A LEAD PAPER BY DR.

AMADI, CHAIRMA/CEO, NERC, TITLED THE STRUCTURE OF THE NIGERIAN ELECTRICITY SUPPLY INDUSTRY, ON-GOING TRANSFORMATION; OPPOTUNITIES AND CHALLENGES PRESENTED TO THE PUBLIC AND PRIVATE DEVELOPMENT CENTRE, PROCUREMENT MONITORS TRAINING, 19TH TO 21ST JULY, 2012 We are all aware that one of the key indices in gauging the development of any nation is its electricity consumption per capita; every facet of our social, economic and industrial development is linked to the availability and utilization of reliable electric power. Lessons learnt from history are applied to prepare for a better future. In order to appreciate the problems in our Power Sector so as to jointly proffer solutions to them, it is indeed appropriate that we have an appraisal of the sector right from the first power plant to date. This, hopefully, will allow us to avoid the mistakes of the past that put us where we are at present. After the appraisal, we will then look at the options available to us that will enable us progress and attain the very necessary adequate, safe, reliable and affordable electricity supply for industrial revolution of our dear nation. A brief history of the Electricity Supply Industry in Nigeria The Electric Power Sector Reform efforts over the period of our nationhood, The roles of the Nigerian Electricity Regulatory Commission (NERC) Achievements and challenges of NERC and Investment opportunities in the sector THE NIGERIA ELECTRICITY SUPPLY INDUSTRY; PAST AND PRESENT Nigeria built its first power plant in 1896 with a 20MW power station at Ijora, near Lagos. Until 1951, there was no government entity to regulate or manage nationwide Electricity Generation and Supply. This necessitated the formation of the Electricity Corporation of Nigeria (ECN) to oversee the Electricity Sector. Later in 1960, the Niger Dam Authority (NDA) was set up to build and manage dams in Nigeria, with total installed generation capacity a little above 50MW. 1n 1972, Federal Government of Nigeria (FGN) approved the merger of NDA and ECN to form the National Electric Power Authority (NEPA), as a vertically integrated (monopoly) power utility, responsible for generation, transmission, distribution and trading of electricity in Nigeria. THE ELECTRIC POWER SECTOR REFORM EFFORTS In the year 2001, the National Electric Power Policy (NEPP) was developed, which set the pace for the Electricity Reform. As a follow up to this, an Electric Power Sector Reform Bill (EPSRB) was proposed to the National assembly which in year 2003 was passed by both houses and submitted for presidential assent into law; after due amendment though, it was resubmitted to the two legislative houses for further deliberation and passage. This was harmonized by the two houses and assented to by the President and Commander in Chief of the Armed Forces in March 2005. Along this line therefore, the National Electric Power Authority (NEPA) in January, 2004 commenced its internal unbundling process by creating 11 semi-autonomous business units from its former distribution sector. Similarly, its transmission sector was in April, 2004 unbundled into a semi-autonomous business unit known as Transysco, with the creation of the office of the market operator and system operator. Generation sector was subsequently unbundled into 6-semi-autonomous business units in November, 2004. The unbundling exercise is with a view to facilitating the eventual corporatization of the Business units on the enactment of the EPSRB. These acts were in anticipation of the expected to achieve the governments ultimate goal of divesting its interest in the Generation companies (GENCOs) and Distribution Companies (Discos) while the Transmission Company (transysco) was to remain state owned. With the bills enactment into law, an independent Electricity Regulatory Commission (NERC) was created. In October 2005, NERC commenced operations with its headquarters at Abuja, Nigeria. NERC developed and passed various regulations in its efforts to give direction to the industry operators and prepare the ground rules for public/private sector participation. These regulations can be categorized into commercial, technical, legal and customer related.

The reforms harped on development of a wholesale electricity market through segmenting and licensing of each of PHCN Successor Company (which are now CAC registered entities). The reforms also made for the establishment of a power Consumer Assistance Fund, and establishment of the Rural Electrification Agency (REA) to create and manage the Rural Electrification Fund. These efforts are targeted at opening up of the Power Sector for Private Sector Participation. At present, nearly 40 private entities have been licensed by the commission (to generate more than 12,000 MW) and many are already operational. At present, the nation has an installed generating capacity of 9000MW (FGN & IPPs). The available useful capacity is about 4,500 MW (as at October, 2011). The current national demand is estimated about 16,000MW (ECN). The present administration is assiduously working to increase power supply to 6000MW by December 2012 and 14,000 by year 2013. This reaffirms the need for the completion of the Reform Program to enable private sector participation as government alone cannot fund the power sector. MANDATE, MISSION AND VISION STATEMENTS OF THE COMMISSION Further to the promulgation of the Electric Power Sector Reform Act (EPSRA) 2005, the Commission commenced operation in November, 2005 and has the mandate to ensure adequate, safe, reliable and affordable electricity to all consumers. It is also to oversee the orderly transformation of teh electricity industry to a more competitive one that will promote competition and ensure the entrenchment of good business culture. The commission is also to ensure stable, predictable and transparent rules and regulations to govern the industry. It is responsible for issuing licences to operators and their licenses, the commission has the power to warn, suspend and even revoke licences. In general, NERC is an unbiased industry referee and umpire for Nigerias electricity market. Mission: To promote and ensure an investor-friendly industry and efficient market structure to meet the needs of Nigerians for safe, adequate, reliable and affordable electricity. Vision: Electricity on demand Core Values: Leadership, professionalism, Team work and good governance. The commission has seven full time Executive Commissioners with one of them as the Chairman/CEO and another as the Vice Chairman. ACHIEVEMENTS OF NERC Development of 5 year strategic plan derived from the objectives set out in the EPSR Act (2005) Activities are tailored towards four main goals: - Uninterrupted Electricity Supply - Private Sector Participation - Consumer Protection - Fair regulation Licensing of 40 independent power producers (IPPs) with an expected power injection of about 12,000 MW into the National Grid. Nine of the IPPs are currently in operation Licensing of the successor generation, transmission and distribution companies and NIPP Development of technical codes, standards and regulations to ensure safety, reliability and quality in electricity supply. Monitoring of the progress of licensed IPPs. Launching of the industry health and safety manual Train-the trainer workshops on the health and safety manual for industry operators organized in different parts of the country. Development and recent review of the Multi-Year Tariff Order (MYTO 1&2) Workshop on understanding the MYTO held for industry stakeholders in different parts of the country. Approval of market rules and training of industry operators Development and release of industry trading arrangements Licensing and release of industry trading arrangements Licensing of the Bulk trader and facilitation of provision of the World Bank partial risk guarantee Development of model PPAs and vesting contracts Development of four regulations on consumer protection Power consumer assemblies in various parts of the country. Resolution of several consumer complaints through spot visits and other dispute resolution mechanisms within the commission. Regular investigations of electrocution cases and other accidents in the industry.

Development of KPIs for monitoring technical, consumer and safety performances in power stations, transmission stations and distribution units. Monitoring of MYTO implementation Consultation with stakeholders on minor and major review of MYTO and implementation Constitution of the initial stakeholder advisory panel Constitution of the transition Steering group (TSG) In the process of appointing the dispute resolution advisor The commission is elected into the Executive Council of the African Forum of Utility Regulators (AFUR). The commission has a partnership/twinning with the Michigan Public Service Commission sponsored by USAID in collaboration with the National Association of Regulatory Utility Commissioners (NARUC). Review meetings are being held twice every year. NERC is also a member of the Renewable Energy and Energy Efficiency Partnership (REEEP). The Economic Regulators Regional Association (ERRA) a European Regulatory body has also granted NERC affiliated membership. NERC is actively involved with the ECOWAS regional electricity initiatives. The commission also collaborates strongly with a number of agencies whose roles impact on the activities of the commission e.g. NIPC, SON, ICRC, BPE etc. The Commission continues to play an active role participating in public hearings and sending its comments to the National Assembly on the Bills whose ambit are likely to impact on teh power sector. Some of these bills include the Petroleum Industry Bill, the Energy Development Fund Bill, Health and Safety Bill etc. Workshop on state Government participation in the power sector.: The Commission in collaboration with the Energy Commission of Nigeria organized a two-day workshop for state actors to sensitize state governments on the requirements, procedures and processes for participation in the countrys new power market. The event also provided a platform for the commission and state government power sector representatives to explore a common agenda for achieving adequate power supply for the country in particular, and identifying concrete measures to improve performance of the electricity sector in general. Judges Conference: The commission organized a conference for Judges in Nigeria. This is meant to enlighten and educate judges in the area of electricity regulation. COMMISSIONS STRATEGIC FOCUS: The commission is focusing on one Widely Important Goal- WIG around which the key short term action plans of the commission is built. The goals are identified to be: Improving Private Sector Participation by removing critical industry barriers and ensuring effective regulation. S/N BARRIERS STRATEGIES 1. Gas supply Problems Collaboration with NNPC leading to teh signing of MOU guaranteeing increased and sustained gas supply with increase in gas price 2. Off-take problems Collaboration between NERC and the BPE to ensure effective trading arrangements and viable off-takers 3. Low Tariffs Major review of the MYTO to ensure cost reflectivity 4. Grid Instability Embedded Generation and independent Electricity Transmission networks Restructuring of TCN 5. Lack of Incentives Collaboration with NIPC and other agencies to develop incentives In addition to the work being done on the five key issues mentioned above, the Commission has also made substantial progress on the following key strategic projects: Development of Regulatory Framework for Independent Electricity Distribution Networks (IEDN) Development of Regulatory Framework for Independent Electricity Transmission Networks (IETN) Development of Open access regulations Development of eligibility criteria for eligible customers Development of regulatory framework for renewable power generation

Major review of multi-year tariff order to ensure cost-reflectivity brought forward to mid 2012. Development of tariffs for coal powered plants and feed-in-tariff for renewable energy generation Development of guidelines for procurement of bulk power and ancillary services Development of program on energy efficiency and demand side management Conclusion of incentive package for the power sector Initiated the establishment and operationalizing of the power consumer assistance fund (PCAF) Conclusion on regulation on right of way and access rights Continuous stakeholder consultations with the National assembly, ministry of power, NNPC, BPE< ICRC, NIPC etc. Consumer enlightenment and education programmes on energy, theft, energy efficiency, vandalism etc. Enhanced and effective monitoring of performance of the generation, transmission and distribution companies to ensure availability, reliability and safety. The commission is facilitating the accelerated completion of the on-going reform in the power sector which should be accelerated to improve private sector participation and limited political interference; expeditious rehabilitation of existing generating stations to perform at full installed capacity while new ones are built; accelerated completion of the National Integrated Power Projects (NIPP), among others. THE CHALLENGES AND POSITIVE EFFORTS The Electric Power Sector is undoubtedly one of the most challenging in Nigeria. It is entangled with so many challenges bordering around technical, political, moral/ethical, financial, even bureaucratic. The following are some of the challenges we have been trying to overcome through various regulatory instruments and interventions mentioned above: Facilitating adequate and sustainable investments across the industry especially from the private sector cost reflective tariffs. Establishing credibility and legitimacy amongst industry stakeholders and to consumers especially the distribution companies corporatization, autonomy, signing of performance contracts and eventual privatization. Bridging the gap between production and demand of electricity, effective and efficient wheeling and distribution to customers completion of all generation, transmission and distribution projects to enhance capacity and initiating of new ones Ensuring adequate, reliable and quality gas supply to the power plants. Reducing general consumers frustration due to inadequate supply, unresponsiveness and unsympathetic attitude of the operators Establishment of forum offices for customer complaints redress (and possibly mobile courts) to ensure the enforcement of consumer regulations Cooperation among relevant institutions in the sector (e.g. having industry funded researchers like Nigerian universities and research institutions etc) regular consultations and meetings with NERC/stakeholders and provision of direct funding for research. Dealing with political implications of regulatory decisions (e.g. tariff hike the price vs. Generated supply debate) sensitization and engagement of all stakeholders through power consumer assemblies, meetings, workshops, seminars etc. Ensuring continuous implementation and sustainability of the Power Sector Reform Program development of strong and virile institutions and systems and ensure transparency in the conduct of the reforms Dealing with non-compliance with codes, standards, regulations and licensing terms and conditions by operators Total reorientation required engaging the operators on regular basis and educating them on the need to ensure compliance Arresting the high frequency and large number of accidents resulting to injuries and fatalities in the sector especially in the distribution sector entrenching safety public awareness campaigns and performance monitoring of operators Slow pace of implementation of power sector reform agenda working with the policy makers to facilitate the pace of the reform Successor companies though unbundled remain fully owned by government and do not exercise full autonomy The problem of financial viability of the distribution companies improving the billing and collection efficiencies of the Distribution Companies and reducing the AT & CC losses. Also reducing the transmission Completion of all on-going FGN generation, transmission and distribution projects PHCN and NIPP) effective monitoring of the projects under construction and removal of bottlenecks to ensure timely completion. Industrial action and Labour Unrest - Dialogue with the labour unions to ensure hitch free reform and privatization INVESTMENT OPPORTUNITIES IN THE NESI GAS AND THE NESI Gas as a feed stock for thermal generation constitutes about 50% of total cost of producing power in Nigeria This is significant considering that 80% of power stations in Nigeria are gas based This will immediately increase and remain well above 90% in the future

Adequate gas supply to power generation is central to achieving the commissions objective of electricity availability, accessibility, accessibility and affordability. This aspect of teh industry still requires massive private investment A LOT MORE CAPACITY IN THE SYSTEM A lot more investment by 2017, the NESI will be averaging $20 bn invested per annum (7,500MW) and rising. Competitive entry for embedded and on-grid generation A huge amount of project planning, engineering, construction and financing will be generated A lot more disputes within daily operations and in the rest of the market generally New business opportunities and prospects are emerging as a the NESI undergoes reforms aimed at bringing about a robust industry with efficient market structures that will ensure safe, adequate, reliable and affordable electricity. Legal practitioners are expected to provide a robust backbone/support service for the emerging market NERC estimates that the NESI will grow from N300 billion in revenue today to over N1.5 trillion in 2016 CONCLUSION The Nigerian Electricity Regulatory Commission (NERC) in collaboration with other stakeholders is making all efforts to address these numerous challenges and has already surmounted some of them while plans and strategies have been put in place to address those that are still lingering. These challenges are not insurmountable. This time around we must get it right!