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Nigeria’s unfolding power reform programme

News & Analysis

Nigeria’s unfolding power reform programme

 

The privatisation of the sector and a successful unbundling process

The government has recorded a number of successes in its privatisation of six generation companies and 11 distribution companies, created out of a far-reaching programme to unbundle the former power behemoth, the Nigeria Electric Power Authority (NEPA), which was a specialised unit under the control of the Power Holding Company of Nigeria (PHCN) prior to the unbundling.

The privatisation process has been described as one of the most successful, transparent and ambitious privatisation programmes in the power sector on the African continent. At the Abuja conference, US Deputy Secretary Ichord described it as “the most comprehensive and most transparent privatisation transaction in recent history”. 

The transmission company created out of the unbundling process remains in government hands, but under a private management contract with the Canadian company, Manitoba Hydro International. 

The programme has seen a radical shift from a largely moribund system, stymied by bureaucratic bottlenecks, to one that is transparent and properly regulated. The privatisation programme is one of the outcomes of the Nigerian government’s power reform objectives that includes the “creation of an electricity market that is private sector driven”.

The power privatisation programme has been a well-coordinated effort, involving collaboration between the Federal Ministry of Power, the Bureau of Public Enterprise, and other government agencies. 

The government’s unbundling process led to the creation of 18 successor companies from the Power Holding Company of Nigeria (PHCN) – 11 distribution companies (DisCOs), six generation companies (GenCos) and one transmission company. From among this number each new company was designated to serve specific regional zones or markets in the country.

As part of efforts to promote private sector involvement in the power sector, the Nigerian government has signed a Memorandum of Understanding (MOU) with General Electric (GE), a world leader in power solutions.

The MoU stipulates that GE will invest up to 15% equity in power projects in the country, up to 10,000MW capacity by the year 2020. GE also proposes to establish a local packaging facility for small aero-derivative turbines in Nigeria, which will also promote job creation. A MoU has already been signed between the Nigerian government and the US EXIM Bank to provide an investment window of up to $1.5bn for investors willing to invest in the Nigerian power sector.

This is the first time such huge funding has been made available by the US EXIM Bank for a specific sector in Africa.

The government is confident that these efforts will guarantee a steady and uninterrupted power supply in the years ahead. It is also expected that the sector will witness large investments as the private investor will improve on administration and services and introduce modern equipment to boost power generation and distribution. The participation of the private sector is expected to bring about higher generation capacities through the provision of more efficient and cost-effective power stations and improvement in the electric power distribution network.

The commitments to invest in Nigeria’s power sector are unprecedented. Several firms have already made huge investments, with the help of major financial institutions, to build the infrastructure that will generate Nigeria’s much-needed capacity.

One such project is the Azura Power Plant, a gas-fired power plant in Nigeria’s southern state of Edo, with an initial generation capacity of 450MW. The plant is expected to accommodate future expansion up to 1,500MW. Yet still more investors are needed.

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