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Power Sector Reforms: Lesson for Nigeria from Vietnam

Power & Energy	3993 VIEWS
Power & Energy
3993 VIEWS

Thursday, August 02, 2018 /09:50AM / FDC

The Vision 20:2020 economic plan was launched in 2009 to drive Nigeria towards be-coming one of the top 20 economies in the world by the year 2020. This plan had several goals including the generation, transmission and distribution of 35,000MW of electricity by the year 2020. Although power generation capacity has increased significantly from a paltry 3,500MW in 2008 to 7,500MW as at May 2018, it is insufficient for a country the size of Nigeria.

Normally, electricity generation capacity should correlate with the population of a country. For instance in 2016, South Africa generated 40,000MW for 50 million people, Brazil generated 100,000MW for 207 mil-lion people and the United States generated 700,000MW for 320 million people.

Eleven years have passed since the Vision 2020 plan was birthed and there is already a massive shortfall between the planned and actual. The plan was to achieve 16,000MW by 2013 but Nigeria is still struggling to generate on-grid power output of 4,500MW mid-way through 2018. The dependence on thermal generation and inability of the government to ensure gas supply has kept the country behind some of its peers.

For instance, gas constraints have averaged 1,800MW in the last three months, 47% of total output. The tepid progress in increasing power generation in Nigeria is not new. Preceding Vision 2020 was the Electric Power Sector Reform Act of 2005 (EPSR), which was the foundation for power sector improvements. However, no major improvements. This is very disconcerting considering that the contents of Nigeria’s reforms are similar to those in some other countries. So why has there not been a surge in Nigeria’s power generation?

Case Study of Vietnam

Vietnam has a population of about 90million representing almost half of Nigeria’s population. Similarly, Vietnam’s GDP of $123.6bn is paltry when compared to Nigeria’s $405.1bn. As a member of the Next Eleven Economies (countries with high potential to become the world’s largest economies in the 21st century along with the BRICS) which also includes Nigeria, Vietnam recognized the need for power improvements to sup-port its growth over the years. As a result, the country embarked on power reforms which started in 2005 when a new electricity law came into effect.

Through the establishment of the new electricity laws, Vietnam aimed to:

1. Expand and improve the power system (resource development) through the development of com-petition

2. Enhance the transmission lines

3. Reduce transmission and distribution losses

4. The Vietnamese government created competition in the power sector which drove the expansion and improvement by:

5. Investment by the state-owned Vietnamese Electricity

6. Generation and distribution companies became different units under a holding company (similar to the Power Holding Company of Nigeria)

7. Build-Operate-Transfer (BOT) by granting concessions for construction and development

8. Independent Power Projects (IPP) through the participation of private capital

Vietnam’s installed generation capacity was able to grow from 11,578MW in 2005 to 24,500MW in 2016 with transmission and distribution losses reducing by an annual average of 0.6% in the same period. However, the generation capacity in Nigeria, which can be grouped with these countries, has basically remained flat throughout this same period.

Lessons for Nigeria

There is a lesson for Nigeria to learn from Vietnam’s power sector progress. Just like Vietnam, Nigeria’s power sector reforms involved changing the structure of the sector to separate generation, distribution and transmission units. Vietnam was able to effectively create competition in the sector while Nigeria has not succeeded in achieving this so far. The defining and key factors which made the difference in the two countries over the past years are reduced corruption in the sector better management.

The government of Vietnam was able to show better management of the power sector which attracted the needed investments into the sector. Even though Vietnam has a notorious reputation for endemic graft, the government was able to stem this corruption to allow progress in the power sector.

Corruption and poor management have been high-lighted as the cause of the poor state of Nigeria’s power over the years. The privatization of the generation and distribution companies in 2013 has been stalled due to these same factors. Effectively removing these factors from the sector will hasten the reforms and attract the needed investments that would create competition, diversify the generation mix from thermal and hydro generation and aid in the development of the human capital needed to support the reforms.

Notable developments in the power sector

Multilateral organizations raise $1.57bn to expand Nigeria’s power grid Multilateral organizations such as the World Bank and African Development Bank (AfDB) have raised $1.57bn for the Transmission Company of Nigeria (TCN) to expand Nigeria’s electricity grid to 20,000MW by 2023. The funds were raised to implement the TCN’s Trans-mission Rehabilitation and Expansion Programme (TREP). An increase in power output would support growth in the manufacturing sector and boost aggregate output.