is injected into the transmission, total system
collapse will occur. Transmission losses are estimated to be 20-30%
annually.
During the inglorious days of military dictatorship in Nigeria
(1983-1999), generation, transmission and distribution apparatus
(rotating machines, transformer and others) were operated for several
years without the necessary turn around maintenance required to keep
them operating efciently and prevent them from collapse. As a result a
lot apparatus cannot be operated efciently or outright inoperable. Also
substantial amount of the machineries have outlived their useful life,
15
deteriorated beyond repair or rendered obsolete due to better
technology.
PHCN equipments are subjected to vandalism and theft by group
of cabals in diferent part of the country. The hydro power stations sufer
from low water level during dry season and the generation output
capabilities of thermal stations are often hampered by shortage of fuel.
Equipments are expensive to repair, mostly due to their obsolete status.
NEPA has always struggled to meet its end of the bargain to
supply electricity to its end consumer. NEPA supply electricity through a
hostile regime of load shedding and rationing. Power outages occur at
high rates and power quality delivered in most area is very low. The
frustration caused by inefcacy of NEPA fueled by the lackadaisical
attitude of NEPA personnel has lead to a high rate of illegal electricity
consumption practices among consumers. Currently, all major newly
established privately or even publicly owned commercial/industrial
enterprises under take substantial investment in private supply of
electricity relying on privately owned generating plants at high costs
16
which tend to aggravate the high cost of production and subsequently
the countrys high rate of infation.
NEPA is a government ran entity that enjoys a lot of the fnancial
transfers, subsidies, grants and tax and import duty waivers from the
government. These social incentives from the government were counter
productive for NEPAs efciency. It resulted in an under trained and
unmotivated manpower and lack of will to operate as a proftable entity.
The billing system of NEPA is fraught in two main ways: 1) The tarif
does not cover the cost of supplying power to consumers 2) NEPA does
not have an efective billing system, which results in widespread under
billing.
17
2.2DEREGULATION AND CURRENT SCENARIO AROUND THE
WORLD
2.3MILESTONES Of DEREGULATION:
- 1982 Chile
- 1990 UK
- 1992 Argentina, Sweden & Norway
- 1993 Bolivia & Colombia
- 1994 Australia
- 1996 New Zeeland
- 1997 Panama, El Salvador, Guatemala, Nicaragua, Costa Rica
and Hondura
- 1998 California, USA and several others
2.4LATIN AMERICA
From 1980 onwards, a major transformation took place throughout
the electric power industry in South America. The frst to begin was
Chile, which made modest reorganization eforts in 1980, and privatized
18
Nacional de Electricidad S.A. in 1988, purchased by Endesa
(Spain). Endesa along with other utilities purchased stakes in the
Chilean electric industry. Over time, government owned power gave way
to fve generating companies competing in the main grid.
In Argentina, the government separated generation, transmission
and distribution in 1991. The two state owned companies were split into
almost 40 competing private generator companies, many with only a
single power plant. This fragmentation was designed to assure that no
one generator had anything approaching dominant position in the
marketplace. Transmission assets were sold to private Transcos, and 18
electric distribution companies were created.
MAIN FEATURES:
Disaggregation of generation, transmission and distribution into
separate business sectors.
Creation of intense competition in power production through
fragmentation of national generating resources into many
companies, none of which dominates the market.
All generating companies bid into Poolco like structure,
19
essentially centrally dispatched by an independent Poolco
operator.
There are almost no barriers to the construction of thermal, wind
and solar plants. Licenses and government cooperation are
required for construction of hydroelectric plants.
Licensed, open access operation of power delivery assets, usually
having local monopoly franchises limited to power movement, not
sales.
Local distribution concessionaires are assigned an obligation of
supplying electricity to consumers with long-term franchises.
RESULTS:
Increasing investment in new facilities, especially new generating
plants
Substantial increase in thermal plant availability
Reduction in specifc power consumption of thermal plants and
consequent decreases in both spot and contract market prices
Service quality improvements, reduction in non-served energy and
decrease of system failure probability
20
Reduction in total service losses
Considerable consumption growth (40% increases in last fve
years)
Transmission investments in the period have been moderate,
because of the strict economic criteria required for their
implementation by interested party.
Reduction in non-supplied energy because better transport service
quality
Reduction of prices since beginning of the process around 50 %
Average monthly electricity prices in wholesale market dropped
from $60/MWhr to $30/MWhr
2.5 THE UK
The most widely quoted example of deregulation is the United
Kingdom. The process of privatization in the UK began in February
1988, and in some ways the UK led the world in electric industry
deregulation. Great Britain was privatized in three stages, with England
and Wales frst, followed by Scotland, then Northern Ireland.
MAIN FEATURES:
21
Central Electricity Board was split into four entities, which
consisted of two private generating companies, National Power
and Power Gen, a government owned generator, Nuclear Electric,
and the National Grid Company (NGC), which is the independent
transmission system operator.
12 local electricity boards privatized as Regional electric Company
(REC), each having monopoly franchise on local power
distribution
National Grid became National Grid Company (NGC), initially
owned by 12 RECs. But now a public traded corporation.
Scottish non-nuclear companies, Electricity de France (EdF) and
IPPs became the member of pool.
Non-franchise customers (earlier > 1 MW, later > 100 KW and now
free) have option of choosing their supplier from any RECs,
National Power or PowerGen.
Pool maintained by NGC
REC submit grid forecast to Pool co operator
Generator bids are entered into NGCs GOAL program
22
The GOAL program derives half hourly marginal costs
The System Marginal Price (SMP) is the price quoted by the
most expensive generator which is accepted for dispatch during
each half-hourly time slot when transmission constraints are
ignored simple unconstrained dispatch New Electricity Trading
Arrangements (NETA):
In July 1998 the Director General of Electricity Supply (DGES)
published a proposals document describing new market based trading
arrangements for electricity (NETA). In October 1998 the Government
accepted these proposals.
The proposals envisaged market-based trading arrangements more
like those in commodity markets elsewhere. Forwards and futures
markets would operate up to several years ahead, evolving in response
to demand. A voluntary Short-term Bilateral Market would operate from
at least 24 hours to about 4 hours before real time, allowing participants
to fne tune their positions. When the Short-term Bilateral Market closes,
a voluntary Balancing Market would open with the National Grid
Company, in its role as System Operator, accepting bids for increments
23
or decrements of generation or demand to enable it to balance the
system. There would be a settlement process to refect diferences
between contract positions and metered volumes of output and to
recover other costs to be borne by market participants.
A Balancing and Settlement Code would contain a set of rules
covering the balancing market, the imbalance price and the settlement
system.
RESULTS:
Stafng at generation plants fell by 60%, while productivity
increased almost 75%
Improved operating efciency.
Prices have fallen for majority of customers with increased
reliability
2.6THE NORDIC POOL (NORWAY, SWEDEN)
The Swedish electricity sector was never completely centralized or
nationalized. Till 1991, the sector was dominated by Vatenfall, which in
addition to owning about 50% of the total generation also managed the
24
400 kV and 220 kV transmission lines and some large networks at lower
voltage levels, down to the customers. There were about a dozen other
large generating companies and 270 distribution companies, which
operated the networks at lower voltage levels and often owned their own
generation.
The Norwegian electricity sector was dominated by small/
medium sized municipality owned power companies, each vertically
integrated, i.e., they generated power and transmitted that to their own
dedicated customers. Most of the transactions were on a bilateral basis,
between the utility and bulk consumers.
MAIN FEATURES OF NORWEGIAN DEREGULATED MARKET:
Deregulation was created in by the Energy Act of June 1990 and
market operation started in May 1992
Restructuring removed the transmission ownership from Stat
Kraft, a national utility, and the creation of a new national owned
company Stat Nett to be transmission owner, market operator and
ISO.
Nord pool is not a mandatory pool. Generators and consumers
25
voluntarily decide whether or not they wish to sell or
purchase electricity through this market. As a consequence, the
majority of electricity is still traded via bilateral contracts between
generators and consumers, with the pool serving primarily as a
wholesale market for marginal electric supply.
There is a future market where weekly fnancial futures contracts
ranging from a week ahead to 3 years ahead are traded.
Norwegian Water Resources and Energy Administration (NVE) are
responsible for monitoring grid operation in Norway and for
setting the tarifs for the local distributions companies throughout
Norway.
MAIN FEATURES OF SWEDISH DEREGULATED MARKET:
Passed deregulation legislation in October 1995 and joined existing
Norwegian market structure in January 1996 inspired by the
Norwegian initiative.
Transmission operation was removed from national utility
Vattenfall that continues to operate generation, and Svenksa
Kraftnat, the national grid owner and ISO, was formed.
26
Nord Pool, a market operator was formed, owned equally by
Statnett & Kraftnat, to look over spot and future market for the
both countries.
Some large retail distributors also generate all or a large fraction of
the electricity they distribute.
Sydkraft and Stockholm Energi, the two largest distribution
ompanies, are the next largest generators after Vattenfall.
RESULTS:
Prices have declined about 2% for residential & 7% for commercial
consumers
Service reliability has remained at or near traditionally high levels
Management of hydro energy has resulted in no shortages or
apparent waste of water resources.
2.7CANADA
January 1, 1996 was a turning point for Albertas electric industry
since it meant vertically integrated utilities became a thing of the past.
Since then, restructuring is moving cautiously, trying to retain the
benefts of the existing low cost generators for customers while making
27
the transition to fully competitive market.
MAIN FEATURES:
New power pool, through which all energy in the province will be
traded. The hourly pool price will be the same for buyers and
sellers.
Competitive bidding for future generation. Utilities will continue
to own and operate their existing power plants. However, as these
are retired, IPP will be brought on to replace them and meet load
growth. This will lead to the generation sector becoming fully
competitive.
A province-wide transmission grid, which will be administered by
the Grid Company of Alberta Inc. (Gridco). It is owned by the four
utilities that own transmission facilities in the province and will
contract with those individual owners to supply transmission
services.
An advisory group, the Electric Transmission Council, will
represent the interests of consumers and transmission users.
28
2.8CALIFORNIA (US)
In the United States, the Federal Energy regulatory Commission
(FERC) deregulated the wholesale generation and bulk transmission
parts of the electric power industry with its order 888, in April 1996. The
wholesale generation market throughout the United States will be
competitive, with low barriers to entry and dominance by no one. The
transmission grid will be open to access by all qualifed parties.
Individual states are free to pursue diferent approaches to how
they implement and operate the electric industry in their state, within
the FERC guidelines. Naturally, the ffty states are pursuing deregulation
in diferent directions.
Electricity costs in California were claimed to be about 50% higher
than the national average. So, this state has been most aggressive in
pursuing restructuring. On March 31, 1998 California became the frst
sate to ofer all customers a choice of electric service providers
MAIN FEATURES:
A power exchange (PX) - a spot market, runs much like a stock
market for power, into which both buyers and sellers bid.
29
Unlike some systems, this PX allows only short term (real time,
hour and day-ahead) trading.
Bilateral trading of power over short or long periods is not only
allowed, but also encouraged.
Operation of transmission system in an open access manner.
Open customer access at the retail level.
Postage-stamp pricing implemented on a zonal basis.
Congestion management through adjustment of zonal prices.
Nuclear power do not bid and contracted ahead of time as must
run. Schedule and price are calculated and disclosed.
Renewable must be bought as and when available.
The ISO will maintain interconnected system operation,
monitoring and controlling the system to assure it stays in a secure
and stable state all the time.
The ISO should provide equitable access for all potential users to
reserve the system transmission capability they want.
The ISO should satisfy the power shipment needs of all the
participants.
30
The ISO provides settlement, billing the users and passing
revenues on to the transmission owners.
2.9INDIAN SCENARIO OF DEREGULATION
In India, the power sector was mainly under the government
ownership (>95% distribution & ~98% generation) under various
states and central government utilities, till 1991. The remarkable
growth of physical infrastructure was facilitated by four main policies: 1)
centralized supply and grid expansion 2) large support from
government budgets 3) development of sector based on indigenous
resources 4) cross subsidy.
In mid 1990s, Orissa began a process of fundamental restructuring
of the state power sector. Under the World Bank (WB) loan, the state
decided to adopt, what is known as WB-Orissa model of reform. This
consisted of a three pronged strategy of: 1) Unbundling the integrated
utility in three separate sectors of generation, transmission and
distribution, 2) Privatization of generation and distribution companies
and, 3) Establishment of independent regulatory commissions to
regulate these utilities. Soon afterwards, several other states such as
31
Andhra Pradesh, Haryana, Uttar Pradesh and Rajasthan also embarked
on similar reforms and also availed loans from multilateral development
banks such as WB and Asian Development bank, etc. Meanwhile, some
moderate steps were taken towards reforms until the Electricity Bill 2003
was approved by Parliament in May 2003. This unifed central legislation
passed after 10 drafts. The Bill now replaces pervious three acts on
electricity of 1910, 1948 and 1998 (with their amendments).
2.10 THE ELECTRICITY ACT 2003:
The conceptual framework underlying this new legislation is that
the electricity sector must be opened for competition. The Act moves
towards creating a market based regime in the power sector. The Act also
seeks to consolidate, update and rationalize laws related to generation,
transmission, distribution, trading and use of power. It focuses on:
Creating competition in the industry
Protecting consumer interest
Ensuring supply of electricity to all area
Rationalizing tarif
Lowering the cross-subsidization level
32
2.11 SUPPLY AND DEMAND IMBALANCES
The pre 1999-generation level of about 1,500MW was much below
the estimated demand of 4,500MW. There was about 2,400MW of self-
generation in the form of small diesel and petrol generating sets. The
Federal and State governments have vigorous policies of connecting
local government headquarters and other towns and villages to the
National Grid. This coupled with the creation of new States and Local
governments transformed additional parts of the so-called rural areas
into load centers, thus adding pressure to the already overloaded
electricity supply system. The estimated percentage of Nigerians having
access to electricity from NEPA is only 36%. The forecasted load for the
year 2001 is 4,833.7MW. In order to meet this demand, a generating
capacity of about 6000MW is required. Furthermore, the estimated
demand for power in 2005 and 2010 are respectively 9780MW and
20,000MW. These will require generating capacities of 12,700MW and
25,000MW by the respective years. Thus it is necessary to fully
rehabilitate the existing power stations (which will provide a maximum
of 5400MW generating capacity) rehabilitate some critical transmission
33
and distribution lines and their associated substations and add new
generating, transmission and distribution capacity to the grid, in the
immediate and foreseeable future. Overview of the Power Sector, Ofcial
Website of Nigeria Bureau of Public Enterprise, www.bpeng.org
34
CHAPTER THREE
3.0RESTRUCTURING OF THE ESI: POLICY AND STATUS
3.1NEEDS AND REASONS FOR RESTRUCTURING
The business of power supply is a very capital-intensive enterprise.
The Obasanjo administration wanted to direct its scarce resources to
attack poverty through investment in health, education and rural
development that will beneft millions of Nigerians, not just a few
thousand urban elite that are employed by, or capture the subsidies
granted to the public enterprises. From the preceding it is evident that
the government cannot fund the needed development of the ESI as
outlined above. Reformation of the ESI was a proposed as a way out of
the above quagmire. Reform of the ESI is expected to achieve the
following. Anurag K. Srivastava, Service to Commodity: Which Way to
Follow in the Context of Indian Power Sector, Research Paper for ECE
650 at Illinois Institute of technology, 2002.
(i) Attract and encourage private sector participation
(ii) Attract capital to fund the sector and
35
(iii) Ensure a level playing ground for all investors.
3.2POWER SECTOR REFORM PROGRAM
There was a regime change from oppressive and dictatorial
military regime to a democratic government in 1999. The new
government made it a source of priority to overhaul the ailing power
sector. The administration chose privatization as a cardinal economic
program to address the problems of the power sector. The National
Council on Privatization (NCP) empowered a 23 member Electric Power
Sector Reform Implementation Committee (EPIC) to develop
recommendations to promote the policy goals of total liberalization,
competition and private sector led growth of the electricity sector. EPIC
came up with a 64-page document titled National Electric Power Policy
Statement, to serve as a guideline for the restructuring and deregulation
of NEPA.
36
NATIONAL ELECTRIC POWER POLICY OBJECTIVES
Salient parts of the National Electric Power Policy are available in
this document. Overview of the Power Sector, Ofcial Website of Nigeria
Bureau of Public Enterprise, www.bpeng.org
STATUS OF THE RESTRUCTURING PROCESS
To provide the legal framework for the restructuring of ESI, the
Electric Power Sector Reform bill was signed into law on the 11
th
of
March 11 2005. The bill seeks to provide for the formation of successor
companies to take over the functions, assets, liabilities and staf of the
National Electric Power Authority, develop competitive electricity
markets; establish the Nigerian Electricity Regulatory Commission;
provide for the licensing and regulation of the generation, transmission,
distribution and supply of electricity; enforce such matters as
performance standards, consumer rights and obligation; provide for the
determination of tarifs; and to provide for matters connected with or
incidental to the foregoing. O.A Komolafe, M.O Omoigui, A. Momoh,
37
Reliability Investigation of the Nigerian Electric Power Authority
Transmission Network in a Deregulated Environment, 2003 IEEE.
An Initial Holding Company (IHC) has been incorporated as
provided for in the act. The name of the IHC is Power Holding Company
of Nigeria (PHCN) Plc and it was incorporated on 31 May 2005. The
Power Holding Company of Nigeria (PHCN) PLC has taken over all
NEPA assets and liabilities.
PHCN has 18 successors companies from the old NEPA. NEPA
was divided into its generation plants, transmission operations and
distribution centers. The successors companies consist of 6-generation
companies (GENCO), 1 transmission company (TRANSYCO) and 11
distribution companies (DISCO). The GENCO companies are:
Egbin Electric Power Business Unit (EEPBU) - located in Egbin, Lagos
Niger Hydro Power Business Unit (NHPBU)- This comprises of Kainji
hydro Power station and Jebba Hydro Power Station.
Shiroro Hydro Power Business Unit (SHPBU) - Located in Shiroro
Delta Electric Power Business Unit (DEPBU) - Located at Ughelli.
38
Sapele Electric Power Business Unit (SEPBU) - Located at Sapele
AFAM Electric Power Business Unit (AEPBU) - Located at Afam,
Rivers State.
The DISCO companies are:
Abuja Distribution Business Unit (ADBU)
Benin Distribution Business Unit (BDBU)
Eko Distribution Business Unit (EkDBU)
Enugu Distribution Business Unit (EnDBU)
Ibadan Distribution Business Unit (IbDBU)
Ikeja Distribution Business Unit (IkDBU)
Jos Distribution Business Unit (JDBU)
Kaduna Distribution Business Unit (KdDBU)
Kano Distribution Business Unit (KnDBU)
Port Harcourt Distribution Business Unit (PDBU)
Yola Distribution Business Unit (YDBU)
39
The single TRANSYSCO, Tran Sysco New Business Unit, TNBU will
be responsible for the erstwhile Transmission Sector and System
Operations Sector of National Electric Power Authority.
3.5 NEW POWER STATION
As part of the requirement to meet the increase in future demand
of electricity power, three new power plants are being added to three of
the GENCO companies: a 335 MW power plant is being built at Egbin
(EEPBU); a 414MW power plant is being built at Shiroro (SHPBU); and a
335 MW power is being built at Sapele (SEPBU). The total added
generation would be 1084MW.
3.6IPP INITIATIVES
PHCN in particular, the Generation Sector is undertaking some
reform measures in line with the global trend of independent power
producers (IPP) participation in electricity industry. The reforms include
Disinvestments, Unbundling and Power Purchase Agreements (PPA). A
number of power purchase agreements are have been implemented by
IPPs. The frst of such to be executed is the 270MW power purchase
40
agreement with ENRON/AES at Egbin in Lagos state. It sells the
270MW power to PHCN grid for onward use to end consumers. Such
other schemes are being implemented in some part of the country.
3.7BILLING COLLECTION
The amount of money paid for electric consumption has
improved tremendously from the pre 1999 era. Money remitted for
electricity has been increasing since 2002. In 2003
57,010,038,577.76Naira was collected from customers and in 2004 71,
056,937, 231.60Naira was remitted by consumers. This is an increase of
24.64% in one year. Background Information, Ofcial website of Power
Holding Company of Nigeria, http://www.nepanigeria.org
/background.html
The increase is a result of involving private sector in the bill
collection scheme.
3.8STRUCTURE OF DEREGULATED INDUSTRY
Figure 3.0 shows the typical structure of a deregulated electricity
system with links of information and money fow between various
41
players.
FIGURE 3.0
The confguration shown in the fgure is not a universal one. There
exist variations across countries and systems.
A system operator is appointed for the whole system and it is
entrusted with the responsibility of keeping the system in balance, i.e. to
ensure that the production and imports continuously match
consumption and exports. Naturally, it was not required to be an
independent authority without involvement in the market competition
nor could it own generation facilities for business. This system operator
42
is known as Independent System Operator (ISO).
Referring to fgure 3.0, there is no change as compared to fgure 1.0
so long as energy fow is concerned. Customer does its transactions
through a retailer or transacts directly with a generating company,
depending on the type of a model.
Diferent power sellers will deliver their product to their customers
(via retailers), over a common set of T & D wires, operated by the
independent system operator (ISO). The generators, T & D utility and
retailers communicate ISO. Mostly, customer communicates with the
retailer, demanding energy. The retailer contacts the generating company
and purchases the power from it and makes it transferred to its
customers place via regulated T & D lines. The ISO is the one
responsible for keeping track of various transactions taking place
between various entities.
In the regulated environment, the electricity bill consisted of a
single amount to be paid towards the generation, transmission and all
other costs. But, in the restructured environment, the electricity price
gets segregated into the following:
43
1. Price of electrical energy
2. Price of energy delivery (wheeling charges)
3. Price of other services such as frequency regulation and voltage
control, which are priced separately and charged independently
but may or may not be visible in the electricity bills.
3.9DIFFERENT ENTITIES IN DEREGULATED ENVIRONMENT
The introduction of deregulation has brought several new entities
in the electricity market place, while on the other hand redefning the
scope of activities of many of the existing players. Variations exist across
market structures over how each entity is particularly defned and over
what role it plays in the system. However, on a broad level, the following
entities can be identifed as shown in the fgure 3.1.
44
FIGURE 3.1
1. Genco (Generating Company): Genco is an owner-operator of one or
more generators that runs them and bids the power into the competitive
marketplace. Genco sells energy at its sites in the same manner that a
coal mining company might sell coal in bulk at its mine.
2. Transco (Transmission Company): Transco moves power in bulk
quantities from where it is produced to where it is delivered. The
Transco owns and maintains the transmission facilities, and may
perform many of the management and engineering functions required to
ensure the system can continue to do its job. In most deregulated
industry structures, the Transco owns and maintains the transmission
lines under monopoly franchise, but does not operate them. That is done
by Independent System Operator (ISO). The Transco is paid for the use
of its lines.
3. Disco (Distribution Company): It is the monopoly franchise owner-
operator of the local power delivery system, which delivers power
to individual businesses and homeowners. In some places, the local
distribution function is combined with retail function, i.e. to buy
45
wholesale electricity either through the spot market or through
direct contracts with gencos and supply electricity to the end use
customers. In many other cases, however, the disco does not sell the
power. It only owns and operates the local distribution system, and
obtains its revenues by renting space on it, or by billing for delivery of
electric power.
4. Resco (Retail Energy Service Company): It is the retailer of electric
power. Many of these will be the retail departments of the former
vertically integrated utilities. Others will be companies new to the
electric industry that believes they are good at selling services. Either
way, a resco buys power from gencos and sells it directly to the
consumers.
5. Independent System Operator (ISO): The ISO is an entity entrusted
with the responsibility of ensuring the reliability and security of the
entire system. It is an independent authority and does not participate in
the electricity market trades. It usually does not own generating
resources, except for some reserve capacity in certain cases. In order to
maintain the system security and reliability, the ISO procures various
46
services such as supply of emergency reserves, or reactive power from
other entities in the system.
6 Customers: A customer is entity, consuming electricity. In deregulated
markets, the customer has several options for buying electricity. It may
choose to buy electricity from the spot market by bidding for purchase,
or may buy directly from a genco or even from the local distribution
company.
3.10 THE COMPETITION
In a deregulated environment, two levels of competition exist,
rather, encouraged. At what can be termed as wholesale level, gencos
produce and sell bulk quantities of electric power. Power is typically sold
in bulk quantities to other companies or very large industrial customers,
through some deregulated power market mechanism. The gencos bid
their power at the marketplace so as to maximize their profts.
Locally, retail delivery is accomplished by retailers, who compete
for the business of the consumers in the area by ofering low price, good
service and additional service features. These are the companies buying
power at the wholesale level and arranging for transport to each
47
community where they do business, so that they have power to divide
up and sell to individuals locally.
Thus, a restructured, completely competitive electric industry is a
sandwich of competition above and below a power delivery system. This
structure can be conveniently divided into wholesale and retails levels.
The important thing to note is that the power delivery i.e. transmission
and distribution remains the monopoly franchise. This is shown in
fgure 3.2.
FIGURE 3
48
CHAPTER FOUR
4.0IMPACT OF ELECTRICITY DEREGULATION
The driving force of the reform program is to improve the quality
and reliability of the electricity supply through special customer service
arrangement, the introduction of new prepayment methods which will
allow people to choose and monitor how much they wish to spend on
electricity each month.
Power industries and small businesses will also be positively impacted
through the creation of reliable and afordable electricity which will
consequently lead to economic development in the country. Although,
the power reform may lead to removal of many cross subsidies and
hence increase the price of electricity for small businesses and domestic
consumers. Stable and reliable electricity will help in the increase of
establishment of new businesses as the operational costs would be
reduced and there would be no need for individuals or organizations to
invest on costly backup systems.
49
Also, reforms in the power sector have the potential to afect the lives
in diferent ways which consequently improves the efciency and
fnancial soundness of the power sector. The reforms can attract new
investors of fll up government resources to be used in expanding access
provided there is an efective demand.
Power sector reforms will however introduce market driven private
sector participation that may encourage utilities to focus in providing
electricity to communities that are not viable and proftable.
4.1CHALLENGES AND OPPORTUNITIES
In a developing economy such as Nigeria, power sector reforms
pose great challenges not only to the government that initiated the
program but also to the entire populace who are the consumers of
energy and to the newborn Power Holding Company of Nigeria which
parades itself as a better alternative to the obsolete National Electric
Power Authority. These challenges can be broadly classifed into four;
Economic and Social, Technical, Political and Environmental.
50
4.1.1ECONOMIC AND SOCIAL
As said earlier, the primary aim of the power sector reforms by the
Federal Government is to enhance the efciency of the nations power
sector and also to make it afordable and available to consumers. In other
words, this means generating more power to the national grid and
renewing power plants and transmission lines all in a bid to ensure the
achievement of these goals.
4.1.2 POLITICAL
The political atmosphere of the country has to be conducive to help
the power sector open itself to key players within and outside the
country. This means that there is a need to create and ensure a level
playing feld for all stakeholders in the emerging power sector reforms if
the desired objectives of the reform program are to be achieved. The
IPPs therefore expect a serene political environment before they can
agree to invest their money. Majority of the IPPs would like to construct
their plants within the Niger Delta Area where the sources of energy
needed to run their plants are guaranteed. However, the present hostile
environment in the Niger Delta predicated by armed ethnic military and
51
youth restiveness will defnitely scare away intending power investors.
This brings to fore the need to sustain the nations democratic structures
with the view of ensuring government policy stability. By so doing, they
envisaged comprehensive National Energy Policy that will take care of
conservation, storage, consumption, construction and distribution and
will be sustained when it becomes operational.
4.1.3 TECHNICAL
Power cannot be generated in isolation so it is important that it is
generated with recourse to the strength of the existing transmission line
capabilities as well as how the power could be used for the overall
interest of both the PHCN and the consumers. The former emphasizes
the need for transmission line and substantial re-enforcement and
construction of additional transmission lines in order to ease evacuation
of energy especially in areas where the IPPs cluster as a result of
proximity to energy sources. The latter calls for establishment of the
Demand Side Management program by the PHCN. Demand-side
management programs usually consist of the planning, implementing,
and monitoring activities of electric utilities that are designed to
52
encourage consumers to modify their leveland pattern of electricity
usage. Instead of building new power plants to respond to increasing
customer demand, electricity producers can also endeavor to minimize
their customers demand for power by ofering special programs for
homeowners, businesses, institutions and industry. To determine the
success of such programs, the costs and benefts of DSM opportunities
should be directly compared with the costs and benefts of building new
power plants and transmission lines.
4.1.4 ENVIRONMENTAL FACTORS
The nature of the environment determines the nature of power
plant to be built in a given locality. For instance, a city which already has
cement industry and chemical industry may frown at hosting thermal
power plant because of high level of Carbon monoxide (CO) emission. In
order to guard against this scenario, the government has established an
Environmental Inspection Agency - the National Environmental
Standards and Regulations Enforcement Agency - to monitor and
regulate the extent of damage caused by pollution to the environment
and the inhabitants. Again, the IPPs may be confronted by high
53
compensation fees for economic trees, properties and right of ways in
their quest to erect a power plant in any given city. These high
compensation fees may run in millions and can invariably pose as a
deterrent to potential IPPs.
4.2OPPORTUNITIES
The previous section has enumerated the enormous challenges
involved in the government power sector reforms. Here, the
opportunities derivable from such laudable steps in terms of efciency
and reliability of services, investment opportunities, employment
opportunities, Transfer of technical manpower and encouragement of
research will be discussed.
4.3EFFICIENCY AND RELIABILITY OF SERVICE
Proper implementation of the reform program will promote
efciency and growth in the power sector. The reform will lead to
improved electricity services as it will encourage private sector
participation and investment in the electricity industry. The evidence can
be seen in the form of better telecommunication services in the country
54
brought about by the private sector participation in the provision of
Global System for Mobile Communications services.
4.4 INVESTMENT OPPORTUNITIES
The power sector reform has the ability to massively expand the
personal share ownership in Nigeria. It is believed that over 800,000
shareholders can be created after privatization of NEPA. This is a
welcome development which enables capital formation and economic
growth. It reduces the reliance of public enterprises on the government
for fnance. Unbundling of NEPA makes the successive companies to
easily raise funds through the capital market once the necessary investor
confdence has been developed; thus changing their growth and
expansion of their business outft.
4.5 EMPLOYMENT OPPORTUNITIES
The power sector reform will in the long run create a reasonable
employment opportunities to Nigerians. This is because; the companies
that are expected to participate will look for both skilled and unskilled
labour in the task of executing their businesses. It is expected that when
55
the reform is fully implemented, many graduate engineers and
technologists roaming the streets in search of unavailable jobs will fnally
heave a sigh of relief as most of them will be absorbed by the emerging
independent power producers.
4.6 IMPROVEMENT OF TECHNICAL MANPOWER
Subsidiary companies that will compete in the power sector, which
some of them must be foreign companies have to come with their
expatriate. These companies in a bid to set up their operational structure
will impact knowledge and skill in areas of demand side management,
power system protection and planning, voltage collapse and stability, co-
generation, etc to Nigerians through their foreign expatriate. This area of
technology transfer if well tapped by Nigerians will go a long way in
bridging the gap between the developed and developing nation in terms
of technology advancement.
4.7 ENCOURAGEMENT OF RESEARCH
Privatization brings about competition and allows management of
privatized companies full freedom to realize their optimum potentials.
56
In order for any company to take a lead over the other, her product must
be second to none. Such excellence in quality of product could only be
achieved through research. With the emerging power sector reform,
other sources of renewable energy such as wind, solar and biomass are
expected to be explored. For instance in UK, prior to privatization of
electric sector, coal and gas turbines were widely used. With
privatization, research was conducted in combined heat and power
plants. With the eventual success in the research, generation companies
rose from 10 to 32 while supply companies rose from 16 to 34 in 1990
because of new innovations in the feld. Defnitely, the new owners of
the privatized NEPA will embark on research, motivated by a diferent
set of imperatives as new rules, more professional standards, new
performance criteria and better training will emerge.
4.8 CONCLUSION
This chapter has highlighted the on-going Federal Government of
Nigeria Power Sector Reform Program. The challenges as well as the
opportunities inherent in such reform program have been discussed. It is
envisaged that the Power sector reform program will improve the
57
stability of electricity supply, improve cost recovery, increase the
availability of investment capital, usher in competitive energy market,
break the monopoly enjoyed by NEPA and also provide jobs for both
technical and non-technical graduates. To improve cost recovery and the
fnancial health of utility systems in developing countries, there is
increasing pressure to price electricity at its marginal cost and allow
Independent Power Producers to sell power to the grid. Several models
of regulation have also emerged through the reforms, ranging from
independent commissions that conduct a broad range of planning and
regulatory functions to bodies within government that primarily manage
generation dispatch and fx tarifs. Reforms have also afected the quality
of power in Africa through special customer service arrangements. New
prepayment methods have allowed poor people to choose and monitor
how much they wish to spend on electricity each month. The point to
therefore note in this reform is that it will boost the confdence of
intending investors which will yield the expected enhanced efciency,
quality and availability of power supply and usher in the expected
technological revolution of the country.
58


CHAPTER FIVE
5.0CONCLUSION
This paper has presented the status of the deregulation process of
the Electric Sector Industry (ESI) in Nigeria is presented in Nigeria. It
started by presenting the global overview of the deregulation exercise in
pioneering countries. The general reasons why countries opt for
deregulation were presented.
The state of the ESI, pre 1999, under the control of the state owned
National Electric Power Authority (NEPA) was presented. It was noted
that like most state-owned enterprises, NEPA sufered from severe under
funding and under-capitalization, inappropriate capital structure,
59
excessive executive interference, and sub-optimality and decision-
making.
The motivation and rationale for restructuring the ESI were
discussed and the short, medium and long-term goals of the
deregulation process were presented. Also presented are the law and act
enacted by the Nigerian Government to aid in the deregulation cum
privatization exercise.
Suggestions that might be benefcial to the ongoing privatization
process were given in the paper. The paper suggested that proper due
diligence should be taken in the adoption of a market structure for the
ESI. BOT, BOO, BOT_ITP are recommended as ways to get private
funding for building of generators and transmission. Review of electric
tarif was suggested as being paramount to the privatization exercise and
a proactive step was advocated for the prevention of power equipment
vandalism and theft.
An institute named Nigeria Electric Power Training and Research
Institute (NEPTRI) is proposes to serve as meeting point for Power
60
engineers, technicians, scientists and students to work together on
coming up with solutions pertaining to Nigeria ESI problems.
5.1RECOMMENDATION
From the preceding it can be concluded that the Electric Power
Sector Reform Bill as addressed most of the issues pertaining to
privatization of state owned power companies.
However some recommendations are provided in this subsection
that might beneft and aid the privatization exercise.
5.1.1Build, Operate and Transfer Schemes.
In the reform bill, the existing generators are to be contracted
through a Rehabilitate, Operate and Transfer (ROT) schemes. This is a
very good idea, because it puts the generators in private hands that have
experience and the technical know how to operate the generator. The
same principle should be applied for generators being built under Build
Operate and Transfer scheme (BOT). BOT is a form of project fnancing,
wherein a private entity receives a franchise from the public sector to
fnance, design, construct, and operate a facility for a specifed period,
61
after which ownership is transferred back to the public sector. During
the time that the project proponent operates the facility, it is allowed to
charge facility users appropriate tolls, fees, rentals, and charges stated in
their contract to enable the project proponent to recover its investment,
and operating and maintenance expenses in the project.
The BOT scheme will provide the funds needed to build new
generation plants and will save the government from investing in the
project. The private entities that build also beneft because they are
allowed to recover their investment cost and make some proft before
transferring the business back to government. However after
restructuring to a competitive market, the ownership of some generation
plants may be transformed to private ownership and become new IPPs
or new GENCOs.
5.1.2 BUILD OPERATE AND OWN SCHEME
A Build Operate and Own (BOO) schemes can also be
implemented. BOO schemes are similar to BOT but the private entity
owns the power plant forever. The BOO generation can be converted to
GENCOs or IPPs after restructing depending on the capacity. BOO
62
options will attract private developers faster than the BOT scheme,
because they will not be required to transfer their investments to some
else in the near future.
5.1.3TRANSMISSION
A crucial element in ESI restructuring is the confguration of the
transmission entity. Since the Transysco New Business Unit TNBU is
going to have a natural monopoly, it needs to be regulated to ensure
impartial and efcient use of the assets by providing non-discriminatory
access to promote fair competition among GENCOs and DISCOs. A
regulatory body should be formed to monitor the activites of the TNBU.
GENCOs and DISCOs should be involved in the activities of the
regulatory body. They should representatives to represent and monitor
their interests in this regulatory body.
The transmission facilities should be expanded along with load
growth. The amount of expansion needed can be determined by
adequate planning, via load growth forecast. Also Flexible AC
Transmission devices can also be used to increase the available power
fow on transmission lines. If TNBU is short of funds for expansion, it
63
can enter into an agreement with an Independent Transmission Project
IPP facilitator. This will be in form of Build Operate and Transfer BOT.
The investor will be the owner of the lines until the agreed time for
transfer to TNBU. The IPP-BOT will provide a way of attracting private
investors who will be guaranteed return on their investment, while
TNBU gets the control and ownership of the line after the scheduled
time.
64
5.1.4TARIFF REGULATION
A long-term electricity market structure needs to be established in
which multiple operators provide services on a competitive basis to the
broadest range of customers. Under such a regime, competitive market
forces would be the best determinant of the appropriate and sustainable
levels of prices charged by various carriers for their services.
Currently, Nigerian power prices to retail consumers are very low
on the average; and seriously unbalanced. In addition, much electricity
is unbilled and collection rates are low so that only 40-45% of revenues
corresponding to these artifcially low prices is actually received. For the
restructuring process to work in the short and long term, changes must
be made to tarif to refect the cost of operation. NERC should establish
tarif regulation rules for dominant operators providing basic and
essential services to the public and to other, non-dominant operators. In
this regard, the Commission should determine appropriate defnitions
and criteria for identifying an operators dominance in a service market,
and the essential nature of the services provided.
65
NERC should establish a price limit during the transition period,
so that dominant operators in the ESI during the period will not practice
price discrimination. After deregulation, market forces should be
allowed to determine the price of electricity. Electricity service tarifs
should in all cases be cost-oriented, refecting the actual cost required by
operators to provide the services in question, including a reasonable rate
of return on capital; Tarif setting rules must be transparent to both
operators and their customers, with stable, predictable, and
understandable standards for current prices and for changes to those
prices over time; Electricity service tarifs should generate sufcient
revenues for regulated operators to compensate for their investments,
while also seeking to be as afordable as possible to the broadest rang of
potential service customers; distribution zones that cannot be expected
to be viable under sound business practices.
5.1.5MARKET
It should be noted that number of developing countries are on a
fast-paced plan to implement restructuring, despite the fact that the
benefts from restructuring are yet to prove themselves in the more
66
developed countries such as the United States, Western Europe, and
Australia. National Electric Power Policy, Adopted by the Electric Power
Sector Reform Implementation Committee and Approved by the
National Council on Privatization, Nigerian government document,
2001.
There is a also tendency for developing countries to adopt the
structures implemented in the pioneering western countries were
without a critical appraisal of their suitability in the local context. H.
Rudnick, J. Zolezzi, Electric sector deregulation and restructuring in
Latin America: Lessons to be Learnt and possible ways forward , IEE
proceedings on generation, transmission and distribution, Vol. 148, No.
2, March 2001, pp. 180-183.
Selecting an appropriate market structure for the Nigeria ESI is of
crucial importance to realize the benefts of deregulation. A wrong
market structure might produce an adverse efect on the ESI sector. The
following recommendations are suggested based on the situation of the
Nigeria ESI.
67
1.Since Nigeria is expected to have double-digit growth rates, the ESI
requires a market, which will provide an attractive investment
environment and encourages new investments in the generation
sector.
2.The market should be designed to refect the electric power situation
in Nigeria and the market should not be adopted from another
countries market.
3.A complex market structure should be avoided and simple market
structure should be implemented.
4.The day ahead and hour ahead real time market structures should be
avoided in Nigeria for now. The current control center at Oshogbo
cannot handle the frequent changes in generation supply required by
these market models. Weekly or Monthly markets should be adopted
initial. When the generation level increases enough to supply the
total demand and the transmission capacity is sufcient to transmit
power to every distribution nodes, then the control center and
generators should be upgraded for Automatic Generator Control
68
(AGC) functionality. With AGC functionality the hour and day
ahead forward market can then be adopted.
5.The transmission capacity must be sufcient enough. Congestion in
the transmission must be minimized. A market mechanism for
managing transmission congestion is not recommended because of
its complexity.
6.The adopted market structure should not rely on unsupervised
negotiated procurements, closed biddings and other opaque
activities in order to avoid corruption and favouritism.
Vandalism
Vandalism and theft of power apparatus causes unnecessary
disturbances in the system. The efort to curb the activities of power
equipments should be strengthened. This will save the Business units
from unnecessary costs of replacing stolen equipments and apparatus. A
committee should be formed to study the modus operandi of the
vandals and give necessary recommendations to counter their
illegitimate action. Vandals and thief caught should be dealt with
69
severely. Pictures of caught criminals should be displayed on billboards
across the nation to serve as deterrent to other potential power vandals.
It is a well-known fact that some of the stolen power equipments
are resold back in power equipment market. The government should
pass a law that will require all power equipments to be marked with a
unique identity and ensure the movements of power apparatus are
monitored. For instance if a power equipment is imported it should be a
given a unique identity and entered into a government registry of power
apparatus. The manufacturer, country of manufacture and other relevant
data should be stored in this registry. If the same equipment is sold, the
sale process should also be recorded. This will ensure that equipment in
service and market can be accounted for. Entities who cannot account for
the source of their equipments should be punished adequately under the
law.
Another way is to put radio frequency identifcation (RFID) tags on
power equipments. If the power equipments are disturbed the RFIDs
send signals to a local monitoring station and preventive action can be
taken immediately against the power vandals immediately.
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Research should be sponsored at Nigeria Universities to look at ways
of combating sabotage acts of the vandals and thieves.
Nigeria Electric Power Training and Research Institute (NEPTRI)
Research and Development is a very important component needed for
a viable power industry. The government should induce the formation of
a research and training institute. The institute should serve a meeting
point for power engineers, technicians, scientists and students to work
together on coming up with solutions pertaining to Nigeria ESI
problems. This institute can be called Nigeria Electric Power Training
and Research Institute (NEPTRI). NEPTRI should be implemented as
follows:
1. It should be multi-located at all tertiary institutions with
department of electrical engineering.
2.The government and key ESI companies should fund power research
at this institutions
3.Each of the institutions should focus on research in particular area
that will be benefcial to the Nigeria ESI.
71
4.Research should be carried with active involvement and participation
of ESI companies engineers and technician.
5.ESI companies should send some of their stafs to assist in research
work at the institutions on regular basis
6.ESI companies should also serve as NEPTRI facilities themselves
NEPRTI should perform the following functions:
1.Carry out research and development in power systems improvement:
a. Power Quality Research
b. Power Management Research
c. Power System Stability Research
d. Power System Control Research
e. Testing of equipments for ESI companies
f. Development of industrial standards for NERC.
2.Continuous training and updating the knowledge of personnel in the
ESI.
3.Educating and training future Nigeria power engineers by
introducing relevant power courses into school curriculum.
72
4.Production of software for the ESI sectors
5.Development of hardware for ESI companies use.
6.International collaboration with other research institutions.
73
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