One would not be remiss in referring to the privatization of the Nigerian power sector as a “partial privatization” for two reasons. Firstly, the government maintained a 40 percent shareholding in all DisCos and the transmission subsector of the value chain remained entirely under government control through the Transmission Company of Nigeria (TCN).
The decision to establish a single entity for transmission services meant that TCN would play a three-part role in the market, as the Transmission Service Provider (TSP), Market Operator (MO) and System Operator (SO), but for only a short period.
The role of MO and SO was to be eventually transferred to a new entity which would serve as an Independent System Operator (ISO). This was a planned evolution prescribed in the Electric Power Sector Reform Act (EPSRA) 2005, the Market Rules, and most recently the Electricity Act of 2023 (EA).
Prescribed Evolution of the Nigerian Electricity Market
The NESI Market Rules provide for a gradual development of the NESI mapped out in stages with clearly defined characteristics. These stages are:
- Pre-Transitional Stage: This was the initial stage of the privatization process where the Power Holding Company of Nigeria (PHCN) was created and subsequently split into the 6 initial GenCos and 11 DisCos we have today.
- Transitional Stage: contract-based electricity trading and market competition.
- Medium-Term Market Stage: This is yet to commence. It will feature the introduction of competition at the generation level and a central balancing mechanism for the wholesale electricity market.
- Long-Term Market Stage: At this stage, the market will be open to broad wholesale competition and retail competition.
Before each market stage is announced, certain requirements must be satisfied, and a key requirement under EPSRA for the unbundling of TCN was that the market should have reached a stage of substantial privatisation. In this context, that would mean contract sanctity and enforcement, implementation of bank guarantees, cost-reflective tariffs, or cash-backed government subsidies, as well as substantial compliance with the Market Rules and Grid Code.
Last year, NERC issued its Market Competition Report in which it stated that the market had achieved a significant level of privatisation that indicated readiness for the next market stage which would be the Medium-Term Market.
The restructuring of the TCN marks a significant turning point in the evolution of the nation's power sector. By spearheading this transition, NERC aims to improve efficiency and reliability. However, the success of this restructuring hinges on three key factors: effective implementation, proper oversight, and adequate investments. While challenges are inevitable, this initiative represents a necessary step towards boosting investor confidence.
The potential benefits of this restructuring extend far beyond immediate improvements. A stable and dependable power sector fosters an environment ripe for investment. By bolstering investor confidence, the restructuring can pave the way for significant capital inflows. These investments, in turn, can fuel the development of new generation capacity and strengthen the transmission infrastructure, ultimately delivering a more robust and sustainable power supply for the nation.
Effective implementation of the restructuring plan is paramount. A well-defined roadmap with clear roles and responsibilities for the newly formed entities that emerge from the TCN is essential to ensure a smooth transition and minimize disruptions. NERC's role as the regulatory body becomes even more critical as it oversees the new system, guaranteeing transparency, accountability, and efficient operation.