Power Sector Emergency – Is Demand Management Stupid?

No Comments » July 13th, 2008 posted by // Categories: Energy Development Project


Power Sector Emergency – Is Demand Management Stupid?


It is now beyond all reasonable doubts that President Umaru Musa Yar’Adua (UMYA) is set to make the long awaited state of emergency declaration on power supply this July, 2008. He made this information public while on an official visit to Paris, France not long ago.?

As of today, the two Presidential Committees he earlier established to further study and advice on the parlous state of the power sector have submitted their respective reports (containing their findings and recommendations) to Mr. President.


The two Presidential Committees were respectively led by Dr. Rilwanu Lukman (a permanent feature in Nigeria’s and world energy scene) and Hon Minister of State for Energy (Power) Hajiya Fatima Balaraba Ibrahim, which included private sector heavy weights such as (Dr.) Aliko Dangote, (Dr.) Atedo Petersideand others (some of the leading Stars of Nigeria’s modern day Corporate Nigeria Oligarchs/founding fathers “Transcorp” fraternity). ?


In addition to these two Special Presidential Committees on Power Sector Reform, the House of Representatives Committee on Power and Steel has completed its investigation/probe on the state of power sector capital investments that took place during the period: 1999-2007 (i.e. Former President Olusegun Obasanjo’s two terms in office).


So far, the House Committee’s preliminary findings made known to the general public indicate that no less than US$13 billion have thus far been expended out of the appropriated budgetary provision of US16 billion for revamping the power sector during the period under review. Its final report of findings and recommendations may also be useful to the President in making decisions regarding the much awaited power sector emergency declaration.


Hence, it is now public knowledge that Mr President now knows the exact figures needed for the resuscitation, revival and expansion of the power sector in the short, medium and long terms up to year 2020.


For example, the reports of the various committees that looked into the parlous state of the power sector have come up with the following startling figures as the capital investment sums needed to move the country from the present under 1,500Mega Watts (MW) of available power supply to 20,000MW of generation capacity by 2020. The arithmetic is as follows:

1.) US$5.37 billion would be needed to stabilise power generation, distribution and transmission under power emergency declaration between now and 2009.


The expected result from this huge capital investment is 6,000MW of generation capacity; this involves revamp of existing decaying power plants scattered all over the country and completion of the on-going controversial corrupt ridden National Integrated Power Plants (NIPPs) and expansion of distribution and transmission networks facilities, among others.


These amounts of money are additional to the $13.5bn already expended by the previous administration of former President Olusegun Obasanjo (1999-2007), albeit without any thing to show for it apart from darkness that has since engulfed the nation.


2.) Furthermore, according to the Dr. Lukman-led Presidential Committee’s report, a whooping sum of US$85 billion are required in capital investments spending to guarantee generation of 20,000MW by 2020 from the present parlous state of under 3,000MW. The breakdown of this arithmetic is as follows:


a.) A total of $3.5 billion (about N411.1billion) is needed to optimise, stabilise and maintain the existing systems from the current less than 3000MW output capacity to 6000MW under the short-term plan which would last for the next 18 months (i.e. from now to December 2009);


b.) For the medium term (i.e., December 2009-December 2011), the Luman’s Committee feels that something tangible must be achieved within the first term lifetime of this administration. Therefore, it recommended the sum of N434.3 billion ((US$3bn) as required capital spending to push power supply from 6000MW from December 2009 to 10,000MW by 2011.


c.) Furthermore, the report indicates that, in a nutshell, Nigeria needs $85 billion (about N10.2 trillion) to meet her 20,000MW electricity target by 2020. Therefore, over the next 12 years or so, we are looking at over US$100bn of capital investments to stabilise and expand power generation, transmission and distribution in Nigeria.


The problem with these nicely captured financial breakdowns of the capital investments required to light up Nigerian towns and cities is that none of the two major reports that produced these financial breakdowns touched on the equally very important issues of demand-side management of the power generation and consumption equation and renewable sources of power were completely ignored.


This is a very serious missing gap in Nigeria’s proposed power sector emergency revival plan and long term energy security master plan. This write-up focuses on demand-side management only. Renewable energy sources will be discussed another time. The failure to take into consideration demand-side management investment needs both during the proposed emergency period and beyond is a fatal mistake.


This avoidable mistake, (if not urgently corrected) might substantial wipe out increments of power generation capacity achieved after spending these huge sums of money assuming all the assumptions and permutations are right.?


One possible explanation for the failure to incorporate demand-side management in these reports could be because of the sensitive nature of some of the demand-side management requirements. One of these requirements is appropriate pricing of electricity consumption to reflect its market scarcity value. Therefore, these reports abdicated their duty and responsibility to make appropriate recommendations on this issue. In other words, they decided not to get involved with such a highly sensitive issue.


It is true that Mr. President did stated that he will not approve of any upward review of electricity tariffs without commensurate and appreciable supply of electricity to the Nigerian (and foreign) electricity consumers. To that extent, President Yar’Adua endorsed a three-year power sector tariff freeze up to 2009.


However, on July 1, 2008, the Nigerian Electricity Regulatory Commission (NERC) unveiled its newly conceived Multi-Year Tariff Order (MYTO) designed for the period July 1, 2008 to June 30, 2013 [for details, please visit: http://www.nercng.org/Portals/_Rainbow/Documents/Draft%20Tariff%20Order%2012%20June%2008_revised%20by%20IT_.pdf]


Under the unveiled MYTO, a new electricity tariff rates regime came into effect on July 1, 2008. However, although new tariff rates implementation came into effect on July 1, 2008, electricity consumers would not pay the new upward reviewed tariff rates – the federal government pays the difference between the old and new rates under a special subsidy arrangement named: Power Consumer Assistance Fund.


Accordingly, the Federal Executive Council (FEC) endorsed a subsidy window to the tune of N178 billion per annum for the next three years under the operation of the Power Consumer Assistance Fund being managed by the Nigerian Electricity Regulatory Commission (NERC).


Furthermore, according to the Chairman/Chief Executive Officer of the Nigerian Electricity Regulatory Commission (NERC), Dr. Ransome Owan, the Fund is planned to further assist in ensuring that after the three years of subsidy, power will still be available to low income earners and disabled persons at a subsidized rate.


All these government policies seem to favourably tilt more on supply-side and ignoring demand-side management aspects of power supply reliability and security equation. However, economics does not work in this way. There must be a balance and or equilibrium between supply and demand otherwise, if the equation is dangerously lopsided in favour of one side of the equation, the centre cannot hold; we will soon end up in another ugly cycle of supply deficit/trap.


Therefore, to avoid this avoidable supply entrapment and misalignment again, the Nigerian authorities need to review their game plan and make the necessary corrections in order to pursue the path of efficient and sustainable power generation, distribution and transmission and consumption in the short, medium and long terms by addressing demand-side management issues. The long awaited power sector emergency will be incomplete; inefficient and unsustainable without demand-side management investment portfolio component.


Another reason why demand-side management is very crucial under the current Nigerian parlous electricity supply situation is the much reported plan by the government to concession/privatize all the power plants sooner or later.


Under this new arrangement being packaged for both the old and new power plants (i.e., new the National Integrated Power Projects – NIPPs), the plan will restrict government’s role to regulation and creation of the enabling environment for private firms to generate, transmit, distribute and price electricity (e.g., as Independent Power Producers – IPP). The plan is therefore hinged upon the much talked about and worshiped Public Private Partnership (PPP) as panacea to all the nation’s ills.


This brings to fore a seeming confusion that is yet to be addressed by the government. That confusion comes directly from the submissions of the two Presidential Committees mentioned above. While the Rilwanu Lukman’s led Committee is against immediate concession/privatization of the old and new power plants (at least until power supply security is sufficiently achieved and sustained), the Other Committee, studded with corporate moguls and oligarchs as members, favours immediate privatization of all the power plants and distribution infrastructure. Government needs to take a stand on this issue soonest.


It is therefore imperative for President UMYA’s power emergency agenda to incorporate sufficient public investment outlay for concerted efforts in public enlightenments, consumer awareness consultations and assistance programmes towards demand-side management best practices. This is in order to sustain efficiently, the huge investments being made the in supply-side equation as efficiently as possible.


Other non-tariff related demand-side management strategies or energy efficiency house-keeping measures include helping consumers to be more energy efficient conscious; particularly in the choice of appliances that use electricity. For example, electricity utility companies in Europe are going the extra-mile of subsidizing consumers; in purchasing energy efficient electric light bulbs.


For instance, according to the Scottish Hydro Electric power company (www.hydro.co.uk), energy efficient bulbs last up to 10 times longer compared to incandescent bulbs and can save consumer up to ?4.50 a year for every bulb. The company issues two energy efficient light bulbs FREE to all its millions of customers by way of incentive to be energy efficient consumers.


There are also incentives to consumers to use energy efficient fridges, washing machines, dishwashers and building insulation, among others. This type of subsidy investment works in favour of both the consumer and the electricity utility company. Both parties make great savings from energy efficiency in the short and long terms.


In conclusion therefore, President UMYA’s long awaited power emergency game plan (or Marshall Plan/Roadmap) needs to provide the needed ingredients for: maintaining the reliability of energy supplies – ensuring secure and clean energy supply; to promote competitive electricity markets; to ensure that every home and industry is accessible to adequately and affordably provided electricity as the country become increasingly dependent on modern energy for propelling its economic growth and social development. These ideals are achievable in 3 – 12 years with good leadership; political will, zero-tolerance on corruption and corrupt practices and peace and accelerated development in the troubled Niger Delta region. The nation is still waiting patiently, Mr. President.



Abubakar Atiku Nuhu-Koko

Thursday, 10 July 2008

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