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Power failure: Nigerians burn N17.5tn fuel on generators in five years

By on June 21, 2015

Despite the huge government investment in the power sector in the last 16 years, Nigeria has only succeeded in mustering an installed electricity generation capacity of 10,000 megawatts. Yet, the country operates at about 30 per cent of this capacity with generation fluctuating between 2,000 and 3,500MW. Painfully, per capita electricity usage in the country remains 136 kilowatt/hour.

This is one of the lowest electricity consumption on a per capita basis in the world when compared with the average per capita electricity usage in Libya, which is 4,270KWH; India, 616KWH; China, 2,944KWH; South Africa, 4,803 KWH; Singapore, 8,307KWH; and the United States, 13,394KWH.

An average Nigerian citizen consumes just eight per cent of the electricity used by a Brazilian and four per cent of that of a South African. More than half of the nation’s 176 million people are not connected to the national electricity grid. The country’s paltry power generation, which is shamefully low, is expectedly inadequate for those connected to the grid. As such, these Nigerians rely on generators with its attendant operational and maintenance costs for running their homes, factories, schools, universities, government offices and the entire economy. This costs a lot and studies as well as experts put the annual spending on the purchase of petrol and diesel for running generators by Nigerians at a whopping N3.5tn, amounting to N17.5tn in the past five years under former President Goodluck Jonathan. With huge potential for increased sale of generators, importers have turned the country into a dumping ground fleecing the citizens of their money while supplying sub-standard generators to them.

Putting N17.5tn in perspective

In the absence of robust and reliable data on the actual cost of purchasing fuel for generators nationwide, a report by the Good Governance Initiative, a non-governmental organisation advocating uninterrupted power supply in the country, said Nigerians spend N3.5tn on fuelling their generators annually.

Breaking it down, the GGI President, Mr. Festus Mbisiogu, said, “The GGI conducted intensive research into the negative multiplier effect of unsteady power supply and some data that showed that the manufacturing sector spends over N800bn yearly on generators.”

This, according to him, is in addition to about N2tn spent on running generators by millions of Small and Medium Scale Enterprises, banks, other corporate entities and traders across the country.

He said, “In the banking sector, each branch spends over N4m on diesel in a month, multiply it by the number of branches in Nigeria. An average family man spends between 60,000 and N100, 000 in a month on fuel, apart from the maintenance.”

With over 6,133 banks’ branches and each expending N4m on diesel a month, N48m will go down the drain in a year, and this will amount to N294.4bn per annum cross all the branches. This means that not less than N1.5tn must have gone into diesel purchase in the past five years. This is outside the amount spent on powering ATM points located outside banking premises and maintaining the generators, among other critical banking infrastructure.

A power sector white paper prepared by the Directors, CBO Capital Partners Limited, Mr. Chuka Mordi, and Mr. Bex Nnwawudu, which lend credence to GGI’s claim, said, “According to a recent research, Nigerians spend N3.5tn annually on diesel and petrol to fuel generating sets. Households, offices, and governments spend up to N2.8tn self-generating electricity. Nigerian self generated power in 2013 amounted to 26.5GWh.”

The National Bureau of Statistics put the total number of SMEs in the country at over 17 million, many of which rely on generators to run their businesses as the country continues to grapple with abysmally low power generation.

The total number of Base Transceiver Stations owned by MTN, GLO, Airtel and EMTS (Etisalat) as of December 2013, was put at 28,289, while Visafone and Multilinks had a total of 641. Most of these base stations/switches run on at least one diesel generator while some of them have an additional backup generator each.

MTN, the country’s biggest GSM operator in terms of subscriber base, on May 25, emphasised how critical diesel has become to its operations during the recent fuel crisis. The telco’s Corporate Service Executive, Mr. Akinwale Goodluck, said, “MTN’s available reserves of diesel are running low and the company must source for a significant quantity of diesel in the very near future to prevent a shutdown of services across Nigeria.

“If diesel supplies are not received in the next 24 hours, the network will be seriously downgraded and the subscribers will feel the impact.”

Meanwhile, former Minister of Communications Technology, Mrs. Omobola Johnson, had during her tenure said that the country would need 33, 000 additional base stations between now and 2018 to boost quality of service. This means telecoms operators will spend more to fuel their generators if the country’s power supply situation does not improve.

Already, the CBO Capital Partners’ power sector report had revealed that Nigeria’s households, offices, and governments spent up to N2.8tn to self-generate electricity in 2012.

Generators at work in Alade Market, Ikeja Lagos...recently.

To further proof that the N3.5tn annual spending is plausible, the Committee on Public Inquiry on Metering in the Nigerian Electricity Supply Industry, set up by the National Electricity Regulatory Commission, and chaired by the late lawyer, Mr. Bamidele Aturu, discovered that a total of 23.73 million households of the 28.9 million in the country do not have access to the national electricity grid.

This means that 82.1 per cent of Nigerian households do not have access to electricity from the national grid.

Aturu had said, “The total number of customers captured in the records of operators of the Nigerian electricity supply industry is 5,172,979. This represents 18.65 per cent of Nigeria’s total households put at 28,900,492 as provided by records of the National Bureau of Statistics.”

If 23.73 million households rely on petrol and diesel to power their generators of various sizes, one can only imagine how much that will amount to in a year.

What Nigerians are saying

Mrs. Nneka Nwafor, who lives around Egbeda area of Lagos, said she spends N2, 000 daily on fuelling her generator, which amounts to N60, 000 a month. This further amounts to N720, 000 per annum and N3.6m in the last five years.

A mobile phone repairer, Mr. Ida Harry, uses N1, 000 worth of fuel for two days at home and spends N15, 000 a month, which amounts to N180, 000 a year. For him, he’s assumed to have parted with N900, 000 in the past five years to self-generate electricity.

Similarly, Head of Business Development, Portion Consult, a brand support services firm, Mr. Tope Ajayi, said the company spends N800, 000 monthly on fuel to run its operations. He added that this represents a significant percentage of the company’s monthly wage bill.

He lamented the situation where a business that requires all the available resources to drive its growth spends N9.6m on buying diesel for generators annually and this amounts to N48m in the past five years.

He said, “Imagine spending N48m on buying diesel to fuel our generators and keeping our business going in the past five years under the Jonathan administration. We could have done a lot with that money if we had run on grid power.”

The Group Managing Director, Peacegate Group, Mr. Ayorinde Adedoyin, who resides in the Lekki axis of Lagos, said, “We spend an average of N8,000 on diesel for the generators everyday and not to talk about maintenance cost. It is really sad as we are also paying our electricity Distribution Company.”

Simple calculation by Saturday PUNCH revealed that Adedoyin spends N240, 000 monthly on diesel and this will amount to N2.88m annually. The Peacegate Group boss must have spent an average of N14.4m on fuelling generators during the Jonathan years.

Manufacturers groan under high cost of diesel, petrol

The country’s once booming industry collapsed under the weight of abysmally poor power supply. Many factories, which used to be thriving hubs of production activities, have closed shops, throwing the workers into the labour market. Many multinationals equally relocated to Ghana to reduce the huge cost of production caused by Nigeria’s woeful power situation.

The Chairman, Manufacturers Association of Nigeria, Kwara State, Princess Omolola Olabayo, who argued that Nigerians may be spending over N3.5tn on fuel for generators, decried that her factory would have to burn N400, 000 worth of diesel daily if it had to run for 24 hours.

“I spend N400, 000.00 daily on diesel if I am working on 24 hours production,” she said, adding, “It is greatly affecting production. In fact, it had made many manufacturers to close production already. Even though there is high cost of procuring energy currently, the problem is not only the high cost of diesel but the unavailability of the product.

“For manufacturing, diesel is important for production and for movement of goods. So, when there is no diesel, we are grounded. The plant cannot operate without diesel.”

Spending much to power factories, according to Olabayo, is a colossal waste, fearing that the manufacturing sector cannot possibly survive under such circumstance.

Power Supply: Generators at Afolabi Aina Street, Ikeja, Lagos... on Wednesday.

She said, “MAN members are meeting so that we can present a paper to President Muhammadu Buhari. It is not easy for manufacturers to survive with the high cost of energy. For some of us, the energy cost is about 40 per cent of manufacturing cost.”

The immediate past chairman of MAN in Anambra, Enugu and Ebonyi Chapter, Dr. Chike Obidigbo, also cited the huge cost of energy as a major challenge for manufacturers. He said, “Energy supply has been neglected by the government and manufacturers now use generators to power their factories in the South-East and this has raised the cost of production.”

“In addition to this, the industrial tariff for electricity was recently raised by about 95 per cent – another serious disincentive for manufacturing,” Obidigbo, who is also the Chairman, Hardis and Dromedas Limited, added.

Running government on generators

It is practically impossible for government at all levels to rely on grid power for their daily operations. As such, it is a given that the country’s 774 local government areas have back-up generators to rely on when grid power fails.

With the exception of Lagos State that has reduced government’s energy cost by 40 per cent through its four Independent Power Plants that are up and running, other state governments are believed to be running on generators to complement grid power, which is largely unreliable.

Former Lagos State Governor, Mr. Babatunde Fashola, said the state was able to decommission 400 generators in government offices and other critical public utilities when it built its own Independent Power Plants.

At the federal level, over 542 Ministries, Department and Agencies are also believed to have supplementary generators, which can be relied on when grid power is cut.

To fuel the generators, the Federal Government budgeted N815m for the purchase of fuel and lubricants for cars and generators in the Presidency, Office of the Secretary to the Government of the Federation and parastatals under them.

Of this amount, N131, 911,315 was budgeted for fuel and lubricants for the State House, N35, 344,855 of which will go into purchasing fuel for generators. This is lower than the N33, 476,963 spent on generator fuel in 2014 by the State House.

The 2015 budget also revealed that Vice-President’s plants and generators will gulp N12, 734,332 worth of fuel in 2015. Other agencies under the presidency were also not left out of the provision for fuel and lubricants.

They are the Office of the Senior Special Assistant to the President-Millennium Development Goals with N2, 794,080; Nigeria Institute of Policy and Strategic Studies, N13, 000,000; Bureau of Public Enterprises, N12, 518,641; and the National Emergency Management Agency with N13, 964,000.

Others are the Economic and Financial Crimes Commission with a provision of N200,000,000; Bureau of Public Procurement, N17,179,301; Nigeria Extractive Industries Transparency Initiative, N3,469,326; Nigeria Atomic Energy Commission, N3,000,000; and the Office of the Chief Economic Adviser to the President, N2,919,062.

A sum of N48, 181,702 was also provided for in the 2015 budget as funds for fuel and lubricant for the office of the Secretary of the Government of the Federation.

All the agencies under the office of the SGF also had similar provisions for fuel and lubricants. They are National commission for Refugees, N300,000; National Identity Management Commission, N46,063,109; National Merit Award, N7,504,843; Federal Road Safety Commission, N190,630,492 and New partnership for African Development, N10,773,600.

Others are National Action Committee on Aids, N3,000,000; National Hajj Commission, N11,131,012; Nigeria Christian Pilgrim Commission, N21,190,650; National Lottery Trust Fund, N2,400,000; National Lottery Regulatory Commission, N10,000,000; and Servicom, N2,786,316.

The rest are Presidential Technical Committee on Land Reforms, N11,560,000; National Boundary Commission, N2,256,765; and Border Communities Development Agencies N6,350,361

Experts’ comments

According to a Professor of Economics, and Director, Centre for Petroleum, Energy Economics and Law, University of Ibadan, Prof. Adeola Adenikinju, the amount quoted as being spent on fuelling generators on an annual basis is very close to the national budget.

“It is a colossal waste and must be addressed urgently by President Muhammadu Buhari’s administration,” he said.

Adenikinju further added, “If the figures are true, then to know the impact of this expenditure, we must look at the opportunity costs of this huge expenditure in terms of power plants that could have been built collectively for the nation.

“It takes approximately $1bn for construction, and association transmission and distribution infrastructure of a 1,000MW power plant. We can therefore see the capacity of power plant we could have added in the few years with N17.3tn. Yet, these generators are inefficiently utilised, they generated so much pollution and add to non-competitiveness of our locally produced commodities.”

The energy economic expert decried that Nigeria is the highest producer of gas and oil in Africa, but flares a huge amount of gas on a daily basis without harnessing its huge energy resources to provide electricity for the citizens.

He said, “We have been the highest importer of generators in Africa consecutively in the past decade or so. Unfortunately, we also subsidise importation of gasoline to power our generators. This is very unfortunate.”

Adenikinju, who rues the country’s electricity crisis, recalled that Nigeria’s economy was estimated to have maintained an average annual growth of about six per cent in the past five years. “And this growth is what some people called generator-induced growth,” he added.

He said, “It is then easy to imagine what could have happened to our economy if we had addressed the power situation effectively. My estimate is that the reliance on generator and the poor electricity supply takes off at least 2.5 percentage points from our annual GDP growth. A more improved electricity supply would have reduced poverty and unemployment at much faster rate than we experienced in the past five years.”

On the N3.5tn annual spending on fuel for generators, a legal practitioner and energy expert, Mr. Ayodele Oni, also agreed that Nigerians may be spending more considering the power situation in the country.

He said, “It is likely to be the case that Nigerians spend that much on fuelling generators because research has shown that the cost of self generation could be as much as 10-12 times the cost of grid power.

“I believe that the average family of four-six would use 800- 1,000 Kilowatts hours of power a month and where power is self-generated they may be spending as much as N60-N70/ kilowatts hour; hence it could be as much as even N60, 000 to N72, 000 a month to self-generate power, instead of the about N6, 000 to N7, 200 if it is grid generated.”

Oni said, “If one takes this calculation further and looks at heavier consumers who then use the more expensive diesel and banks who need to have their systems working on diesel for twenty four hours every day, then it is plausible that Nigerians are spending that much. Many people still barely have electric supply for up to two hours a day. Hence, I strongly believe that that much is spent on power generation.”

According to Oni, no nation can have true economic growth without grid power, adding that self-generation of power using fossils fuels slows down trade and commerce and inhibits the informal sector of the economy.

“Consequently, SMEs which should be the fulcrum upon which economic growth should stand cannot thrive,” he said. “Self-generation of power also increases the rate at which start-up businesses fail as several of these businesses spend much of their revenues and even the profit elements thereof on buying fuel to run their businesses. You see new salons and other such businesses fail and close shop too soon and too often.”

Power investors’ complaints

A cross section of generators at Computer Village in Ikeja, Lagos… recently

Private investors entered the country’s power sector following the unbundling of the Power Holding Company of Nigeria and privatisation by the Jonathan-led Federal Government.

The Bureau of Public Enterprises successfully completed the privatisation process of PHCN’s unbundled 11 generating companies (Gencos) and five Distribution Companies (Discos) and handed them over to private operators on November 1, 2013.

The expectations of Nigerians were as high as it is now following the emergence of Muhammadu Buhari as the country’s president. They envisaged an improved power supply shortly after private sector operators’ take-over but it was not to be. Already, the BPE Director General and Chief Executive Officer, Mr. Benjamin Dikki, had quickly warned that power supply might not improve three years after the privatisation because the new investors would have to pump in money into the system and acquire new technology/equipment that are not off-the –shelf commodities.

Also, the financial outlay required to turn around the fortune of the country’s power sector, as was soon discovered by the investors, was huge. The power sector is said to require $3.5bn annually to generate 40,000MW of electricity by year 2020. It is, however, unclear whether the new investors have such financial muscle for that quick improvement most Nigerians want and it appears as if the country is back to square one so far.

For this, the investors have their own excuse too. The Managing Director and Chief Executive Officer, Ikeja Electric, Mr. Abiodun Ajifowobaje, said, “The first challenge that the investors faced was that it was when we took over that we started analysing the problems in the sector. You will recall that during the privatisation period, there were a lot of union activities and they refused any investors from coming in to do physical inspection of the networks. For you to be able to plan, you have to know what is on the ground.

“At Ikeja Electric, we had to start doing technical audit, customer enumeration for us to actually know what is on the ground, and this took time. Therefore, people have not seen improvement. What everybody wants to see is that before privatisation, we were getting 10 hours of power supply, now we should be getting 20 hours of power supply.

“But the power sector is not like any other sector. It takes a lot of time for anything you put on the ground to materialise. I know that Nigerians want to see things improve almost overnight. That is not the case with the power sector – after doing all the due diligence on the networks, we have to look for funds to do all the necessary corrections, we have to look for the money to do all the metering.”

The two greatest challenges facing the Distribution Companies, according to Ajifowobaje, are inadequate power from the grid and metering of customers.

“In the case of power supply, if I want to give all my customers 24/7 power supply today, I need 1,250MW, but the average I am getting from the grid is about 370 to 400MW, less than a third of what I need.”

“We are not getting enough gas to power the power stations. Not only that, even the little gas that we get, every day, we see pipeline vandalism.”

He did not forget to add that transmission is another major challenge in the country’s power sector.

An official of the Benin Distribution Company, who spoke under the condition of anonymity, describes the company’s challenges to include low generation, high indebtedness of state governments and Federal Government agencies, most especially the military and the paramilitary, energy theft by both the rich and the poor, assault on staff, as well as uncooperative attitude of some customers on the settlement of bills owed before handover on November 1, 2013.   “BEDC gets nine per cent of the total generation as allocation from the national grid,” he added.

Similarly, the Chief Executive Officer, Eko Electricity Distribution Plc, Mr. Oladele Amoda, said the exchange rage, among other issues, had been a major issue for the company.

He said, “The company is being run at a loss since inception because our investors had invested a lot of money in the system which has no cost reflective on the supply distribution chain to customers.

“When you look at the economic indices, there is high increase of dollars in terms of exchange rate, while other things had also gone up. Most of our equipment like transformers, cables, lines and so on were being imported and the effect of the rise in dollars had affected the cost of the materials.”

Amoda said though the company has spent over N10bn on network rehabilitation, reinforcement, improvement and assets upgrade, it received about 250MW from the national grid as against 700MW required to serve its customers.

On the financial requirement, he explained that the Eko Disco would need about $1.1bn over the period of 10 years to boost effective power supply to its customers, while about $250m would be required in the next five years for electricity expansions and rehabilitation of networks.

Poor power supply continues to plaque Nigeria

The power situation was at its lowest ebb during the twilight of the Jonathan’s administration. Confirming this, the Permanent Secretary, Federal Ministry of Power, Ambassador Godknows Igali, said power generation dropped from about 4,800MW to 1,327MW, leading to the massive load shedding nationwide.

But to former Minister of Power, Chinedu Nebo, “demon- possessed people who derived pleasure in vandalising gas pipelines” were responsible for the country’s poor power supply.

Nebo said, “I have never in my life seen anything as frustrating as what we are experiencing today. Every month, the Nigerian gas company spends a minimum of N120m fixing vandalised gas pipelines.

“Every two weeks, the western axis pipelines are vandalised and that is pure sabotage; the eastern axis pipelines are vandalised and that is oil theft.

“At the end of the day, the gas that is supposed to go to the turbines doesn’t get to the turbines to generate electricity. As I speak to you today, if we have gas right now, we will produce 5,500MW.”

Experts proffer solutions

“The challenges facing the power sector are well known and many conferences and papers have been presented on this,” Adenikinju said. He, however, canvassed a ‘much more forceful intervention of the government in removing the various constraints in the value chain.”

He explained that relying on market forces and market reorganisation alone would not deliver power access to Nigeria.

“One decade after the power sector reform Act, we have not made much significant progress,” he lamented.

He, however, warned the Buhari-led administration not to reverse the power sector privatisation as recently canvassed by former Vice-President Abubakar Atiku.

He said, “I do not think the privatisation should be reversed in spite of the many issues associated with it. It will send a very bad signal to the investor community. However, we should look at the challenges facing the sector and the government should handle what are its own responsibilities, while all the stakeholders should be held to their contractual obligations under the privatisation agreements. We also need to rethink the whole process and see areas that need to be strengthened and what we should be doing differently.”

Though the solutions to Nigeria’s power debacle cannot possibly be exhausted in a lone report, Oni, the energy lawyer, who added his own thoughts, said, “It is first important that fundamental issues like gas and grid enhancement are given due attention and in the short term, embedded power should be encouraged although this needs to be properly planned and controlled or else, same can be chaotic.”

He called for a power audit to be carried out to properly determine the power needs of different parts of the country.

“Much of the research done is just too general in nature without comprehensive audits carried out to determine state by state, region by region power needs in terms of load and energy use.”

He advised that the government must continue to ensure that there are incentives and the ease at which business is done in the country improves.

“The transmission services provision aspect of the Transmission Company of Nigeria needs to be privatised and a model could be to have the transmission services provider (the “TSP”) privatised whilst the System and Market Operations functions taken off and remain under government control.

“It is the TSP aspect that really requires enormous infrastructure and substantial investment. The government should also encourage renewable power production and work towards having a robust energy mix.”

 

[Punch]