The Nigerian Electric Power Sector: Policy. Law. Negotiation Strategy. Business

By Ayodele Oni

Hitherto, industry participants and professionals have had to navigate the emerging and complex Nigerian electricity supply industry (the power sector) without materials or texts that adequately and comprehensively address the history and policy issues, as well as the legal and regulatory frameworks of the industry. In particular, before this book, there was no book written from a practical and hands-on perspective on the key issues connected with the Nigerian power sector or Nigerian power projects generally; neither was there a book that provided good and practical insights on matters related to the negotiation of power sector transaction documents in Nigeria. The few available texts covered only limited aspects of the power sector as none covered multiple key issues.

This 400 page book consisting of 10 chapters, attempts to fill the lacuna. It reviews the general legal and regulatory regime of the power sector. It also takes a comprehensive look at the power sector from a historical dimension and looks at where Nigeria is, in terms of the legal and regulatory regime, and the direction in which the country may be headed. Of particular interest to power sector professionals and other persons who negotiate contracts in the power sector or contracts related to the development of power projects, is the chapter which serves as a guide on negotiating key power sector contracts, such as Power Purchase Agreements, Gas Supply Agreements and Engineering, Procurement and Construction Contracts.

Noteworthy, is the fact that the book contains contributions from internationally recognized energy law and policy experts like Stella Duru of Banwo & Ighodalo, Jason Kerr of White & Case, Arun Velusami of Norton Rose and Akshai Fofaria of Pinsent Masons.

Further, the book considers other issues in the power sector, such as the Partial Risk Guarantee, which backstops the Federal Government of Nigerias payment obligations to power generation companies; and pricing issues.

• Language: English
• Publisher: AuthorHouse UK
• Release date: Aug 29, 2013
• ISBN: 9781481775991

Ayodele Oni

Ayodele Oni, a Shell Scholar and winner of the Young Lawyer of the Year Award in the maiden edition of the Nigerian Legal Awards, is a Senior Associate in the energy practice group of leading city law firm of Banwo & Ighodalo (“B&I”). Ayodele, who holds an LL.M in Energy Law from the University of Calgary-Canada, has a broad range of experience in energy (oil, gas and power) law and policy, as well as corporate and commercial matters with particular focus on power. He has acted for a broad range of clients in the energy sector and assisted on various energy transactions. Ayodele has contributed articles in various international energy journals including the OGEL and the Energy Regulation and Markets Review. He also wrote the Nigerian chapter, of the international text on mining, Mining Global Experiences edited by C Sri Krishna. Additionally, Ayodele writes a column on energy law and policy in the Business Day newspaper. He also very recently authored a text on International Energy Security. His experience advising on the power sector permeates the whole electric power supply industry value chain. He has advised on Fuel Supply Agreements (particularly gas), electric power generation, transmission and distribution related transactions. He also advised a number of consortia, under the auspices of B&I, (two of which were selected as preferred bidders) in the privatization programme of the successor companies to the former State-owned power monopoly company: the Power Holding Company of Nigeria.

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© 2013 by Ayodele Oni. All rights reserved.

No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author.

Published by AuthorHouse 08/09/2013

ISBN: 978-1-4817-7599-1 (e)

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Contents

KEY CONTRIBUTORS:

FOREWORD

PREFACE

ACKNOWLEDGEMENTS

DEDICATION

REVIEWS

1 THE HISTORY OF THE NIGERIAN ELECTRIC POWER SECTOR

Introduction

Historical Development Of The Nigerian Electric Power Sector

The Electric Power Supply Value Chain

The Electric Power Sector Under Nepa

2 LEGAL & REGULATORY REGIME OF THE NIGERIAN ELECTRIC POWER SECTOR

Introduction

The Constitution Of The Federal Republic Of Nigeria, 1999

The Electric Power Sector Reform Act No. 6 Of 2005

Overview Of The Electric Power Sector Reform Act No. 6 Of 2005

Other Legislation, Rules, Statutory Instruments And Regulations

Conclusion

3 THE NIGERIAN ELECTRIC POWER SECTOR REFORMS

Introduction

The Background

Theoretical Basis For Electricity Market Reforms

Design Of The Nigerian Electricity Market

The Reforms In The Nigerian Electric Power Sector

The Roadmap For Power Sector Reform Of 2010

Milestones Achieved In The Power Sector Reforms

Challenges To The Reform Program

Conclusion

4 FINANCING POWER SECTOR PROJECTS

Introduction

Sources Of Finance

Financing Power Projects

The Project Finance Technique

The Structure Of The Project

Current Financing Issues In The Nigerian Power Sector

5 POWER PROJECTS AND THE ENVIRONMENT

Introduction

Current Legal, Regulatory & Institutional Framework

Liability For Environmental Pollution

Environmental Costs

Environmental Insurance Policies

The World Bank Environmental Guidelines

Other International Conventions

The Equator Principles

Conclusion

6 INTELLECTUAL PROPERTY AND POWER PROJECTS IN NIGERIA

Introduction

Definition Of Intellectual Property

Laws Governing Intellectual Property In Nigeria

Copyright

Trademarks

Patents

Industrial Designs

Importance Of Intellectual Property

Intellectual Property And Power Projects

Notap And Technology Transfer Issues

Conclusion

7 DRAFTING, REVIEWING AND NEGOTIATING POWER SECTOR DOCUMENTATION

Introduction

Belling The Cat—The Negotiation Strategy That Should Win

Negotiating Power Purchase Agreements

Negotiating A Gas Sales And Purchase Agreement

Negotiating Engineering, Procurement And Construction (Epc) Contracts

Conclusion

8 WHAT TO EXPECT AFTER PRIVATISATION—THE FUTURE

Introduction

The Four Pillars Of Reform Of A Government-Run Electric Power Sector

Stages In The Nigerian Power Sector

The English Experience

The Benefits Of Privatisation

The Role Of The Generation, Transmission And Distribution Companies Post-Privatisation

Derivatives Trading—A Primer

Specific Issues To Resolve For A Successful Post-Privatisation Era

Conclusion

9 DISPUTE RESOLUTION AND ALLIED ISSUES IN THE NIGERIAN POWER SECTOR

Introduction

Dispute Resolution Under The Electricity Reform Act

Interpretation Of Statutes By The Courts

Alternative Dispute Resolution Mechanism And The Power Sector

Conclusion

10 THE NIGERIAN ELECTRIC POWER SECTOR INVESTORS’ GUIDE

Introduction

Establishing A Business In Nigeria

Foreign Participation In Business In Nigeria

Power Sector Incentives

Protection Of Local And Foreign Investors

GLOSSARY

BIBLIOGRAPHY

TABLE OF CASES

TABLE OF STATUTES, REGULATIONS, ORDINANCES

ABOUT THE BOOK

ABOUT THE AUTHOR

KEY

CONTRIBUTORS:

STELLA DURU

(Partner, Banwo & Ighodalo)

∞

ARUN VELUSAMI

(Partner, Norton Rose, London)

∞

AKSHAI FOFARIA

(Partner, Pinsent Masons, UK)

FOREWORD

As a Partner in the Project Finance team of White & Case LLP, I have worked across the world’s leading emerging markets for over 20 years. I first became involved with Nigeria in the mid-nineties when my Firm provided international legal advice on the country’s first project financing and I have been privileged to have represented a broad range of Nigerian and international clients on many ground breaking projects in the Region over the following two decades.

In light of Vision 20:2020 and the efforts of the World Bank and the African Development Bank to support the implementation of reforms in Nigeria’s power sector, now more than ever, power is high on the list of Nigeria’s infrastructure priorities.

I take great pleasure in writing a foreword to this book for its author, Ayodele Oni, who was first introduced to me through his excellent column on energy law and policy in a popular Nigerian business journal. Ayodele is not only an experienced journalist and author but also has significant experience in working in the Nigerian power sector, in particular, through his extensive involvement in the Government’s privatisation programme, making him well placed to give an insider’s view on the sector. Ayodele has used his wealth of domestic and international experience to compose this book and his knowledge of, and passion for, the subject shines through.

I am pleased to note that the book opens with an introduction to the history of the Nigerian power sector which immediately puts both the power sector and Nigeria into context for the reader. The following Chapter on the legal and regulatory regime is both detailed and informative whilst the Chapter on the reforms to the Electric Power sector provides the rationale behind the sweep of reforms that the Nigerian government is seeking to implement. The breakdown of the phases of implementation and the section on milestones achieved are particularly noteworthy.

Perhaps I am biased given my professional background but no book which seeks to offer a comprehensive guide to this sector can do so effectively without focusing on the ways and means of funding such a heavily capital intensive sector. The author has presented a thorough analysis of the sources of finance and risk allocation techniques prominent in the sector and his views on bankability of the core commercial contracts are insightful and informed. The subsequent Chapter covering environmental regulation will be of interest to stakeholders across the sector and is a great starting point for an overview of the environmental legislation affecting the power sector in Nigeria.

It is not my role to summarise each Chapter of this book and the titles are in any event self-explanatory but I would like to mention the Chapter on drafting, reviewing and negotiating power sector documentation which I would encourage junior practitioners to study as the focus on the three core commercial contracts is well rounded and easily digestible.

The final couple of Chapters aim to address the possible implications of the reforms for the Nigeria power sector, dispute resolution and investment opportunities. In doing so, Ayodele makes some interesting comparisons of the differing needs of the Nigerian and UK power sectors and looks at the lessons that can be learned from the privatisation and unbundling of generation, transmission and distribution assets in the UK.

This book provides an invaluable insight to any newcomer or junior practitioner looking to understand the complexities of the Nigerian power industry but is also an excellent aide memoire for the more experienced campaigner. I am confident that you will enjoy reading this book as much as I have and would like to take this opportunity to commend Ayodele for this tremendous achievement.

Jason Kerr

Partner, White & Case LLP

22 April 2013

PREFACE

This book represents a game changer as, hitherto, industry participants and professionals have had to navigate an emerging and complex industry without materials or texts that adequately and comprehensively address the policy issues and history, legal and regulatory framework of the Nigerian Electricity Supply Industry (the power sector). In particular, no book was written from a practical and hands-on perspective, on the key issues connected with the Nigerian power sector or Nigerian power projects generally; neither was there a book that provided good and practical insights on matters related to the negotiation of power sector transaction documents in Nigeria. The few available texts covered only a few aspects of the power sector and no single text covered multiple key issues.

This book attempts to fill the lacuna. It reviews the general legal and regulatory regime of the power sector. It also takes a comprehensive look at the power sector from a historical dimension and looks at where Nigeria is, in terms of the legal and regulatory regime, and where we may be headed. Of particular interest to practitioners and other persons who negotiate contracts in the power sector or contracts related to the development of power projects, is the Chapter which serves as a guide to negotiating key power sector contracts, such as Power Purchase Agreements, Gas Supply Agreements and Engineering, Procurement and Construction (EPC) Contracts.

In the last decade a lot has happened; from the formulation and issuance of the National Electric Power Policy (NEPP) to the enactment of the Electric Power Sector Reform Act No. 6 of 2005 (the Electricity Reform Act), to the on-going privatization and reforms.

The reforms have also included the de-establishment of the National Electric Power Authority (NEPA) and the establishment in its place, of an initial holding company, the Power Holding Company of Nigeria (PHCN) to hold its assets and assume its liabilities. At the moment, the Federal Government of Nigeria (FGN), through the Bureau of Public Enterprises is in the process of concluding the privatization of the seventeen successor companies established through the unbundling of the PHCN. This book also captures this process of reform from its inception.

Furthermore, in August 2010, the President of the Federal Republic of Nigeria, Dr. Goodluck Ebele Jonathan, GCFR launched a Power Sector Reform Roadmap (the Roadmap), which this book comprehensively reviews. Interestingly, many of the foregoing activities did occur after several years of neglect of the power sector by past administrations in Nigeria.

This book also reviews other issues in the power sector, such as the Partial Risk Guarantee (PRG), which backstops the FGN’s payment obligations to generation companies and independent power projects; it also looks at pricing issues as determinable from the pricing regime for the power sector which is set out in the Multi Year Tariff Order (MYTO).

Furthermore, the book looks at issues in financing power projects and in particular looks at the applicable laws, the challenges from experience with financing and general negotiation points for lenders and borrowers. This is particularly important because post-privatization, funds in excess of US$ 3.5 billion would be required annually to achieve a 40,000 MW power availability by the year 2020.

For the practitioner, this book reviews and analyses power sector and transaction related documentation and agreements. These agreements and documents include the Bulk Power Purchase Agreements (and Power Purchase Agreements generally), the Gas Sale and Aggregation Agreement and Fuel Supply Agreements. The analysis is done from the many years of drafting, reviewing and negotiating such industry and transaction agreements, of the author and Stella Duru (Energy Partner, Banwo & Ighodalo). Therefore, suggested in this book are plausible negotiation strategies and points which both the author and Stella have successfully utilised in negotiating power sector projects and transaction documentation.

Apart from the foregoing, this book reviews, from a practice point of view, intellectual property issues such as those relating to trade-marks, industrial designs and patent as they relate to power plants, power transactions and allied matters. In this regard, this book considers general intellectual property issues and how these dovetail into the whole electric power sector value chain. The text looks at what propriety interests can be claimed as an intellectual property in the power sector, the means of registering trade-marks and other intellectual property rights amongst other matters, such as the general protection of the intellectual property of power companies.

Power sector disputes often contain specific and recurring themes. An understanding of the nuances that underlay a dispute is, therefore, critical to achieving effective dispute resolution. This text, therefore, provides some guidance.

For investors, both foreign and local, the book provides a guide to engaging in electric power business in Nigeria and protecting their investment in Nigeria; it looks at how foreign investors can protect themselves by internationalising their investment agreements and falling within the precinct of Bilateral Investment Treaties (BITs) and how they can benefit under the Nigerian Investment Promotion Commission (NIPC) Act, Nigeria’s principal investment code. This Chapter would particularly be of interest to the international audience.

It is pertinent to note that the text contains 10 Chapters of sublime quality with contributions from internationally acclaimed energy and power sector experts in leading international firms.

Ayodele Oni

Senior Associate, Banwo & Ighodalo

March 2013

ACKNOWLEDGEMENTS

To begin with, I thank the Lord God Almighty without whom I can do absolutely nothing. To Toritseju Agoro (nee Omejalile) and her husband Afolabi Agoro (Kwame), no one would have had the opportunity to read this book without you both. I am indeed very grateful and honoured to have you as friends. I could not wish for better friends.

I owe a debt of gratitude to my darling wife, Adetola, who has been fantastic and for being there, through thick and thin; really, what can I do without you? To my parents: Mr. & Pastor Mrs. Bamidele Oni, Chief and Mrs. S.A Adeyemi and Pastor & Pastor Mrs. Sanusi; without you, I wonder where I would be, today. I am also grateful to Professors Woolley and Koshan, both of the University of Calgary.

Tayo Bankole, I say a very big thank you for providing fantastic support on very short notice—as you have always done. To my bosses at Banwo & Ighodalo—Mr. Femi Olubanwo, Mr. Asue Ighodalo, Mr. Ken Etim, Mrs. Abimbola Akeredolu (now Attorney-General of Ogun State), Mrs. Ayo Owoigbe, Ms. Stella Duru & Mr. Kehinde Ojuawo—and colleagues (particularly in the Energy Practice Group), I say thank you. It has, for me, been an excellent journey, so far. I thank you for the privilege of working in an excellent environment, with excellent minds from whom I have learnt and I still am learning so much.

To Oghogho Akpata, Dayo Okusami, Yemi Anyanechi, Kelechi Obi, ‘Gbite Adeniji, Kofo Dosekun and Oghogho Makinde: I am eternally grateful to you for teaching me so much. I learnt law and the business of law from every one of you at various times. To Theodora Kio-Lawson, Prof. Kim Talus and Toyin Ojo of ILFA and SJ Berwin, I must confess that I am eternally indebted to you for believing in me and for providing me with tremendous opportunities.

I also say a big thank you to world renowned international energy experts—Stella Duru (my Supervising Partner at Nigeria’s leading full service law firm, Banwo & Ighodalo); Jason Kerr, Partner at White & Case, London; Arun Velusami, Partner at Norton Rose, London and Akshai Fofaria, Partner at Pinsent Masons, UK. You all have contributed, in no small way, to the excellent quality of this book. I am also indebted to Mr. Eyo Olagoke Ekpo (Commissioner, Market Competition and Rates, NERC) for reviewing this book.

Another category of persons I am hugely indebted to, are the experts in various fields who have supported my efforts at producing an excellent, world class book. This category includes my very good friend, Charles Iramofu Ojo (Company Secretary, Central Securities Clearing Systems LTD); Chinasa Uwanna, Chinedum Umeche, Dipo Okuribido (all of Banwo & Ighodalo); Adesegun Agbebiyi of Aluko & Oyebode; Adegoke Arowosebe, Sumbo Abolaji, Gbenga Ojuawo (Manager, Regulatory & Compliance, Nigeria Breweries PLC); Tolu Balogun (Head, Dealing Desk, Vetiva Capital LTD), Diran Ajayi (Senior Associate, Templars); Gaji Temitayo; Moji Onabanjo and Bisoye Ajayi. To Bayo Odubeko of Norton Rose, whose advice and guidance helped me in putting together my first internationally published article; I say thank you very much.

My immense thanks also go to the very meticulous Bisi Omotunde, Segun Ajayi, Alex Ezenagu, Yemisi Taiwo, Yinka Osoba, Tinuke, Oyeyemi, Adejoke, Seun Kelani Kunle Komolafe, Deoye Ajidahun, Moji Adeola, and all of my FoP friends. To my siblings, Bukky, Jomo, Tosin and Oyinkan—a very big thanks for being there for me, all of the time.

This section of the book would not be complete without saying a very big thank you to members of the NEPS Team, consisting primarily of Olu Bethel, Bode Lafiaji, Jide Adeyemi, Tope Benedict, Osita Okoli and Dr. Bankole Adeyemi, who treated this book project, its publicity and the launch like the book project belonged to each of them personally. I am, indeed, much obliged.

Ayodele Oni

DEDICATION

I dedicate this e-book to God Almighty, Pastor Sam Adeyemi and Dr. Olukoya of the Daystar Christian Centre and MFM Ministries respectively. I also dedicate this e-book to my wife, parents, son, Olufela and unborn child, Imisioluwa. Finally I dedicate this e-book to the following people who all played critical roles in achieving the modest success achieved so far in relation to Nigeria’s power sector reforms: Mr. Asue Ighodalo, Mallam El-Rufai, Presidents Obasanjo & Goodluck Jonathan, Engineer Somolu, Prof. Bart Nnaji, Gbite Adeniji and the staff of the World Bank.

REVIEWS

I would personally like to take this opportunity to congratulate you on the text you have prepared, which is very informative, well-structured and engagingly written—Peter Henley, Norton Rose, London.

Your encyclopaedic knowledge of the regulatory regime for power in Nigeria is very impressive—Jason Kerr, Partner, White & Case, London.

You have put together a remarkable piece of work which is well-researched and coherent. I have looked through it and am impressed by the quality of your scholarship—Akshai Fofaria, Partner, Pinsent Masons, UK.

This comprehensive and well-researched text is a good companion to anyone seeking to understand Nigeria’s power sector. Not only will it provide a guide to any domestic reader who is seeking to learn more about, or to invest in, Nigeria’s power sector, but it will also provide assistance to the increasing number of private sector investors that are keen to enter into Nigeria’s power sector—Arun Velusami, Partner, Norton Rose, London.

I particularly like Chapter 7 of the book. It is excellent and very practical. This is one of the best chapters of a book I have ever read. You have done a very, very good job—Adegoke Arowosebe, Contract/Legal at Norseman Group, Canada.

1

THE HISTORY OF THE NIGERIAN ELECTRIC POWER SECTOR

INTRODUCTION

1.1 The twentieth century is well regarded as the century of energy,¹ as it ushered in transportation by automobile and heavy equipment vehicles. In the same century, commercial airlines began to operate and much of our commercial world was shaped by the development of energy resources.² Sea haulage also moved past the age of coal to the age of petroleum;³ residential and commercial heating and cooling became substantially reliant on networks providing gas and electricity.

1.2 Then electricity, that remarkable secondary source of energy, moved from its infancy in the twentieth century to become the energy that today heats homes, runs industrial processes, powers man-hours saving ⁴ and man-hours expanding devices,⁵ and also enables the computer age.

1.3 Electricity generation and consumption have become the indices for measuring growth and development in contemporary societies. As such, the classification of nations into developed, developing and subsistence economies is linked to the aggregate production and consumption of electrical energy.⁶ Consequently, it becomes vital for any nation aspiring to join the league of developing and, eventually, developed economies to devise strategies for providing adequate or optimum electrical energy for a total transformation of her people’s standard of living and that of the society from the backwaters of technological ineptitude to an industrial, modern and affluent economy.

HISTORICAL DEVELOPMENT OF THE NIGERIAN ELECTRIC POWER SECTOR

The Pre-Independence Era

1.4 Electricity generation in Nigeria began in the year 1896, 15 years after the commencement of electric power generation in England.⁷ The first power generating station in Nigeria was built in Lagos and had an installed capacity of 20MW.⁸ The power generating station was built and managed by the public works department (PWD) and other municipal authorities. Another power generating plant was built between the years 1921-1923 with an installed generating capacity⁹ of 14MW.¹⁰

1.5 The first electricity utility company,¹¹ the Nigerian Electricity Supply Company (NESCO), commenced operations in 1929 with the construction of a hydroelectric power station at Kurra Falls, South-East of Jos, Plateau State, Nigeria.¹²

1.6 In 1946, the Nigerian government electricity undertaking was established under the jurisdiction of the PWD to take over the responsibility for electricity supply in Lagos state.¹³ Some other municipal bodies, including 4 native authorities, were established and awarded licences to produce electricity in some other locations in Nigeria.

1.7 In a bid to coordinate the distribution of electricity, integrate electric power development and generally make the electricity supply industry efficient, the then colonial government of Nigeria passed the Electricity Corporation of Nigeria (ECN) Ordinance No. 15 of 1950 (the Ordinance). The Ordinance established the ECN as a statutory public corporation and it took over, in 1951, the assets of the NESCO and other power generation projects of the Government.

1.8 Sensing the insufficiency of the installed electric capacity of the existing power stations, the ECN commissioned the study of the hydroelectric potentials of River Niger for large and cheap supply of electricity. It was to this end that the Federal Government of Nigeria commissioned the Netherlands Engineering Consultants (NEDECO), to carry out a hydrological survey of Rivers Niger and Benue, in 1953.

1.9 Again in 1958, the ECN commissioned the Balfour Beatty Company Ltd (Balfour Beatty) to specifically study the hydrological potentials of River Niger, upstream of Jebba. Both companies, that is, NEDECO and Balfour Beatty, published their joint report in the year 1961. The report recommended that the first dam should be built at Kainji, about 102 kilometres upstream of Jebba, Niger State, Nigeria.¹⁴

1.10 In a bid to further boost Nigeria’s power generation capacity, the Ijora B hydroelectric power station, Lagos, was established with a capacity of 2MW in 1956; 30MW was added in the year 1961, another 30MW in 1962 and 36.5MW in 1966.¹⁵

The Post-Independence Era

1.11 In 1962, following Nigeria’s independence from British rule and the increasing demand for electricity, further developments took place with the establishment of the Niger Dams Authority (NDA) which was created to oversee the development and management of hydro power stations, given the vast water resources of the nation.¹⁶ The NDA was mandated to develop the hydro power potentials of the country and was responsible for the construction and maintenance of hydro dams and other works on River Niger, generating electricity by harnessing the power of water, improving navigation and promoting fish brines and irrigation.¹⁷

1.12 Whilst the ECN was mainly responsible for distribution and sales, the NDA was established to build and operate power generating stations and transmission lines. The energy produced by the NDA was sold to the ECN for distribution and sales at utility voltages. The first 132Kilovolts (KV) line was constructed in the year 1962, linking the Ijora power station to the Ibadan power station. The Kainji hydroelectric power station was constructed and commissioned between the years 1968 and 1970.

1.13 In 1970, the Military Government of Nigeria (MGN) under the administration of General Yakubu Gowon appointed a Canadian Consultancy firm, Showment Limited, to appraise a proposed merger between the ECN and the NDA. A report containing Showment Limited’s findings was submitted to the MGN in November 1971. Following the recommendations made in the report, the ECN and NDA were, in 1972, merged to form the now defunct National Electric Power Authority (NEPA), pursuant to Decree No. 24 of 1972.¹⁸ The merger which was meant to take effect from April 1, 1972, did not actually take place until January 6, 1973, when the first general manager of NEPA was appointed.

1.14 The 2 entities were merged at that time primarily as a result of the perceived need to vest the production and the distribution of electric power supply throughout the country in one entity, which would assume responsibility for its financial obligations. It was also believed that the integration of the ECN and NDA would result in a more effective utilization of the human, financial and other resources available to the Nigerian electric power sector (the Power Sector).¹⁹ Prior to that time, there were several government-owned entities or corporations carrying out the various aspects of electricity business, ranging from generation to transmission. NEPA was charged with the mandate to generate, transmit and distribute electricity to all parts of Nigeria.

1.15 The generation, transmission and distribution of electric power are processes that are inextricably intertwined, and to better understand the mandate given to the now defunct NEPA and the workings of the Power Sector generally, it is pertinent to briefly examine these processes.

THE ELECTRIC POWER SUPPLY VALUE CHAIN

Introduction

1.16 The process of generating electric power, transmitting same and then distributing to millions of commercial, industrial and residential consumers is, in fact, an incredibly complex process and a breath-taking accomplishment. In a nutshell, the process can be illustrated thus:

41439.png

Fig. 1-1

Power Generation

1.17 Electric power can be generated in different ways. Most power plants,²⁰ however, use analogous equipment whereby generators are driven by superheated steam.²¹ These power plants burn oil, natural gas or coal to produce this superheated steam. Nuclear generators, which are not commonplace in this part of the world,²² use nuclear fission²³ to turn water into steam. Hydroelectricity which is relatively common in Nigeria uses water to produce electricity.

1.18 Power plants require fuel to function; just the way an aircraft or a motor vehicle requires aviation fuel or premium motor spirit/automotive gas oil to fire its engine. Apart from renewable fuel sources such as wind and sunlight, natural gas is regarded as the fuel of the future because of its advanced thermal efficiency, clean combustion characteristics and the significant volume of natural gas available worldwide.²⁴ Natural gas is extracted from underground wells and transported to customers through pipelines or shipped in cryogenic tanks as liquefied natural gas and then re-gasified at its final destination.²⁵

1.19 Similar to other aspects of the electric power supply value chain, the procedure behind electric power generation is complex. Electric power is usually generated by manipulating the relationship between magnetic fields and electricity, which are 2 parts of the same force. The easiest way to generate electric power is to rotate a coiled wire (a loop of wire or disc of copper) between the poles of a magnet.²⁶ As the wire (coil) spins, it starts to build up a magnetic charge that can be discharged in the form of electricity. This is the basic process—the spinning of the generator—that takes place in all power generating equipment, from the smallest generating plant for domestic use, to the ones used in factories, as well as in turbines found in power plants.

1.20 Electricity generators depend on different devices to drive the spinning of the generator, including water wheels in hydroelectric dams, large diesel engines and gas turbines. Various forms of fuel energy such as gas, coal or diesel are used to power this movement or the spinning of the generator.

1.21 The manner in which electricity is generated in Nigeria (and several other places in the world) can be illustrated as follows: imagine boiling water in a kettle until steam begins to escape from the spout of the kettle. If you put a paper fan close to the kettle’s spout, the steam from the kettle will cause the paper fan to rotate. Assume that the fan is connected to a magnet surrounded by wires, such that when the fan rotates, the magnet too rotates. As the magnet rotates, a magnetic field is created and electric power is generated. This is simply how electricity is produced but typically on a larger and more technical scale.

1.22 To produce electricity on a larger scale, rather than use a kettle, a boiler is used and rather than using a paper fan, one or more turbines²⁷ are used. Superheated steam is created by heating water in a large boiler. When the water turns into steam, it expands, moving against the turbine blades and causing the turbine to spin. The turbine is directly connected to the magnets in a generator by a rod or other equipment of a similar nature and as the turbine spins, the magnets surrounded by coils within the generator also spin and then generate electric power.

1.23 The process described above creates a lot of waste heat and is generally tagged the Open Cycle Gas Turbine Power Generation System. There are, however, newer technologies—cogeneration and combined-cycle generation—which are more efficient and reduce waste. Whilst Cogeneration is the production of electric power and heat or steam in the same energy production process and from a single source, Combined Cycle Generation creates more electricity from what would have been waste heat, by using the heat to produce more electricity.

Cogeneration

1.24 In many power plants, superheated steam is a by-product of producing electrical energy. A recent trend internationally, which has not been commonplace in Nigeria, is to reuse this steam instead of disposing same into the atmosphere. Cogeneration, therefore, is a situation where a generating facility (plant or station) produces electricity and another form of useful thermal energy, such as heat or steam, which is used for industrial, commercial, heating or cooling purposes.

1.25 Generally, to be regarded as a cogenerating facility, such a facility must produce electrical energy and another form of useful thermal energy through the progressive use of energy. If a power plant can sell this steam in addition to its power output, it becomes much cheaper to operate as it derives additional income from the steam which may be used to offset some of its operating costs. As a result, the final products of a cogeneration plant are often heat and electricity.

1.26 There are 2 commonly used types of cogeneration plants: the Topping Cycle Plants and the Bottoming Cycle Plants.²⁸ Topping Cycle Plants produce