Power Distribution In Nigeria, A Bone To Economic Development

Project and Seminar Material for Economics

Power Distribution In Nigeria, A Bone To Economic Development


Abstract


The study examined the energy consumption and economic growth in Nigeria, using the time frame 1986-2016 (30years). It was established in the study that before the introduction of appropriate energy consumption, energy sector funds were grossly mismanaged, contracts were awarded based on ‘connection’ rather than on merit and high occurrence of corruption in Nigerian power sector. Since power sector has been seen as an important instrument tool to be used by the government to improve the economy, the appropriate growth from power supply have strengthened all sectors in Nigeria economy and minimize the incidence.

The result of the study reviewed that: Energy consumption has significantly relationship with economic growth in Nigeria between 1986-2016 (30years).

The study concluded that Energy consumption has significantly relationship with economic growth in Nigeria between 1986-2016 (30years).

The study suggested that energy conservation policies could be effectively implemented without having any negative effect on economic growth in Nigeria and energy growth policy should be adopted in such a way that, growth in the energy sector stimulates economic growth and thus expands employment opportunities in the country.


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, 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.

The 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 public participation. Many experts have criticized the power policy reforms and investment effectiveness given the increasing power deficiency in Nigeria. In essence, power deficiency has been identified as major obstacle to Nigeria’s economic growth.

Therefore, various studies have been conducted on the relationship between economic growth and energy consumption (Yilmaz and Hasan, 2014; Sama and Tah, 2016). According to Ojinnaka (2008) energy consumption runs hand in hand with the national product. His study revealed that energy consumption per capita is an important indicator of economic growth. Continuous increase in production in the world has increased the need of energy, but the insufficiency of oil and natural gas resources in the world poses an obstruction for the sustainable economic growth.

However, Electricity power is a secondary energy resource obtained from the conversion of the primary energy resources such as fossil fuels (natural gas, oil, coal) and wind energy. Coal has been the fuel mostly used in electricity generation, the share of nuclear power and natural gas in power distribution has increased in recent years, while the use of oil in electricity generation has declined since the late 1970s due to sharp increases in oil prices. World net electricity generation was 20.2 trillion kilowatt-hours in 2010 and expected to increase 39.0 trillion kilowatt-hours in 2040 by 93%. The growth of electricity demand in the OECD countries is slower than in the non-OECD countries (U.S. Energy Information Administration, 2013; Yilmaz and Hasan, 2014).

Evidences have shown that Nigeria is primarily an energy store house accommodating resources such as coal and lignite, natural gas, crude oil, solar, hydro, nuclear, wood fuel, geothermal, tide, biogas and biomass. In spite of the available vast resources, only four sources (coal, crude oil, natural gas and hydro) are currently utilized in processed forms while two others (wood fuel and solar) are used in their crude forms for heating, cooking and lighting (Ogundipe and Apata, 2013)

Also economic growth continues to be a key macroeconomic concept of interest among most researchers and policy makers around the world (Abaidoo, 2015). The sustain interest in this macroeconomic indicator stems from its pivotal role in impacting other integral segment of an economy and livelihoods.

Today, Nigeria is seen as one of the greatest developing nations in Africa with highly endowed natural resources including potential energy resources. However, increasing access to energy in Nigeria has proved to be not only a continuous challenge but also a pressing issue with the international community (Ogundipe and Apata, 2013). Economic growth is a requirement for a nation to move from a third world country to a developed country. For a developing country like Nigeria, the greater the economic growth, the better its chances to become more developed; with adequate use of energy potentials to meet the demand, the nation would experience high levels of economic growth (Ogundipe and Apata, 2013).


1.2 Statement to the Problem

The real situation of power generation deficiency in Nigeria is unimaginable even as the Federal Government has initiated many policies, projects and programs to tackle energy problems in Nigeria for many decades. However, the problems of power generation deficiency persisted given that power generation capability is not meeting up to Nigeria’s population growth rate and national economic aspiration as power distribution, transmission and regulation are still issues to the nation. Nigeria is producing and consuming 4,000 mw of electricity by a population of 160 million people, which is only 2.5 per cent of what South Africa with lesser population is producing and consuming. Dr Mu’azu Babangida Aliyu, the former Governor of Niger State, at the signing of a memorandum of understanding with a German Technical Partner (GIZ) said that the country requires 35,000 megawatts of electricity to attain stable power supply in the country. According to Aliyu, as of 2014, the power supply in the country was in the neighborhood of 5,000 megawatts, which was grossly inadequate. He reiterated further that as a result of the shortfall in the supply of electricity to all parts of the country, Niger State inclusive, industrial development and other small scale businesses have not achieved the required growth (Aliyu, 2014). Bureau of Public Enterprises website enlisted some challenges facing power sector reform in Nigeria, which includes: limited access to infrastructure, low connection rates, inadequate power generation capacity, inefficient usage of capacity, lack of enough capital investment, ineffective regulation, high technical losses and vandalism. Nigeria’s economic growth goal would remain a mirage unless the country explores ways to increase power generation capacity which meets up with its population and market size as the largest economy in Africa. For instance, from available data, the country has not developed a comprehensive policy in renewable energy technologies which experts agreed is best suited for the electrification of remote areas and provide ample opportunities for communities and private sector involvement and subsequently foster local economic development. More so, Nigeria has not harnessed the full potentials of energy mix and new energy technologies such as coal and natural gas-fired electricity generation. International Energy Agency (IEA,2008) projected that coal will dominate the power sector, with nearly 50 percent of the total power generation by 2050. According to IEA (2008), gas will come as second source with 23 percent projection. Other sources identified by IEA are nuclear and renewable, such as wind, hydropower and solar which will take bulk of decreases from the fossil fuel share of power generation.

Energy plays a vital role in the aspect of a developed country or a developing one. In Nigeria electricity has contributed to the total gross domestic product but still the country is facing several problems of electricity supply. The electricity subsector has not been able to meet the demand for electricity in the country and this has caused many problems which if affecting the economic growth. Energy effectiveness and consumption does not just predict a decrease in utility cost but it involves increasing income through greater output. Majority of Nigerian are needy on fossil fuel and fuel wood (firewood). The over dependence on fossils and fuel wood (used mainly by poor rural commuters) have not yielded enough capacity to meet increasing demands. Since energy has become the key function for economic growth of any country, it improves the efficiency and productivity of the country. The extensive industrialization, urbanization and increasing population size has increased the use of more energy, especially in the developing countries like Nigeria (Chaudhry, Safdar and Farooq, 2012). The relationship between energy consumption and economic growth has been extensively investigated in the last decade and received increasing attention in Sub Saharan Africa. Nevertheless, there is no agreement about the relationship between energy consumption and economic development particularly in Nigeria. Moreover, this issue is not been examined thoroughly for all sources of energy in Nigeria.


1.4 Objectives of the Study

The main objective of the study is to examine the power distribution in nigeria, a bone to economic development in Nigeria. Hence the following are specific objectives

  1. To study the trend analysis ofpower distribution in Nigeria
  2. To examine the relationship between energy (Electricity) distribution and the Nigerian economic growth.
  3. To make policy recommendations based on the analysis from the study.

1.4 Research Questions

The study seeks to answer the following research questions;

  1. What is the trend analysis ofpower distribution in Nigeria?
  2. What is the relationship between energy (Electricity) distribution and the Nigerian economic growth?

1.5 Research Hypotheses

In the course of the study, the following hypotheses would be tested:

Hypothesis One
  • HO: There is no significant relationship between power distribution and economic growth of Nigeria
  • H1: There is a significant relationship between power distribution and economic growth of Nigeria

1.6 Significance of the Study

The significance of energy to any country economy cannot be over emphasized. Energy is used in almost all sectors of the economy ranging from mining, transport, agriculture, manufacturing industry, electricity generation and so on.

The establishment of a relationship between energy consumption and growth which this study hope to investigate will go a long way in checking the level of different energy consumptions and how it helps in performance of the different sectors of the economy and the achievement of sustainable growth and development.

The study will prove a valuable contribution to available literature on the discourse. The scope of study as well as the method of analysis makes the research work a reliable reference material for students and researchers in Economics who may want to get on a similar study.


1.7 Scope of the Study

The study will analyze the power distribution in nigeria, a bone to economic development. The study is limited to ministry of power. Hence, the respondents for this study will be obtained from and among management and staff of Ministry of power, abuja.


1.8 Limitation of the Study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. However, the researcher were able to manage these just to ensure the success of this study.


1.9 Definition of Terms

  • Electric power distribution is the final stage in the delivery of electricity. Electricity is carried from the transmission system to individual consumers.
  • Electricity is the set of physical phenomena associated with the presence and motion of matter that has a property of electric charge. Electricity is related to magnetism, both being part of the phenomenon of electromagnetism, as described by Maxwell’s equations.

1.10 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows.

  • Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study.

Chapter Five


Summary of Findings, Conclusion and Recommendation

5.1 Summary of Findings

The results found that energy consumption has significant relationship with economic growth in Nigeria. This implies that energy consumption has stopped the evasion of due process in most activities of the economy. This result is consistent with the findings of (Maku, 2014; Olugbenga and Owoye, 2007). Energy consumption has birthed the more revenue which means the redistributed of the fiscal capacity has a positive impact on the energy. Generally speaking, energy consumption has influence the infrastructural spending which affects aggregate resources combined with fiscal and monetary policies.


5.2 Conclusion

It is concluded that the relationship between energy consumption and economic growth is important for all developing economies like Nigeria, most of which have experienced increasing level of government spending and have achieved low level of economic development overtime. Since independence, the revenues accruing to the Nigeria Government has been on the increase annually in power sector. The study further concluded that; Issues pertaining to energy consumption and economic development should be given adequate attention especially in the budget schemes and because of this, substantial amount should be allocated to the power sector in order to resolve its challenges and keep the sector in good shape for it to make meaningful impact in economic growth.
This study concluded that Energy consumption has significant relationship with economic growth in Nigeria based on our study


5.3 Recommendations

Based on the findings enumerated above, this study therefore, recommends that energy conservation policies should be effectively implemented without having any negative effect on economic growth in Nigeria and energy growth policy should be adopted in such a way that, growth in the energy sector stimulates economic growth and thus expands employment opportunities in the country.


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