WARNING: This is Version 1 of my old archive, so Photos will NOT work and many links will NOT work. But you can find articles by searching on the Titles. There is a lot of information in this archive. Use the SEARCH BAR at the top right. Prior to December 2012; I was a pro-Christian type of Conservative. I was unaware of the mass of Jewish lies in history, especially the lies regarding WW2 and Hitler. So in here you will find pro-Jewish and pro-Israel material. I was definitely WRONG about the Boeremag and Janusz Walus. They were for real.
Original Post Date: 2010-04-19 Time: 07:00:03 Posted By: News Poster
Lagos – It is gratifying that the first part of this series elicited a very important e-mail from an old friend and colleague Lai Yahaya. Lai, who is now at the John F. Kennedy School of Government in Harvard University, once worked for the Bureau of Public Enterprises before leaving to work in the oil industry overseas, and returning more recently to consult for the Nigerian office of the UK Department of International Development (DFID). What was most revealing about the e-mail was the amount of work that had been done last year for the power ministry, but was largely ignored for reasons that remain difficult to understand.
To be honest, I had some inking of the assistance DFID was providing the ministry through its Nigerian consultants. I was also aware that some kind of plan with a January 1 2010 take off date had been formulated for the ministry by these men and women. But it never saw the light of day. It is even doubtful that it was ever brought to the attention of the presidency or Federal Executive Council for consideration and approval.
Lai last week graciously sent over some of the documents that were put together for the ministry, the most significant of which was the 10-Step Nigerian Electricity Supply Industry (NESI) Action Plan for Sector Viability. By some sheer coincidence, this 10-step plan and my suggestions for a blueprint in the first part of this article were in lockstep with each other. Admittedly, the 10-step plan was so much more detailed than my article as its drafters obviously had better access to data and are more knowledgeable about the market structure and trading arrangements that must be put in place for accelerated sector viability. Nonetheless, the fact still remains that there is workable document that provides the actions points and measures that can and must be adopted by this government if it seriously wants to address our electricity issues.
So I’ll just crave the indulgence of its authors by outlining and summarizing these ten steps and only hope that our policy makers can summon the will to implement it:
A Viable Pricing Regime
As indicated last week, no significant progress can be made in developing and attracting investment in the Nigerian electricity sector without introducing a viable pricing regime that makes it attractive for operators to invest in generation, distribution, transmission and gas infrastructure. The 10-step plan was realistic enough to recognize that more than 80 per cent of electricity in the next five years will be generated from thermal (gas) sources. This comprises existing PHCN power stations, independent power plants (such as AES, Shell and Agip) and realizable NIPP plants that are expected to be added to the grid by June 2011.
A combination of the gas and hydro powered stations will give rise to 10,000MW of electricity. But actual maximum deliverable capacity will be stuck at 6,000MW for a number of reasons: 4,000MW of available capacity will be gas constrained; even in the absence of gas constraints, it is highly unlikely that the transmission capacity will be sufficient to evacuate more than 6,000MW; and likewise, its doubtful that the distribution companies will be able to handle loads of more than 6,000MW because of aged equipment, underinvestment and under-maintenance.
To address this, it is important that the government commences the implementation of the multi-year tariff order adopting a start-off date and an end by date of say, three years. The MYTO will provide for the gradual increase in electricity tariffs which will allow for the subsidy element to be reduced until it is eliminated completely. The advantage of a graduated increase in tariffs is that consumers will not be made to pay for electricity supply that may still be epileptic.
This notwithstanding, it pays consumers to pay more for electricity from the power grid than to run their homes and business on self-generated power sources. Currently, it is estimated that the unit cost of self-generated electricity in the country is at least N45 per KWh (on a conservative estimate). To put this into perspective, therefore, Nigerians spend more than N1.1 trillion per annum on self-generated electricity.
It is estimated that the MYTO will ultimately provide for an average and levelised tariff of N21 per Kwh, while the total cost of the short lived subsidy of approximately $4.8 billion will be financed through government bonds repayable from the proceeds derivable from privatising PHCN and NIPP companies. In other words, the subsidy element does not have to be financed from the federal budget.
Implementation of the MYTO will turn a bankrupt electricity sector into a financially viable one, will enable generation companies pay market determined prices for gas which will incentivise oil companies to invest in gas infrastructure, and embolden private investors to start making large and desperately needed investments in the electricity sector. More importantly, it would make existing PHCN and NIPP companies more attractive to investors and strengthen the government’s position to attract better returns from the privatisation process.
Fast Tracked Privatisation Process
More than nine years have elapsed since the National Electric Power Policy 2000 instrument was first drafted. This instrument, which was the blueprint for the Electric Power Sector Reform Act made it clear that: “It is the intention of the government that management and ownership control in unbundled generation and distribution companies shall be transferred to private sector investors with the experience and resources in the electricity sector.”
Unless the government finally makes good on this intention, there is a serious risk that the Nigerian electricity supply industry will never be rehabilitated – even if the government introduces a viable pricing regime as outlined in step one. Accordingly, subsequent to the announcement of the MYTO, the BPE should immediately re-advertise (it did so in 2006-2007) for expressions of interest for the sale of all the generation and distribution companies.
The National Council on Privatisation, of which Acting President Goodluck Jonathan is the chairman, should set a rigid deadline for privatisation such that all transactions are completed no later than the end of 2011. During the privatisation exercise, it will also be necessary for the BPE to table a full pension buyout and severance package that will be acceptable to PHCN employees, failing which they will do everything to frustrate the process. It is estimated that the total cost of this pension buyout and severance package will not exceed $1.3 billion and can also be financed through loans repayable from the proceeds derived from privatising existing PHCN and NIPP companies.
A Simple and Effective Incentive Scheme
The 10-step plan acknowledges that at the moment individual PHCN employees have little, if any, monetary incentives to improve the operating or financial performance of their companies. Indeed in many instances, they are faced with positive disincentives. Accordingly, the plan recommends that complicated performance contracts with employees should be deferred until after the companies are privatised.
In the meantime, the provision of monetary incentives based on a single numerical indicator that is unambiguous, easily measured and hard to circumvent – will be necessary in order to turbo-charge the drive towards financial viability. These incentives should be provided to all employees but should be heavily weighted towards the senior and middle managers of the PHCN successor companies. The schemes should be in operation throughout the period during which the successor companies are being privatised, and can be predicated on the monthly cash collection figures by the distribution company which should be posted on a dedicated website and will be publicly available.
Management Contract for Transmission Company of Nigeria
The Electric Power Sector Reform Act envisaged that the unbundling of PHCN would lead to the creation of the Transmission Company of Nigeria. TCN shall be responsible for the operations and management of the transmission grid, it will operate under a centralized structure, and will continue to be owned by the federal government (the continued desirability of maintaining a centralized transmission grid will be discussed in another article).
However, the transmission system is in urgent need of rehabilitation. The current situation, as succinctly described in a 2009 Transcom report, was as follows: “At best, the transmission system in the first half of 2009 is highly constrained and unable to evacuate more than 4,000MW of capacity. The transmission system is constantly subjected to vandalism, and because much of the equipment is very old, there are frequent failures, leading to frequent power outages or reduction in load. The existing load dispatch centre and the communications system are outdated, seriously handicapping the system regulation of the load at any point in time.”
In January 2009, the existing transmission capacity was 6,848MVA (sufficient to wheel 4,000MW). According to recent projections, the total capacity that was “guaranteed” by December 2009 was just 7,140MVA. This was substantially less than the minimum capacity (8,000MVA) that was required to safely and effectively wheel 6,000MW. From all indications, large amounts of investment will be required – in a very short space of time – in order for the system to be capable of wheeling 10,000MW, let alone the kinds of loads which Nigeria hopes to be generating by 2020.
In theory, government funds already allocated to the ongoing TCN transmission projects and the NIPP transmission projects will be just sufficient to ensure that TCN can wheel 10,000MW. But the actual work involved is very considerable. Moreover, past experience suggests that there is a high likelihood that the projects will suffer serious overruns – both in terms of timing and funding. A prudent expectation would be that the federal government may need to inject another $750 million of capital expenditure into the transmission network (on top of the monies already allocated to existing TCN and NIPP transmission projects) in order ensure that the transmission network is rehabilitated and expanded to the point where it can safely and effectively wheel 10,000MW.
In light of these facts, it is essential that the management of TCN be contracted out to a private company which has the requisite project management and technical expertise to handle such a huge and complex programme of construction and rehabilitation; and can also mitigate the risk of even greater cost and time overruns. But in order to reduce the “capex burden” on the government, it should look to transfer some of the 132KV transmission lines from the balance sheet of TCN to the balance sheets of the distribution companies prior to their privatisation. This will have the added advantage of giving the distribution companies more control over their own destiny.
Meanwhile, for the duration of the three-year MYTO, TCN should be entitled to charge a flat transmission use of system (TUOS) charge of N3 per KWh. Of the TUOS, N1 per KWh should be allocated to a dedicated “capital repayment” fund. The remaining N2 per KWh will be allocated to the TCN management company and will be sufficient to fund their operating expenses and make a reasonable profit margin.
Original Source: 
Original date published: 19 April 2010
Source: http://allafrica.com/stories/201004190115.html?viewall=1