The
Vision 2020 economic plan was launched in 2009 to drive Nigeria towards
becoming one of the top 20 economies in the world by the year 2020. This plan
had several goals including the generation, transmission and distribution of
35,000MW of electricity by the year 2020. In 2009, Nigeria’s average daily
electricity generation was 3,700MW, which was hugely insufficient for the 157m
people living in Nigeria at the time. Ideally, power generation capacity should
correlate with the population of a country. For instance in 2009, South Africa
generated 40,000MW for a population of 50m, Brazil generated 100,000MW for 192m
people and the United States generated 700,000MW for 308m people. In this
light, the Nigerian power sector clearly needed reforms.
Four
years have passed since the Vision 2020 plan was birthed and there is already a
massive gap between the planned and actual. The plan was to achieve 16,000MW by
2013; however, Nigeria is still struggling to maintain a generation of 4000MW
mid-way through 2013. The dependence on thermal generation and inability of
management to ensure a steady supply of gas has kept the country behind some of
its peers. The slow progress in increasing power generation in Nigeria is not
new.
Preceding
Vision 2020 was the Electric Power Sector Reform Act of 2005 (EPSR) which was
the foundation for power sector improvements. However, no major improvements
have been made as Nigeria’s installed generation capacity has grown from only
6000MW to just over 8000MW in the last decade. This is very disconcerting
considering that the contents of Nigeria’s reforms are similar to those in some
other countries which have seen better results. So why has there not been a surge
in Nigeria’s power generation?
Case Study of
Vietnam
Vietnam
is a Southeast Asian country with a deep history of conflicts and war.
Originally colonized by China, Vietnam won its independence before France
colonized it once again. The Japanese invaded Vietnam during World War II and
this led to the First Indochina war in Vietnam between 1945 and 1954. By 1954,
Vietnam fought off the French to gain its independence at the cost of its unity.
Northern and Southern Vietnam began a war in 1954 that would last for 21 years
(compared to two and a half years of the Nigerian Civil War) leaving millions
dead and the economy ravaged. Unified under the Communist government in 1976,
Vietnam began a series of economic and political reforms that would set the
foundation for future growth.
By
2012, Vietnam had a GDP of $123.6bn and a population of about 90m, representing
approximately half of both Nigeria’s GDP and population. According to the
Economist Intelligence Unit’s (EIU) key economies to watch in the next five
years, Vietnam ranks fifth (Nigeria ranks 2nd on this list). Vietnam is also a
member of the Next 11 Economies as in Nigeria. The Next 11 economies are
countries with high potential to become the world’s largest economies in the
21st century along with the BRICS. Vietnam recognized the need for power improvements
to support its growth over the years. As a result, the country embarked on
power reforms which started in 2005 when a new electricity law came into
effect.
Through
the establishment of the new electricity laws, Vietnam aimed to:
· Expand and
improve the power system (resource development)
· Enhance the
transmission lines
· Reduce
transmission and distribution losses
The
Vietnamese government created competition in the power sector, which drove the
expansion and improvement through:
· Investment by
the state-owned Vietnamese Electricity
· Generation and
distribution companies became different units under a holding company (similar
to the Power Holding Company of Nigeria)
· Build-Operate-Transfer
(BOT) by granting concessions for construction and development Independent
Power Projects (IPP) through the participation of private capital
Vietnam’s
installed generation capacity was able to grow from 11,578MW in 2005 to
24,500MW in 2012, with a reduction in transmission and distribution losses by
an annual average of 0.6% within the same period. The growth in installed
capacity was greatly supported by IPP development. The addition of
approximately 13,000MW between 2005 and 2012 may be viewed as meager but that
of Brazil, another emerging economy and the world’s 10th-largest electricity
producer, increased by the same amount within the same period. In contrast, the
generation capacity in Nigeria, a country that can be grouped with those above,
has remained flat throughout this same period.
As
stated earlier, the Vietnam government recognized the need for power reforms to
support its growth. Corruption is one of the major issues in Vietnam, just like
in Nigeria. In 2006, a new anti-corruption law came into effect in Vietnam and
this helped to reduce corruption in Vietnam over the years even though
corruption is still a major problem. The reforms in the power sector led to
improved management in the sector and when coupled with reduced corruption,
this led to increased efficiency and growth of the sector.
Lessons for Nigeria
There
is a lesson for Nigeria to learn from Vietnam’s power sector progress. Just
like Vietnam, Nigeria’s on-going power sector reforms involve changing the
structure of the sector to separate generation, distribution and transmission
units. However, Vietnam was able to effectively create competition in the
sector while Nigeria has not succeeded in achieving this so far. The defining
factors that have differentiated the two countries over the past years are
reduced corruption in the sector and improved management.
The
government of Vietnam was able to display better management of the power
sector, which attracted the much needed investments. Even though Vietnam is
still viewed as one of the most corrupt nations in the world (ranking 123rd
while Nigeria is ranked as more corrupt in the 139th position according to the
Transparency International Corruption Index), the government was able to cut
down on this corruption in the power sector to allow progress to be made.
Corruption
and poor management have been highlighted as some of the causes of the poor
state of power in Nigeria. Addressing these issues will hasten reforms and
attract the needed investments which would create competition, diversify the
generation mix and aid in the development of the human capital needed to
support the reforms.
The above article is an excerpt from the July 2013
Bi-monthly Economic & Business Update published by the Financial
Derivatives Company.
Email: fdc@hyperia.com; Website: www.fdcng.com
