Saturday, February 17, 2007

Competition in the energy sector

In conversation with an energy lawyer a couple of days ago, a picture of the privatised NEPA/PHCN world to come started to emerge. Although PHCN has been broken up, with bids for the various aspects of the existing business and tenders for new Independent Power Plants ongoing, it looks like the overall strategy for power generation has not been fully thought through. It seems that there has been no strategy for giving consumer choice in the consumption of electricity, so Nigerians will move from dealing with a huge dysfunctional national monopoly to area-specific monopolies. Quite why the new energy matrix was not designed with competition in mind from the outset is a puzzle. Just as with the telecoms sector, a whole raft of interconnect agreements will have to be implemented before consumers have access to an alternative provider. Let's hope the new regulating agency plays a strong role in opening up competition in the next few years.


Atala Wala Wala 1:26 am  

Hi Jeremy,

This got my attention, as anything to do with the power sector reform does.

Did this lawyer tell you anything about when the distribution companies would be fully privatised? Perhaps NERC will treat the distribution companies like the Department for Transport treats train operating companies in the UK - giving them franchises to operate, and revoking them if they misperform.

It would be ideal, though, to have the kind of competition that we see in the UK energy sector, although I don't know if the physical infrastructure in Nigeria will permit this.

Anonymous,  4:22 pm  

Give it time.

The "dividends" (we sooo love this word in this country) will come. As is the case with any new venture/reform actvity embarked upon by the governemnt, it needs time, support and commitment from the government agency handling it. The reform in the telecoms sector did not happen overnight.

I think that rather than criticise certain programs which the government may be embarking upon, we should appauld the initiatives. Even a little improvement will be better than the status quo, so let's be optimistic that the next (democractic) dispensation will continue with the notable reforms, and there are a few - that oil&gas sector, banking sector; telecoms, ports etc.

Having said all that, let's hope the different IPPs will raise the electricity level to 10,000 MW, which going by the government, will be feasible this year.....

t 10:08 pm  

Hi Jeremy, I'm Nigerian, and will love to play a part in screwing things up for corruption in Naija power.
You worry about the contracts and privatization and concessioneering, and...
I promise I don't even know what all those big words mean, save for a Naira rain, windfall of money for people in the right position at the time, but I'm angry, and I'm going to find people, and we are going to do something. 'Cos I haven't anything better to do :)
Please comment here and/or bookmark this Nigeria Electricity page

Y'all are inspiring.

snazzy 11:05 am  

competition does not matter in this sector to the extent that you would think because the commission sets the rates. It may matter in quality of service, which I suppose could be the main problem. Still, I think it is practically impossible to get anyone to touch the PHCN assets without the concessions being granted monopoly status. I think there is something about revoking concessions that do not improve the distribution capapility but this is naij after all.

The saving grace I suppose is that distribution companies (and the rest of the energy sector) make money when they sell electricity and so it is generally in their best interests to improve the service.

Anonymous,  1:36 pm  

The issue of competition was indeed borne in mind, in the drafting of both the Power Policy (in 2001) and the Secor Reform Act (last year). Of course, naively, we had assumed that (i) zonal/regional markets would compete with each other; (ii)pricing differentials among the Gencos and Discos would highlight inefficiencies and excessive profiteering at the expense of the consumer; (iii) a multi-year tariff order would be put in place (effectively fixing the tariff for, say, a 5 year period and therefore ensuring that consumers don't become victims to the usual, significant, initial tariff increases that typically come with privatisation); and (iv) a Competition Bill (which we drafted as far back as 2001) would be enacted to prevent monolopoly abuses. Finally, NERC (the regulator) was to be central to all of this.

Unfortunately, in typical Nigerian fashion, things are not quite unfolding as planned. Firstly, you can forget any succour from the Regulator. NERC has become a home to contractors and commission agents, who formerly walked the corridors of NEPA. The Commissioners are political appointees and/or agents of major sector contractors. A few have already been captured by those wishing to commence operations in the sector. Now it is easy to see why the Sector Roform Bill took more than 4 years to be enacted following disagreements on who gets the final say on the appointment of Commissioners.

Next, given the lacklustre response to the tender for Gencos and Discos, we are likely to end up with dubious generator-salesmen; former governors; and friends of a corrupt DG of BPE and an even more corrupt former Minister of Power and Steel (soon-to-be Governor of Cross River) as our utility masters. No prospect of consumer-sensitivity there.

No idea what has happened to the Competition Bill. It was sent to the National Assemnbly and promptly disappeared I think.

Kudos to you for bringing this up Jeremy. This is indeed an extremely serious issue which, unfortunately, does not appear to be on anyone's radar as yet.

For those activists out there, now is the time to approach the Consumer Protection Council (yes, one does indeed exist and under the current DG is yearning to become another EFCC). Pressure must be applied and noise must be made.

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