Frequently Asked Questions on Power Sector Reforms
1. Why can’t Nigerians enjoy uninterrupted power supply?
Nigerians cannot enjoy uninterrupted power supply for now because our generation, transmission and distribution capacity is far below what is required to provide uninterrupted power supply. For instance, our current daily generation is about 3,200 mw, whereas it is estimated that about 10,000 mw is required to ensure uninterrupted power supply. In addition the transmission and distribution network wheeling capacity is about 4000 mw.
2. Why can’t power be privatised as it is in telecommunication?
The process of privatising the power sector is on-going and it will be completed in 2011. We started by instituting legal and regulatory framework for the sector. First, the policy framework was approved by the Federal Executive Council in 2001 and the law was passed by the National Assembly in 2005 leading to the inauguration of NERC as the sector regulator.
3. Had government not previously privatized Nigerian Electric Power Authority (NEPA) when it changed its name to Power Holding Company of Nigeria (PHCN)?
The change of name from NEPA to PHCN did not mean that the power sector had been privatized. However, the change of name is among the many steps that have to be taken before privatisation can be implemented.
4. What method of sale would be used to privatise the successor companies of PHCN?
Various methods would be used to privatise the 18 successor companies of PHCN. The nature and condition of each company will determine the appropriate method to be used. For instance, thermal generating plants would be sold through core investor sale while hydro plants would be privatized through concession. Government will continue to own the Transmission Company of Nigeria (TCN), but a five-year management contract would be put in place for TCN Plc. Distribution companies will be privatized through core investor sale.
5. There are 11 distribution companies, six generation companies and one Transmission Company as successor companies after the unbundling of PHCN. How would these companies, especially the generation and distribution companies, function in terms of arrangements relating to the supply and distribution of electricity?
As stated above, generation and distribution companies would be privatized while transmission ownership will remain with government. The relationship between generation and distribution companies is that distribution companies will buy power from generation companies which will be wheeled to them through the transmission grid. The distribution companies will sell the power to its customers.
6. What would be the benefits to the average Nigerian when PHCN companies are privatized?
The reform and privatisation of the power sector will be of immense benefit to Nigerians. One of the key benefits is that it will bring about economic boom to Nigeria. Unemployment, which is presently very rampant, will quickly go down as people would be free to set up businesses for themselves or work in the various businesses that would spring up when we have quality and affordable electricity supply. What privatisation in the telecommunications sector has done for Nigeria is a child’s play compared to what power would do.
7. Would privatisation result in efficiency in the sector? Would power generation and supply to consumers improve?
There is no doubt that privatisation will lead to greater efficiency in the sector. Power generation and supply to consumers will definitely improve.
8. Despite epileptic power supply, why is electricity tariff high? And why does PHCN bill consumers even when there is no electricity supply?
Electricity tariff is relatively high because we are paying for the inefficiencies of PHCN. Under the reform and privatisation programme, consumers will be protected from arbitrary charges by the industry regulator known as the Nigerian Electricity Regulatory Commission (NERC).
9. Would Nigerians pay more as tariff for power when PHCN is privatised?
Nigerians will be required to pay more for better quality of power that they will receive. However, when you compare this cost with the cost of using generators and the cost of darkness, then we can say that Nigerians will actually be paying less.
10. PHCN has been unable to provide meters for all consumers for easy and accurate billing. Would the privatisation of PHCN ensure that all consumers use meters?
The new owners and operators of the distribution companies will be given a time frame within which to ensure that all customers are metered. The era of estimated bills is coming to an end.
11. When would all consumers begin to use the pre-paid metering system?
As stated above, the new operators will be given a time frame within which they will connect all customers to pre-paid meters.
12. The defunct NEPA, like most government institutions, had liabilities. Were these liabilities taken over by PHCN successor companies after the unbundling exercise?
As part of the reform program, a Special Purpose Entity (SPE) known as Nigeria Electricity Liability Management Company (NELMCO) was incorporated to assume and manage stranded liabilities of PHCN.
13. Would the new core investor(s) that would emerge after the privatisation exercise take over these liabilities?
14. Would National Electricity Liability Management Company (NELMCO) cease to exist after it addresses these liabilities?
15. How would the rural communities in Nigeria benefit from the dividends of privatizing the power sector?
A Rural Electrification Agency (REA) was created as part of the reform to address the needs of rural communities. There is also the provision of lifeline tariff for the poor.
16. How would the privatisation of PHCN companies affect the current National Integrated Power Projects (NIPP) that was instituted in 2004?
NIPP will help to ensure that while waiting for private sector investments, the power sector will continue to improve.
17. Why are state governments involved in generation and distribution of electricity?
State governments, as stakeholders in the power industry, may decide to generate and sell power to the industry.
18. What is the role of Nigerian Electricity Regulatory Commission (NERC)?
NERC is the regulator of the electric power sector. It was created to ensure that all participants in the industry play according to the rules. NERC is to power what Nigerian Communications Commission (NCC) is to telecoms.
19. Would privatisation exercise affect FG’s current plan to increase power generation plan to 6,000mw?
Privatisation will ensure that we exceed 6000 mw within a short period of time, thereby complementing FG’s efforts.