Impact of restructuring and privatization on the performance of the electricity sector in Nigeria


Master's Thesis, 2015
54 Pages, Grade: 65

Excerpt

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

LIST OF GRAPHS

ABSTRACT

CHAPTER ONE INTRODUCTION
1.1 Background of the Study
1.2 Justification for the study
1.3 Project Objectives

CHAPTER TWO BACKGROUND OF PRIVATIZATION IN NIGERIA
2.1 HISTORY OF PRIVATIZATION IN NIGERIA
2.2 OVERVIEW OF ELECTRICITY SECTOR IN NIGERIA
2.3 THE PRIVATIZATION PROCESS AND SUCCESSOR COMPANIES
2.4 CHALLENGES AFTER PRIVATIZATION OF THE ELECTRICITY SECTOR

CHAPTER THREE LITERATURE REVIEW
3.1 Privatization, Economic Reforms and Performance.
3.2 Empirical Literature
3.3 Research in Nigeria

CHAPTER FOUR RESEARCH METHODOLOGY AND DATA
4.1 DATA
4.2 METHODOLOGY

CHAPTER FIVE RESULTS AND DISCUSSIONS
5.1 PRESENTATION OF RESULTS
5.2 DISCUSSION
5.3 LIMITATION OF THE STUDY

CHAPTER SIX CONCLUSION
6.1 RECOMMENDATIONS

REFERENCES

LIST OF TABLES

1 Government Investment and Subsidy to Public Enterprises in all sectors

2 List of generating/distribution utilities and new owners

3 Mean and Z-test of Performance Indicators

4 Results of Regression analyses

LIST OF FIGURES

1. Subsectors controlled by NEPA

2. Evolution of Nigeria Power Sector

LIST OF GRAPHS

1) Funding in the power sector by the Federal Government
2) Generation Capacity in different countries in the World
3) Gas prices .in power and international markets
4) GDP Per Capita to Electricity Consumption

ABSTRACT

The slow and deteriorating performance of the electricity power sector over the last few decades triggered the Federal Government of Nigeria to embark on a power sector reform program. This study examines the impact of the power sector reform (restructuring and privatization) on the performance of the electricity sector in Nigeria over the past twenty-five (25) years. Relevant electricity indicators are used to access the performance changes in three significant period; purely state-ownership, transition (restructuring and unbundling) and full privatization of the sector. The study also accesses how the effect of the economic environment, regulatory governance and political climate/effectiveness within the period contributes to the improvements in the electricity sector. The results shows that privatization is associated with improvement in the technical efficiency, access to electricity, electricity consumption per capita and an increase in electricity tariff in the sector. Furthermore, the results highlight the significant relationship between regulatory governance and a robust economy on the performance changes observed in the power industry.

CHAPTER ONE INTRODUCTION

1.1 Background of the Study

Privatization of state-owned enterprises (SOEs) has featured in several global context as an integral and key policy driver of the structural economic reform agenda in both developing and developed countries. The privatization programs which started extensively in the last few decades is widely perceived as the engine of economic growth which promotes efficiency, profitability, productivity, hinder corrupt practices and reduce government’s expenditure and borrowing. See for example Nigel and Jun(2007) and Pollit(1995).

Megginson and Netter (2001) identified some major benefits that spur governments to privatize including; to increase revenue for the country, to stimulate market competition through an open market, increase public share ownership and boost economic development. To this end, a large number of countries in all regions have been involved in privatization at one point or the other. This trend is not different in Africa. For example, over 75% of all African countries embarked on privatization between 1991 to 2001 in 2720 different transactions.( World bank WDI-Database). Annex 1 in appendix shows a detailed list of countries that implemented privatization in Africa , its share value and the overall share of the percentage of SOEs privatized.

Despite the proliferation of privatization in Africa, the results have been mixed as no African country can claim to be entirely successful in terms of economic growth and performance after embracing the privatization reform. As shown in Annex 1, Mali and Zambia which have the highest number of transactions and percentage of the overall SOE divested are considering halting the program and renationalizing the sold SOEs because there are no clear-cut benefits and the old challenges in both economies have persisted . For instance, the World Bank applauded the privatization in Zambia as the most successful in Africa (Campbell-White and Bhatia, 1998). However, there have been prevalent pressure on the government by its populace to reverse the policy because of the undesirable effects such as high unemployment, poverty, inequality and widespread corruption.

Three fundamental factors differentiates the privatization in developed countries from those in developing countries. The first factor is the effect of the level of economic development as postulated by Boubakri and Cosset (1998). Another factor is the process and choice of method employed for privatization, Megginson et al (2004), La Portal et al (1997) and Levine (1997) posited the impact of the divestment method on the performance changes. The final factor relates to the institutional and regulatory governance. This factor signifies a major determinant of successes of privatization in developed countries in comparison with the developing countries which usually have somewhat weaker institutions and governance mechanisms. The process of establishing adequate regulatory institutions in developing countries has been rather slow and cumbersome.

Quite a number of empirical studies have researched on the gains of privatization. Most of the researches have shown that privately owned firms are more productive and profitable in comparison to state-owned firms. (See for example D’Souza and Megginson, 1999; Boubakri and Cosset, 1998; Dewenter and Malatesta, 1997). However, the consequences of privatization in developing countries especially in Africa have remained controversial (Shirley and Walsh, 2001). Most of the research in Africa privatization programs are largely theoretical predictions with little knowledge on the process and outcomes of the program.

The economic gains of a privatization program do not depend entirely on ownership change. Several other significant factors including nature of market competition, role of institutions (regulation), level of development of private property rights and stock markets influence affects its performance. In their various researches, it was concluded that privatization alone may not be the critical factor that increases productivity, effective competition and regulation plays more substantial roles to its success (Martin and Parker, 1997; Megginson and Netter, 2001).

Privatization of public enterprises in Nigeria was instigated by international donor agencies as an economic reform engine that will alleviate the burden of the inefficient, unprofitable and mismanaged state-owned enterprises. Prior to this period, the Federal Government’s state-owned enterprises were the drivers of economic growth and development in all sectors. The huge revenue from the crude oil boom justified the investment in the public enterprises. Regrettably, most of the proceeds were misused by the poorly run public enterprises and resulted in huge financial losses to the country. It was obvious this wastages and excesses had become unsustainable to the budget of the nation.

Most developing countries like Nigeria have weak institutions which makes the privatization phenomenal non-beneficial to its citizen in some sectors . The World Bank’s evaluation of its performance in the electricity sector during the 1990s in promoting private sector development in developing countries concluded that it had ‘ underestimated the complexity and time required for reforms to mature and achieve lasting and equitable country sector outcomes, and obtained poor, or, at best, mixed results where reforms were weak or reversed’ (World Bank, 2003, pp. ixx). The privatization scheme in Nigeria has more political inclinations than been an economic issue. The process is usually characterized with corruption, fraudulent practices, lack of well-developed capital and money markets and weak regulatory and legal frameworks (Adogamhe,2012).

It is also important to consider privatization in relation to specific sectors and not as a blanket panacea. Whilst privatization could be very beneficial in less monopolistic sectors like telecom, manufacturing, transportation, banking and aviation. The same cannot be said for essential services sectors such as water, electricity and healthcare. Heald (1990) stated that privatization is relevant in state-owned enterprise sectors that are competitive and not in the invitation of large scale privatization which raises complex monopoly and regulatory problems as in the Nigerian electricity reform process.

The success recorded by the liberalization of the telecom sector in Nigeria was the springboard for the government’s large scale privatization of the electricity sector. According to Parker (2003), it is not clear how the results for telecom will transfer to other industrial monopolistic sectors. Stiff competition among the four major operators enhanced the gains in the Nigeria telecom sector. There was intense rivalry among the operators for price reduction and service delivery in the telecom sector . For example, in the early phase of GSM operation in the country, the major GSM operators (MTN, Econet) insisted that per second billing (PSB) was not possible and so consumers paid huge amount for calls and were exploited. However, when a new entrant, GLO entered the industry and started PSB as a competitive advantage, other operators quickly followed suit to retain their mobile subscriber base. Till date, the stated owned mobile utility, NITEL/MTEL is still not operational because of mismanagement by the private owners and subsequent attempts to re-privatize the telecom company have failed.

Unlike the telecom sector, reforming the electricity sector is a more complex process involving different infrastructures, high investment and minimum or no competition. For example, it is almost impossible for electricity consumers to switch from one service provider to another because of poor service since each private owner has local monopoly in each geographical market segment based on the national grid map. Thus, consumers are stuck to the regional (local) provider of electricity. This rescinds the much touted free market ideology proposed by the proponents of privatization.

A large number of countries have applied different reform approaches including privatization in their electricity industry to improve the sector structures, strengthen new or existing regulatory institutions and introduce liberalized markets. Jamasb et al (2004) described and distinguished between the ‘push’ and ‘pull’ factors which are the major driving forces behind most reforms in the electricity sector. According to them, the push factors include the abysmal performance of the state-owned electricity utility; low access to electricity, poor electricity generation and supply; the need to remove electricity subsidies in other to free the resources for other key sectors; inadequate funds from the government to meet maintenance and investment costs of the electricity sector with increase demand for power as a result of economic growth in other industries of the macro economy; and it provides a source of income for the government from the sale of such electricity assets.

Pull factors include the promotion of structural reforms in the electricity sector by global financial bodies and donor agencies like the World Bank and IFC through their so called lending for institutional reform programs; to replicate the successes recorded in countries such as England, Norway and Chile after implementing their electricity reform packages and the general rapid technological changes in all sub-sectors of the electricity chain (from generation to distribution).

Numerous researches have been carried out to determine the positive effects of reforms and ownership change in the electricity sector. For example, Hawdon (1996) in his assessment of the performance of privatized power sectors concluded that countries adopting privatization had a significant higher efficiency and performance in comparison to the non-privatized category. (See also Pollitt, 1995; Newbery, 1999)

The studies of the effects of ownership change on performance in developing countries have not been consistent. In short, a high number of developing economies have reversed liberalization and unbundling of their power sectors. For example, after unbundling its state utility in Egypt, the government is now making huge investment in its generating capacity because it is cheaper than the independent power producers(IPP).

Research has proven that competition and regulation are the backbone for an effective privatization program in the electricity industry. In their studies, Zhang, Parker and Kirkpatrick (2002) modeled the impact of privatizing electricity generation in developing countries between 1985-2000, using panel data from 51 economies. The study confirms that competition increases service penetration, capacity expansion and labour productivity; but the effect of privatization alone is statistically insignificant except for capacity utilization. Also, the impact of regulatory governance on electricity sector performance was analyzed by Andres et al (2008), the result shows that the existence of a regulatory agency only, irrespective of ownership contributes significantly to the performance of the sector especially in terms of access to electricity, tariff and total losses. In addition, political will, effectiveness and rule of law can affect the implementation of reform programs in the sector.

In terms of investments, private owned companies’ main goal is maximization of profits and shareholders wealth. The private sector will invest only in regions with high return on investments and will less likely expand to areas occupied by low income earners. The onus still falls on the government to invest in the national grid and expand to rural areas. World bank 2005 and 2006 reports shows that only 10% of Africa’s investment needs for infrastructure including electricity have been financed by the private sector, and neither private sector participation nor regulation makes any significant contribution to the extension of access to network services.

The government of Nigeria has continued to provide bail-out revenues for the newly privatized companies who are ordinarily supposed to sink in their funds to develop the sector in accordance with the power sector reform objectives. For example, the government and the Central Bank of Nigeria (CBN) have stated that they want to useN400 billion (USD$2.7 billion) of pension fund assets – about one-fifth of the totalN2 trillion assets of Nigerian pension funds – to ‘encourage foreign investment in the power sector’. The Central Bank’s role will likely be to "provide the comfort and the guarantees to allow the Pension Funds Administrators to release the money for viable power projects” (CBN, 2015).

1.2 Justification for the study

The significance of regular, efficient and affordable electricity to any country’s infrastructural development and industrialization cannot be overemphasized. The major bane hindering economic development and foreign direct investments in Nigeria is the power sector. The epileptic power situation has squeezed out the few manufacturers and industries that cannot compete with imported products. Ekpo(2009) referred to the Nigerian economy as a generator economy. Studies shows that the cost of power for the private investors is 6-7 times the prices paid by international competitors. Also, recent surveys shows that 81% of Nigeria citizens generate their own source of power to augment for the irregular and unstable power supply which is estimated at $9.1bn in 2012 by the Energy Commission of Nigeria.

In its quest to inject productivity in the stagnant state owned utility (Power Holding Company of Nigeria ), the Nigerian government kicked off a National Electric Power Policy in 2001, enshrined the Electric Power Sector Reform (EPSR) Act of 2005 and produced a roadmap for power sector reform. The main aim of the reform is to ensure efficient, safe, affordable power supply and attract private investment, promote competition in the electricity market.

The electricity reform was kick-started in 2005 by the unbundling of the state owned utility company, National Electric Power Authority (NEPA) into 11 distribution companies, 6 distribution companies and a transmission company all under a new holding company, Power Holding Company of Nigeria (PHCN) Plc with a long term view of sale to private investors

Despite government’s enormous investments in energy infrastructure during the reform (transition) period, the power supply remained epileptic and unreliable. Jerome (2008) estimated that the unreliable power supply from PHCN cost the government an addition US$1billon annually. In this transition period, the average electricity generated was a paltry quantity of 3.84MW for a population of over 160million and among the lowest average per capita electricity usage in the world (Punch, 2013).

Although, PHCN was still under government funding and control. However, each of the companies had different management teams to carry out operations and projects in each arm. This structure was in place till the eventual privatization of the generation and distribution companies and handling over the assets to the new successors in November 2013.

Twenty months after the privatization process, the electricity generation level of about 4,517.6MW recorded in December 2012 has declined to 2913MW as at March 2015 (NERC,2015). The private investors have introduced little or no investments, low service penetration and coverage, erratic power supply and high electricity losses which are in sharp contrast to previous set objectives of the electricity reform. Also the electricity prices paid by consumers have continued to skyrocket with large outcries from both residential and commercial consumers. A study by Kola (2008) shows the empirical evidence that privatization will significantly reduce the aggregate demand for electricity on the short-run because of increase in price of electricity.

Some pertinent questions that arise regarding the restructuring (reform) and privatization process include; the rationale behind the power sector reforms? What positive effects have the restructuring and institutional changes introduced to the Nigeria power sector? Has the privatization or shift of ownership from State-Owned Enterprises (SOEs) to Private Enterprises enhanced performance and efficiency of the Nigerian electricity sector? Is the regulatory agency effective in performing its core functions? Are there challenges hindering the performance of the new private investors?.

Undoubtedly, research on the impact of ownership change in Nigeria’s power sector is quite scanty. The few available related studies have shown a negative trend on the effect of privatization to the industry. Ezenwe (1998) called for a selective privatization of social services such as electricity/water until the economy is favorable and public interest is not in jeopardy.

Adelaja (2012) proposed that privatization is not a blanket solution for poorly performing SOEs and further stated that state-owned enterprises could be more profitable than the Nigerian capitalist private sector. There are no available empirical analyses on the operational performance of the new successor private companies or the impact of ownership change in the Nigeria electricity sector. This study intends to close this gap and serve as a springboard for further future research in the post-privatization era of the electricity industry in Nigeria.

This research project will compare and provide evidence of the performance of the power sector as a result of ownership changes in three different period. The study will give a robust (comprehensive) analysis of the electricity sector in Nigeria using key indicators that cut across the entire industry. The indicators include technical output efficiency (capacity factor & losses), coverage, electricity tariff, electricity consumption per capita. Also, the influence of regulation, economic and political environment on the performance indicators is examined. The analysis spans a long period of time from 1990 to 2015 which gives a detailed short and long run effect.

1.3 Project Objectives

The main objective of this research is to examine the effect of the electricity reform program and ownership change on the performance of the Nigeria power industry using key performance indicators . The specific objectives include;

1. To understand the rationale behind the privatization of the Electricity sector.
2. To review the process of unbundling and sale of the state owned power company (NEPA).
3. To estimate the operating performance of the new private successors (owners) vis-à-vis the previous state owned monopolistic ownership and the reform(transition) period.
4. Understand the correlation between regulation, economic and political environment on the electricity performance indicators.
5. Based on the challenges of the sector and the results of the study, proffer possible strategies to enhance the overall performance of the electricity sector in Nigeria.

The rest of the project report proceeds as follows. Chapter 2 gives an overview of privatization in Nigeria with specific emphasis on the electricity sector as well as the challenges of the industry after implementing the reform program. Chapter 3 provides a review of the relevant empirical studies on privatization, economic reforms and performance. Chapter 4 discusses the data and research methodology used to carry out this study. The results are presented and analyzed in Chapter 5. Finally, Chapter 6 concludes on the findings in the study and proffer recommendations on challenges facing the electricity sector of Nigeria.

CHAPTER TWO BACKGROUND OF PRIVATIZATION IN NIGERIA

Nigeria is located in the Western part of Africa and has thirty-six states, it became independent in 1960 and a republic in 1963. It is the most populous country in Africa and the eight in the World with an estimated average growth rate of 2.8% and a population of 170.1m in 2012 covering a land mass of 923,768sq. km. The country has the 10th largest oil reserves and 8th largest prove gas reserves in the world estimated at 37.2billion barrels and 5.1 trillion cubic meters respectively.

With regards to the economy, Nigeria has the largest economy in the continent with a GDP of $509.9billion and an average growth rate of 6.2%. Oil production and agriculture accounts for 70% of its GDP and employs about half of the population. Also, the average interest and inflation rate between 1990 to 2015 is 13-30% and 6- 10.9% (N.B.S., 2015)

Despite the enormous natural resources and positive macroeconomic performance, the country still has inadequate infrastructures and utility such as electricity, water, roads and railway which deters both foreign and local investments. This shortcomings is as a result of decades of political instability, corruption, mismanagement of its resources and general bureaucracy in government.

Annex 2 in Appendix shows the PESTEL-SWOT analysis for Nigeria, the table gives a detailed grasp of the internal and external factors that drives the economy of the country.

2.1 HISTORY OF PRIVATIZATION IN NIGERIA

After its independence in 1960, Nigeria witnessed a proliferation of state owned enterprises in all sectors of the economy. The SOEs were established as a vehicle to promote rapid socio-economic growth and development. The public enterprises which encompassed a wide spectrum of industries were seen as major instruments used to enhance the nation’s autonomy and nationalism instead of allowing market forces to determine the speed of development. Hence, the government used the SOEs as a medium to implement business policies, provide essential services and infrastructure with huge financial outlay, create employment, income redistribution and social services.

However, there has been inefficient and gross mismanagement of the resources of the country by the public enterprises. For example, it is estimated that successive governments have invested about $100 billion on public enterprises over several decades but its average rate of return is below 0.5% per annum. (Adogamhe (2012). Aside from the poor financial performance of the public enterprises, the government had to pay subsidies for their survival. Table 1 below shows the government support and investment grants to some state owned enterprises in different sectors. Furthermore, wide spread corruption , nepotism, huge budgetary deficit and lack of capacity to meet the basic social and economic well-being of its citizens spurred the government to embark on several economic reform programs such as privatization.

Table 1: Government investment and subsidy to Public Enterprises in all sectors in 2011

illustration not visible in this excerpt

(Source: Okonjo-Iweala and P. Osafo-Kwaako (2007)

The main justification for institutional and economic reform in Nigeria stem from the need to address the public enterprises inefficiency, restore fiscal balance, reduce indebtedness and more importantly the pressure by the international community on the need to divest government involvement in economic activities as one of the pre-conditions for economic assistance and providing loans to least developed countries. For example, some conditions for writing off the $30bn debt owned the Paris Club by Nigeria was to introduce some strings of privatization, tax reforms and to restructure the economy as approved by the IMF (BBC, 2006). This justification as previously mentioned is in agreement with Adam et al(1992), and Cook (1986) common view for the motivation of the privatization process in developing countries. They claim that privatization is stimulated by both internal politics (inefficiencies) and external pressures from international donor funding organizations to introduce policy reforms.

Hence, Nigeria adopted the Structural Adjustment Program (SAP) in 1986 (Nyong 1995) proposed by the World Bank and International Monetary Fund with a clear objective of pursuing privatization and deregulation, restructuring the public sector via divesture with a free market oriented approach as advocated by the Neo-liberal or neoclassical school of thought.

Privatization was formally introduced in Nigeria by the Privatization/Commercialization Act of 1988. The privatization policy was expected to focus on the following objectives;

a) Restructuring and rationalization of the public sector in order to ameliorate the preponderance of unproductive investments in all sectors;
b) Re-orient the enterprises towards a new direction of performance improvement, viability and overall efficiency;
c) Check absolute dependence of public enterprises on the government’s treasury and encourage them to patronize the capital market/
d) Ensure positive returns on investments in commercialized public enterprises
e) Initiate the process of gradual cessation of public enterprises that can be best managed by the private sector, (Source : Jerome, 2008)

At that point it time, there were about 600 public enterprise headed by the Federal Government and over 900 small public enterprises owned by the State and Local Governments. With the privatization wave across the globe, a Technical Committee on Privatization was established and mandated to privatize 111 state owned enterprises and commercialize additional 34 others. The Bureau of Public enterprises was promulgated in 1993 to repeal the 1988 Act and implement all privatization programs of the nation.

Some of the observable achievements of the privatization and reform program to the government and economy include, the reduction in the size of the public enterprises by privatization of about 149 SOEs between 1999- 2009 which generated aboutN249,497,188,000 exclusive of liabilities and transaction expenses, increase in market capitalization from $960,000,000 in 1988 to over $56,389,260,000 in 2010. An estimated 2.5billion shares was added to the capital markets from 1999 to 2007 as a result of privatization with about N35.6billion earned revenue to the Federal Government (SEC,2010). In addition, concessioning of 25 port terminals; and the state-owned monopolistic utility, Nigeria Electricity Power Authority (NEPA) was unbundled into 18 successor companies. Some of the privatized public enterprises in different sectors of the Nigeria economy are performing quite well and beyond set expectations. For example, Jerome (2008) in his case study survey of some privatized enterprises in major sectors –banking(UBA), petroleum marketing (Unipetrol) and manufacturing (Ashaka Cement) in Nigeria, observed that their profitability, operating efficiency and output productivity improved after privatization. All the companies in his studies were sold by public offering through the Nigerian capital market.

Critics against privatization in Nigeria maintain that the economic and political environment of Nigeria is not prepared for efficient implementation of privatization. They argue that the major advocates for privatization outline some pre-conditions for countries to ensure success and positive result from implementing the program. Some of the conditions include the country must be in the high or middle income group, have effective regulation of the sector and market-friendly policies and guidelines (World Bank,2003). These conditions are undeniably absent in Nigeria.

Civil societies and labour unions claim that privatization will lead to downsizing, cut in subsidies, exorbitant prices and overall exploitation of low income earners by creating large monopolistic or oligopolistic markets in sensitive sectors of the Nigeria. In addition, key political interest groups and public servants like the head of agencies and ministers try to thwart the process because they believe that privatization will reduce their influence on the budget and operations of the enterprises. This claim was buttressed by a past Director General of BPE, who stated that ” Cabinet ministers are the greatest obstacles to the Federal Government’s privatization progamm e” (BPE, 2007). Also, it is generally perceived that the bidding process and subsequent privatization is usually pervaded by fraudulent practices and corruption. For example, the Kaduna and Port Harcourt crude oil refineries which were worth over $4billon was sold for a paltry amount of $721millon to a Blue Star Oil Service Consortium in 2007 purportedly owned by Alhaji Dangote and other big business mogul (Thisday, 2012) . The sale was later annulled after wide spread outcry from the public and civil societies. Similar corrupt practices were reported in sales of several other public enterprises including Daily Times Nigeria Plc, Nigeria Telecommunication (NITEL), Nigerdock Plc, Le Meridien Hotel, just to mention few.

Furthermore, the critics allege that most of the state owned enterprises that were privatized in Nigeria perform below expectation and are later abandoned or use as collateral to obtain loans for other business ventures. For example, the Osogbo Steel Rolling Mill Company bought by a Nigeria businessman was left idle for several years and afterward used as an offloading depot for cement and other imported products. The horrific situation was made worse with revelations by the Vice President of Nigeria, Nnamdo Sambo in 2014 that eighty (80) per cent of the government enterprises that have been privatized failed to operate due to lapses in the privatization process (Vanguard, 2012).

2.2 OVERVIEW OF ELECTRICITY SECTOR IN NIGERIA

Electricity generation began in Nigeria at the end of the 19th century with the installation of the first generating power plant in Lagos. By 1950, the colonial government passed the Ordinance No. 15 of 1950 and established a unified body referred to as Electricity Corporation of Nigeria (ECN) to integrate all the government and native owned generation plants and their transmission and distribution systems. Also, the Niger Dams Authority(NDA) was set up in 1961 to manage and exploit the hydropower potentials of the country.

However, the ECN and NDA was merged in 1972 to form a single entity known as National Electric Power Authority (NEPA) mandated to develop and maintain a co-ordinated, reliable power supply in the country. NEPA was managed in a top down vertically integrated model as shown in Figure 1 below with full scale monopoly in the electricity sector as providers of generation, transmission, distribution and sales to consumers. From 1972 to 2005, NEPA controlled 94% of the generation capacity and 100% of transmission, distribution and marketing of the sector. The network coverage and generation rate grew within the period under the operation of NEPA. For instance, the number of states in the country with access to electricity increased from eight (8) in 1983 to 36 in 2003 and the energy generated rose from 8,456GWH to 22,612GWH within the stated period (Adoghe et al, 2008).

illustration not visible in this excerpt

Figure 1: Subsectors controlled by NEPA in the Nigeria Power Sector

Despite this leap, the over-centralization of the utility coupled with poor maintenance, economic mismanagement of the utility, inadequate power supply due to underinvestment and dilapidated infrastructures to meet the growing population was worrisome Graph 1 below shows the level of funding by the Federal Government for PHCN operations in the power sector from 1974 to 2003. It is reported that during the military rule (1989-1999), no new generating plan was added to the grid. For instance, Adogamhe (2012) estimated the cost of unreliable power supply to the Nigeria economy to be about US$1billon annually. According to World Bank estimates, Nigeria’s electricity consumption per capita is rated among the lowest in the World and it has a very high disparity between electricity demand and supply. For example, the electricity generating capacity in Nigeria is about 3,800megawatts(MW) for a 150million population. In comparison with a fellow African country, South Africa generates over 40,000MW for its 50million people. Graph 2 below shows estimates of different countries generating capacity in relation to its population.

illustration not visible in this excerpt

Graph 1: Funding in the Power Sector by the Federal Government

(Source: Makoju(2007) as cited by Adegbulugbe and Adenikinju (2008)

illustration not visible in this excerpt

Graph 2: Plot of the Population versus the Available Generation Capacity of different countries (Source: Roadmap for Power sector reform document)

[...]

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Title
Impact of restructuring and privatization on the performance of the electricity sector in Nigeria
College
Aston University
Grade
65
Author
Year
2015
Pages
54
Catalog Number
V353796
ISBN (eBook)
9783668401433
ISBN (Book)
9783668401440
File size
1720 KB
Language
English
Tags
impact, nigeria
Quote paper
Eshi Agbadua (Author), 2015, Impact of restructuring and privatization on the performance of the electricity sector in Nigeria, Munich, GRIN Verlag, https://www.grin.com/document/353796

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