Power Sector Privatization: Challenges, Prospects

The place of electricity cannot be overemphasized, especially as it relates to the development of a nation – the power sector is, therefore, critical to the development of Nigeria as power is sought for in the running of daily businesses, infrastructural and industrial activities. The distinctive feature of developed nations from their third world counterparts is the adequate supply of electricity for which Nigeria has been an exception. Irrespective of her rich human and natural resources, the country has struggled to maintain a stable and efficient power sector.

Some other African countries, including Ghana, have celebrated no less than three years of uninterrupted power supply. South Africa, with a population of about 60 million, produces 51,309MW, while Nigeria, with a population of about 190 million, produces just 4,000MW. As the giant of Africa, we still are unable to produce sufficient megawatts for more than half of the population. In 2010, the power sector still lagged behind which led to the second reform that is referred to as the roadmap of the power sector reform. This reform carved the niche for further privatization and by September 30,  2013, the successor companies, aside the transmission company, were privatized with a $2.5bn transaction. PHCN, therefore, ceased to exist. The legal control of the power sector formally belongs to and is now being monitored by the government through the Nigerian Electricity Regulatory Commission.

Albeit, it is owned by individual stakeholders. The privatization process has been a massive catastrophe for the nation’s economy in reversal of the aim ab initio leading to greater untold hardship for the people already living on the fringe of poverty. A little over 60 per cent of Nigerians have no access to electricity, those who have, hardly enjoy its benefits due to erratic supplies and the hazards of estimated billing system thus rendering the process privatization process ineffective as it featured a flawed process that worked on the bases of estimates and assumptions. In reality, most technical partners were invited only as technical operators. The hostility of some Electricity Union workers prevented physical inspection of assets by bidders as part of the process initiated by the Bureau of Public Enterprise.

The administration that carried out the exercise was accused of selling the companies to the cronies of the past administration making it a process for the few privileged elites. Some of the estimations include the Multi Year Tariff Order, which was assumed to be sufficient to raise enough revenues from DISCOs in order to fund the value chain and a N100bn transitional subsidy to DISCOs that would prevent rate shock and as such, DISCOS were assumed to be financially viable. The power sector lacks cost reflective electricity tariffs, Nigerians are groaning over costly electricity tariffs, despite the fact that they do not enjoy correlative power supply. The government on the other hand hikes electricity tariffs by almost 100 percent, claiming to make profit for the private enterprise, this has rather increased public suffering for private gains.

Based on the operations of the privatized power sector, it is glaring that funds have been mismanaged and mishandled. There has been a mismatch between the funds channeled by the government towards restoring the sector and the service currently provided by the operators. In the last five years, there has been a consistent supply of funds by the Federal Government through the CBN, USAID- founded energy initiative, the Japanese Government and the World Bank, among others. According to the Nigerian Electricity Supply Industry, the losses incurred by the sector translate to an average of about N1.5bn monthly, totaling about N90bn in five years. This loss is attributed to water, gas and transmission line constraints. In spite of the release of funds to the DISCOS, they have not effectively distributed the generated energy. While about 7000MW is generated, only 4000MW is distributed.

Revenue generation and collection is another issue that has destroyed the power sector. In spite of holding the ninth largest gas reserves in the world, one of the main challenges currently faced by thermal GENCOs is insufficient gas supply. Due to poor gas infrastructure, domestic gas supply has remained a major challenge in Nigeria. As a point of inferred probity, it is recommended that the elite should cease to interfere in the privatization process; that the DISCOs should be more transparent and accountable in their financial dealings; that an agreement be reached by the NERC and DISCOs to ensure that only prepaid meters are used, since billing and estimation have proved to be ineffective. Also, the administration and management of the power sector should be effectively reviewed to ensure proper maintenance and positive output.

In conclusion, the power sector failed to produce rapid transformation to the economy. The privatization of Nigeria’s electricity industry, is still bedeviled by surmounting challenges such as; funds mismanagement, poor administration, reactionary approach instead of being preventive, poor revenue generation and collection. Albeit, resolving these challenges is possible if the recommendations listed above are taken into due consideration, it will pave way for the much-needed development to the country.


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