The primary objective of reform is to bring about positive changes in an organisation or system. Reform unveils a systematic notion of change with different outcomes. The need for change emanates from data that suggests different business strategies in order to stay competitive. Public or private entities need some sort of change, improvement, amendment of what is corrupted or defective to improve so that they may become more efficient and more transparent.
Reform could be a challenging process for decision makers because of its nature of thinking outside the box in order to become more creative and improve on risk taking abilities. In addition, reform is a process geared toward a positive and more profitable outcome to benefit all stakeholders.
In the case of Nigeria, the power reform is long overdue. A successful power reform leading to change in the current “blackout series” will ensure that power is generated, transmitted and distributed efficiently for the purpose of “lifting the veil” from the eyes of Nigerians so that they can see “the light”. With the theatrics shrouding the power issues in Nigeria, many Nigerians have resigned themselves to the “indelible darkness” knowing that the so-called “cartel” will never let Nigerians enjoy power and electricity.
Power sector reform
The power sector reform law was passed in 2005. It was called the Electric Power Sector Reform (EPSR) Act and drafted to provide the necessary framework needed to begin the process of reform of the power sector in 2005 all in accordance with the existing policies of the National Electric Power Policy (NEPP). It aims to remove the operational and regulatory responsibilities of the electricity parastatal from the coffers of the Federal Government. In addition, the Act provides the necessary framework for competition and monopoly of the sector by creating a regulatory body that will license and regulate the generation, transmission and distribution and supply of electricity for the nation. The Act will also allow for the determination of appropriate tariffs. It further repeals the Electricity Act and the National Electric Power Authority Act (NEPA). The Act was divided into three main sections namely: The Power Generation sector, the Power Transmission sector, and the Power Distribution sector.
It is worthy to note that before now, there was no national regulatory framework for power. The reform law enabled the following: Unbundling of the power sector, and decentralising of the power sector.
What is to unbundle and decentralise?
If we look at the power sector from the perspective of the defunct National Electric Power Authority (NEPA), one might agree that “unbundling and decentralising” are the actual ways to go with the power issue in Nigeria. This is what reform is supposed to do. It looks at the existing organisation or parastatal, takes it up wholly or partially, cuts it up in chunks, sub-divides or merges several or whole units into more effective and efficient units. NEPA was a bureaucratic organisation, which needed to be decentralised, its power diminished or minimised and units dislodged to create a free, independent, efficient and effective and sometimes smaller units.
Eighteen distinct companies were carved out of these three sectors in preparation for privatisation, which currently is ongoing. The generation company (Genco) has six companies while the distribution company (Disco) has 11 companies also in different zones, such as Enugu, Lagos, Kaduna, and Ibadan, among others. The transition company has one company which is owned by the government due to security sensitivities and managed by a private company.
Two corporations National Electricity Regulatory Commission (NERC) and Rural Electrification Agency (REA) were created. They function as autonomous units. However, the minister of power still supervises the whole power sector. The organisational structure changed for the purpose of privatisation.
Why unbundle and
decentralise the sector?
The overarching objective of the electric power policy statement is to make sure that Nigeria boasts of an electricity supply industry (ESI) that can adequately address the demands of the citizens in the 21st Century as far as power is concerned; this requires a world- class reform process at all levels of the industry.
The power sector reform therefore, must meet its obligation to break-up and regionalise the entire sector otherwise it has not met the challenges of reform. Breaking up and regionalising these new divisions will be more effective for distributing the power to various localities of the states and the nation at large. When the Discos receive their mandate, they must begin to strategise on how to dispense the power that has been generated to reach the remotest units of their specific zones. This single act alone if managed properly can bring about the change that Nigerians seek. This is the goal of reform to take an existing problem, study it, analyse it and carve out various meaningful solutions from the original problem while adding new and effective tested measures to make the old problem become efficient. Nigeria must take the approach of reforming several public companies in line with best practice for meeting global trends.
The unbundling will be such that there will be a vertical unbundling of Power Holding Company of Nigeria(PHCN) whereby it will be divided into three segments: The Generation sector, Transmission sector and Distribution/Market sector. In addition, there will be a horizontal unbundling with the creation of PHCN successor companies and several transition reform entities will be created. A complete overhaul of the previous PHCN will be taken over by a complete new structure with system and market operators established and full transition steps towards a well rounded competitive market to follow.
To introduce competition, functional segmentation of PHCN is crucial. This required: the separation of transmission and dispatch from generation; the establishment of a transmission company; the establishment of a number of competing, privately owned generation companies from existing PHCN generating facilities; the opening up of generation to new market entrants; and the establishment of a number of distribution and sales (marketing) companies, which will also be privatised.
Goals of unbundling, decentralisation
The government aims to provide a world-class ESI that will ensure an efficient way to manage the generation, transmission, distribution and marketing of power and electricity which will be safe, clean, affordable and efficient plus will have the ability to yield profit for the nation while assuring that it is cost-effective. In addition, the ESI will be able to attract private investors not just from,but also all over the world.
The power sector will be developed under a transparent and effective regulatory framework, which aims to develop and enhance indigenous capacity in electric power sector technology, and to participate effectively in international power sector activities in order to promote electric power development in Nigeria, meet the country’s international obligations and derive maximum benefit from international cooperation in these areas.
It also aims to ensure that the government strips its interest in the state-owned entities and establishes the key principles of restructuring and privatisation in the electric power sector while encouraging competition to come across growing demand through the full reformation of the electricity market, and to evaluate and inform electricity laws in toeing the line with the necessity to introduce private sector operation and competition into the sector.
For quite some time, one can agree that many things in our society both in the public and private sectors need to be fixed because they are utterly broken. One may argue that those responsible for safeguarding our prospects are unfortunately protecting their personal interests. For over the past two decades, many organisations and countries have been yearning for reforms in one or more of their operational sectors. Some have managed to acquire the needed reform to stay competitive or to rise above the norms.
Reform calls for open-minded approach, critical thinking sphere, risk taking intuition, and desire to make a difference for all. Research has indicated that reform is an acrimonious process for the elites as they may lose grip on their wealth. On the other hand, reform brings a comprehensive change to the industry to serve ‘all’ the stakeholders and not just the elite class.
Global trends
From the 1930s to the 1970’s, the evolution of electricity in the United States was monopolised and operated on the vertical private investor owned utilities (IOU). The strategy of deregulation in the early 1970’s in the US allows for competition in the wholesale power market and eventually leading to the retail sector. The reform policy supports regulation that suppresses duplication and foster new ideas to elicit the economically desirable outcomes. Hence, reform should capsize the way we do business by introducing new paradigms to meet the needs of today’s competitive and global market.
The US pioneers the concept of reform in almost every industry to allow creativity, competition, critical thinking, risk taking, and self-determination to meet the need of the consumers. The US’ strategy in energy deregulation was a gradual process that led to legislative action by Congress. US deregulation called for sector-by-sector beginning from the wholesale to the retail of the power supply to avoid networks duplication and inadequate use of the country’s resources. The reform process in the US not only focused on states or companies but more importantly on consumers. The consumers’ focus subsequently led to price competition. The retail price competition introduced by the state of California in 1999 quickly spilled over two- dozen states including New York, Texas, Massachusetts, Ohio and New Jersey (Das, 2010). Although the retail price competition is an achievement in the reform process, the consumer’s freedom to choose his/her energy supplier created unprecedented competitive energy market. The US roadmap in energy deregulation from the early 1970s to the mid-2000 showed significant achievements despite some limitations or setbacks in the retail energy competition.
The US energy reform achievement has prompted several countries such as India, Mexico, Canada, and Venezuela, just to name a few, to begin making changes in their energy policies in order to cope with the challenges ahead.
India: India has taken a particular interest in the US energy reform because it must attract investors and meet the unprecedented growing demand of its consumers. The competition in itself is geared toward bringing down price of goods and services and to provide better services to consumers.
• Dr. Njideka Kelley and Dr. Komlan Badake are of New Generation Consulting Resource Solutions, Cresco, Pennsylvania, United States. They can be reached via njigirl@yahoo.com, www.newgenerationconsultingrs.com.
