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THE IMPACT OF POWER GENERATION ON ECONOMIC PERFORMANCE OF NIGERIA (1970-2015)

CHAPTER ONE

INTRODUCTION

1.1     Background to the Study 

Power generation is one of the vital components of power delivery process to consumers. The other processes are: power transmission, power distribution, and power regulation. Power generation must be in tandem with population growth and productive capacity to drive meaningful economic growth, Nigeria as a developing country with urgent need for increase in power generation has initiated many power generation policies in form of power sector development for the past decades. Power sector development was one of the Seven Point Agenda of President Yar’Dua in 2007. Also, the Presidential Task Force on Power (PTFP) was established by the President Goodluck Jonathan administration, in June 2010 to drive the implementation of the reform of Nigeria's power sector.

The task force was meant to bring together all the agencies that have a role to play in removing legal and regulatory obstacles to private sector investment in the power industry. Its mandate was also to monitor the planning and execution of various short-term projects in generation, transmission, distribution and fuel-to-power that are critical to meeting the stated service delivery targets of the power reform roadmap (Transformation Agenda, 2011). The terms of reference of the Presidential Task Force on Power (PTFP) included close collaboration with various ministries and agencies that have specific contributions to the reform process, including the Federal Ministry of Power, the Federal Ministry of Finance, the Bureau of Public Enterprises (BPE), the Nigerian Electricity Regulatory Agency (NERC), the Nigerian National Petroleum Corporation (NNPC), the Bureau of Public Procurement, National Gas Company Limited (NGC) and the Power Holding Company of Nigeria (PHCN). Nigerian government has also spent huge sums of money to increase power generation since returning to democratic governance in 1999.

According to Daily Trust editorial of 30th December, 2014, electricity sector gulped nearly N4 trillion ($26 billion) since the beginning of the power reforms in 1999. Reiterating the importance of power sector, former President Goodluck Jonathan, in his inauguration address in 2011, introduced Transformation Agenda (TA) policy of his regime in which power sector was one of the key component. According to Dr. Shamsuddeen Usman, the former Economic Planning Minister under Jonathan Administration, Transformation Agenda (TA) was a blueprint of the key policies, programmes and projects to be implemented by Federal Government from 2011 to 2015. Usman stated further that the Agenda aimed at consolidating the achievements of previous administrations with strong emphasis on infrastructural development. The power sector roadmap was integral part of Infrastructural Masterplan (IMP) launched by former President Goodluck Jonathan in 2013, which preceded the Transformation Agenda’s Mid-term Report. According to policy statement of the report, Nigeria was to invest heavily in transport, road construction, power, Information Communication Technology (ICT) and water resources in which the power sector had the largest of the expected investments. The report outlined the proposed investment in the power sector which covers investment in four major areas of power generation, transmission, distribution and alternative energy. The government’s strategy, CORE Metadata, citation and similar papers at core.ac.uk Provided by International Institute for Science, Technology and Education (IISTE): E-Journals according to the report was to unbundle the sector through creating a deregulated and competitive electricity market.

The unbundling of power, has been a continuation of policy framework of subsequent governments in Nigeria towards power sector reforms. Unbundling of the power sector was thought as a strategic policy that somewhat would drive Nigeria’s aspiration to become a major industrial developed nation of the world. The Transformation Agenda (TA) report posited that the reform plan of former President Jonathan was to resuscitate and deregulate the sector by investing $3.5 billion annually with the hope of moving the generation capacity from 4,000 MW in 2011 to 20,000 by the year 2020. The former Minister of Power, Prof. Chinedu Nebo said that Nigeria was capable of generating 16,000 megawatts before the end of 2014, adding that the service companies – generation, transmission and distribution networks – were to ensure that all the plants were running very well and that the ministry was partnering with investors to ensure that rural areas not connected to national grid were connected even to renewable sources of electricity. Reiterating the investment opportunity in Nigeria, the former Minister viewed Nigeria as a very strategic country to invest in Power Sector. He asserted that by investing in Nigeria’s power sector, investors can capitalize on growth opportunities in the Nigerian electricity market where demand far outstrips current supply and the potential for strong economic growth is high. According to the former Minister, since Nigeria is the largest market in Economic Community of West African States (ECOWAS) region, investors can use Nigeria to establish a strong presence in West Africa and also as a platform for acquiring further assets in the region. More importantly, in his view, investors can benefit from a Multi Year Tariff Order (MYTO) which brings certainty to the Tariffs.

In power regulation, Multi Year Tariff Order (MYTO) is designed to be a cost-reflective tariff that accounts for the operating cost and capital recovery, incentivizing efficient operations, based on best new entrant capabilities and technology. Unfortunately, by the end of 2014, government policy target on power generation capability was not met despite the huge amount already invested in the sector. It is still questionable the effectiveness and efficiency of the policy and investments in increasing the power generation in Nigeria. Referring on the success of power reform in Nigeria, Dr. Sam Amadi, the former Chairman of National Electricity Regulatory Commission, stated in 2014 that for 13 years Nigeria has embarked on power sector reforms. According to him, it is arguable whether the reform has been great success or partial success.

Amadi (2014) argued that the basic assumption behind the power sector reform in Nigeria was government ownership of electricity assets as a major cause of the collapse of the industry in the late 1980s. He agreed with this assumption on the need to infuse private capital into power sector in Nigeria and maintained that this tied neatly into the structure of the dominant economic narrative in the 21st Century. Amadi made passionate appeal for unbundling, privatization of the sector and enlisted seven critical disciplines for successful power sector reform in Nigeria which are the discipline of maintaining the independence of the regulator, discipline of right pricing, discipline of transparent procurement, the discipline of smart project management, the discipline of accountable public sector investment, the discipline of consistent and intelligent policymaking, and the discipline of

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