The Crucial Structural Reform Nigeria’s Power Sector Needs, By Yusuf O. Ali
Having gone full cycle, I now appreciate the need for those who claim to be passionate about turning the Nigerian Power Sector around to channel more of their effort into formulating policies that affect the structure of the NPS instead of strategic and/or market policy reforms.
As a part of the policy research part of my PhD, I held many interviews with several leading stakeholders in the Nigerian Power Sector (NPS). Most of these interviews were routine in that a healthy share of my policy propositions were accepted, while some were rejected largely on the grounds of infeasibility.
One interview stood out from the rest. It was with a former minister of power; one of the two I interviewed.
Just before I left the room not long after he appraised the policy propositions that I had put forth, he made the following comment, “It is all fine and good for you to design these interesting policy mechanisms but have you even considered if the structure of the NPS is capable of implementing them?” His farewell remarks set me on a tangent of comparing the organisational structure of the NPS with the power sectors of other countries with the aim of identifying clear parallels that could potentially explain the historical under-performance of the NPS. On concluding this little exercise, the overwhelming feeling that overcame me was that the policy and regulatory environment of the NPS which is supposed to be its backbone, is arguably the biggest inhibitor of progress in the sector, for reasons to be further discussed below.
First, the uniqueness of Nigeria’s ministerial arrangement concerning the power sector is one that needs to be scrutinised carefully. In the review I conducted, I realised that Nigeria was the only country that had a ministry/minister of power, unlike other countries where the ministry of power (MoP) was embedded within a larger ministry – the ministry of energy (MoE). I can understand why laymen would think this difference in nomenclature is nothing more than just a variation.
In reality, the difference is significantly more substantial than that. Unlike the MoP, the MoE is concerned with overall energy policy, of which power (electricity) is just another component. In fact, electricity is only a final energy form that depends on other primary energy resources (PERs) such as coal, water and natural gas. Therefore, there is a need for full coordination across all the agencies in charge of the PERs, as well as those in charge of power planning, in order to ensure that they are able to harmonise all the policies right from PER to power generation. This is the key reason why most countries around the world have a MoE.
In the current Nigerian system, virtually all the PERs are under various ministerial jurisdictions; natural gas – ministry of petroleum resources (MoPR), coal – ministry of solid minerals, hydro – ministry of water resources. In spite of their best efforts, it is clear, based on interviews with system insiders, that there is a discord between the MoP and the various PER-coordinating ministries.
About 80 percent of Nigeria’s installed generation capacity is gas-based. The MoPR is tasked with developing and implementing gas supply policies, which makes it arguably the most culpable ministry for the underperformance in the NPS. In addition to not being able to address the gas underproduction problems that have forced numerous power plants to be operationally unavailable, the MoPR has continually failed to deliver (develop and protect) the pipeline infrastructure needed to transport the available gas to the power plants. The highlight of this discord was the revelation that some of the National Integrated Power Project (NIPP) plants did not have gas pipelines connected to them, well after the plants had been completed.
…my underlying hypothesis is that one of the main reasons why Nigeria does not have a MoE is the shear political need for there to be as many ministerial portfolios as possible… there is a provision in the Nigerian constitution that has been interpreted to mean every state must have at least one minister. This means that there has to be at 36 ministerial portfolios.
The resultant under-generation has meant the generation targets specified in the contracts with the DISCOs during privatisation have not been met. In a bid to reduce the revenue shortages that have arisen as a result of this, tariffs have had to be increased. This is a logical decision because all (previously majority) of DISCOs’ revenues are based on the amount of energy they are able to sell, while these DISCOs have significant fixed labour and infrastructure costs. As such, if generation drops i.e. there is less electricity to sell, the only way to counter the ensuing revenue shortage is to increase the charge per unit of electricity sold.
Also, I am aware that regulatory disparities between the MoP and the ministry of mines and steel development (MoMSD) have made the actualisation of Nigeria’s coal to power ambitions more difficult. Companies looking to obtain credit facilities to develop coal mines have historically faced difficulties because the lack of coordination between the MoP and MoMSD has meant potential investors are unable to present satisfactory market reports needed by banks to confirm that the lenders would make enough returns on the proposed coal mining investments.
Another agency that I would suggest is at the centre of the woes affecting the NPS is the Energy Commission of Nigeria (ECN). The ECN was set up as Nigeria’s energy policy strategist in 1988. In this capacity, the agency is expected to be responsible for forecasting the demand of various energy products, as well developing policies for their supply. As a result of bureaucratic breakdowns with the various stakeholders, politicisation and internal shortcomings (depending on who you speak to), the ECN has been unable to perform its mandated duties. This has been especially costly for the power sector because a lack of accurate forward-looking demand projections has made the planning of supply policies (capacity and ancillary infrastructure additions) in the power sector impossible.
A case that perhaps best symptomises where the ECN is at the moment is the relatively recent reassignment of the agency from the presidency to the ministry of science and technology (MoST). The presence of the ECN under the presidency was questionable enough, although the choice could arguably be justified by the existence of the Presidential Taskforce on Power. However, moving the ECN to the MoST is nigh indefensible because this ministry has very little to do with ECN’s core strategic energy planning mandate.
NERC is another agency that has been crippled by the system (not necessarily the structure of the NPS). One of NERC’s primary roles is to set electricity tariffs. Tariffs are akin to the life blood of the NPS because the sector relies on income from these tariffs to survive. While I have often argued against NERC’s all too frequent tariff revisions (especially in 2015), I have always maintained that it is in the interest of Nigerians that NERC is not continually handicapped by the three arms of government – the executive, legislature and judiciary.
There are numerous instances of injunctions being sought against NERC from members of the public. While I sympathise with some of the aggravations of the public, consistent use of the court of law to prevent NERC from implementing tariffs is a net loss for Nigerians because it sends the wrong signals to potential investors in the NPS. The Senate has also intervened in NERC tariff policies on numerous occasions. Like most experts, I am not sure the Senate’s actions are anything other than cases of political opportunism because it is doubtful that the Senate is equipped with enough information to make educated decisions about the appropriateness of tariff revisions. The revision of MYTO 2.1 (that led to MYTO 2.1a which led a 50 percent reduction in the tariff of certain consumer classes) just before the 2015 elections was largely seen as a politicised decision.
Having highlighted some the main problems with the current structure, below are the changes I will propose to addressing them.
First, on the ministerial organisation issue, my underlying hypothesis is that one of the main reasons why Nigeria does not have a MoE is the shear political need for there to be as many ministerial portfolios as possible. Although, unknown to most Nigerians, there is a provision in the Nigerian constitution that has been interpreted to mean every state must have at least one minister. This means that there has to be at 36 ministerial portfolios. Without getting bogged down on the rationality of this provision, I think there is still a way for us to develop the right ministerial structure for our power and overall energy sector within this constraint.
In line with the minister’s contentions, I have come to the conclusion that “formulating new market/strategy policies for a structurally defective NPS is like expanding a bungalow which is already lying on weak foundations into a duplex without working on the foundation…”
The solution is to have a MoE that consolidates the following ministries – Power, Petroleum Resources, Water Resources, Mining & Steel Development and Solid Minerals. This consolidation cannot be by name only but rather there has to be wholesome coordination of the policies of these different “departments” to ensure that the newly formed MoE is able to formulate PER to power generation policies that are not inhibited by strategic and aspirational divergences.
In order to satisfy the constitutional provisions, the MoE could be headed by a coordinating minister while “departments” listed above are headed by supporting ministers, currently referred to as ministers of state. The ministers of state will be responsible for their respective departments, while the Minister of Energy and his office will be in charge of harmonising the works of the various departments to ensure that Nigeria is left with coherent and implementable policies for the various energy end-use activities. South Africa’s Department of Energy, Brazil’s Ministry of Mines and Energy, the Malaysian Ministry of Energy, Green Technology and Water are just a few of the countries that productively implemented the overarching energy ministry plus subordinating departments organisational structure proposed above.
The solution of what needs to be done to the ECN can also be found in Malaysia. Like Nigeria, Malaysia has its energy commission; the Energy Commission of Malaysia (popularly known as the ST) which has a similar mandate to the ECN. The ST is responsible to the minister of energy. Such an arrangement has allowed the ST (only formed in 2001) to fulfil its mandate and play an integral role in the formulation of policies affecting the Malaysian energy sector. Under the MoE, ECN will be tasked with developing and revising demand projections, as well as analysing the availability of our PERs in order to help the MoE formulate policies that guarantee sustainable supply (the optimal combination of cheapness and cleanliness) for all end-use activities.
Admittedly, NERC has not helped itself (against the issues raised above) with the secrecy surrounding the calculation of its tariffs. Especially, in the court of law, I am confident that a more transparent tariff calculation regime will help NERC reduce public opposition and prevent injunctions being issued so frequently because the transparency will increase the burden of proof on the applicants, provided that NERC does not break the law in the tariff revision process.
It is common practice that these injunctions are only sought in the last moments before tariffs are due to come into effect; a tactical ploy to frustrate their implementation. There is a need for clear guidelines regarding the jurisdiction of the courts when injunctions are being sought against the implementation of new tariffs. In addition to this, a dedicated judicial body that will be in charge of dealing with legal oppositions to the proposed tariffs in a timely manner ought to be set up. The legislature (following consultation with the judiciary and NERC) needs to stipulate the minimum time before implementation by which tariffs must be published by NERC; thereby providing a window for the conclusion of any legal challenges arising from the proposed tariff revision in a timely and undisruptive manner. More publically transparent tariff determination should also limit the opportunity for political office holders (the executive and legislature alike) to directly influence tariff revisions solely for political gain.
Having gone full cycle, I now appreciate the need for those who claim to be passionate about turning the Nigerian Power Sector around to channel more of their effort into formulating policies that affect the structure of the NPS instead of strategic and/or market policy reforms. In line with the minister’s contentions, I have come to the conclusion that “formulating new market/strategy policies for a structurally defective NPS is like expanding a bungalow which is already lying on weak foundations into a duplex without working on the foundation. At best, you will be left with the bungalow; the current market/strategy policies that you deem to be “suboptimal” or worse still, just rubble because the foundation would have collapsed under the crushing weight of the proposed policy reforms.”
Yusuf O. Ali, a doctoral candidate in the Department of Engineering, University of Cambridge, completed an MPhil in Nuclear Energy from Cambridge in 2013. He can be reached on e-mail at: firstname.lastname@example.org, and Twitter: @YalyAli