Failures of independent power producers in nigeria: the inimical challenges

Thesis Abstract

Independent power producers have for long been misunderstood. This is more so because of the fact that the activities of IPPs are just becoming popular amidst the common man on the street. They are simply companies that generate electricity privately for onward sale to utilities or the general public. They are also referred to as non-utility generators.

Currently, there are over thirty IPP licensees in Nigeria. However, despite the procurement of licences by these IPPs, a review of the performance of these IPPs reveals that most of them have not been functional.

It is in the light of the inability of most these licensees to come on board despite acquiring licences with huge sums of money and very little successes recorded by a very few of them that I have decided to conduct a research to shed light on their failures. It is my belief that a critical study of the hindrances or challenges faced by these IPPs will reveal the reasons for their failures. This research aims to unravel the problems or causal factors responsible for the failure of IPPs in Nigeria despite been granted operation licence for over five years.

In undertaking this research I encountered numerous challenges or limitations. One of the major challenges is the lack of funds to make schedule visits to the sites of these IPPs in order to ascertain on a first hand their problems as well as feel their pulse on such problems.

In the cause of the research, I reviewed the developmental phases of setting up an IPP. These phases which include the project definition, project development and continuous operations were extensively dealt with in the theoretical framework. Due to the scope of this research, only the first two were treated in details in the empirical part. This is due to the fact that the failed IPPs are at these stages of their development.

The outcome of the interview granted reveals many problematic areas which currently stand as stumbling blocks against the success of these IPPs. The observed problems include lack of cost reflective tariff, unavailability of a recognised counter-party to sign PPAs on behalf of government, the failure of the IPPs to secure Power Purchase Agreement and most importantly the lack of provision of payment guarantee in the power purchase agreement.

Having observed these problems, appropriate recommendations were made to the Nigerian government and her agents to find lasting and amicable solutions to solve them.

1   INTRODUCTION

1.1   Background of the study

Electricity is considered one of the most important inventions of the twentieth century. Meaningful development in modern economies has been fundamentally tied to electricity use. Erratic power supply or insufficient electricity supply a total lack of it is the concern of governments in many countries. Its absence has been linked to poverty in many developing nations (Hirsh, Richard 2000).

In recent years, the energy sector in Nigeria has drawn a lot of attention from the government, corporate institutions as well as the citizens of the country. This is due in part to the inefficiency and abysmal low level of electricity production to support the industrialization process and also the continued increasing demands of the fast growing population of the country.

There have been several attempts by previous government administrations to find a lasting solution to the problems of electricity supply in the country the latest been the decentralization of the energy sector and the granting of licences to different Independent Power Producers (IPPs).

It is the believe of government that the generation of power close to the final point of use will tackle the moribund inefficiencies of transmitting energy from the centralized distant power generating plants through the national power grid to the various states where it is finally consumed. It also believed that this is the finest solution to the challenges of rural electrification. Most importantly, government believes that being private investors, IPPs would be able to run the energy sector more efficiently. Hence it granted licenses to many IPPs to generate energy for onward distribution to utility companies and domestic consumers. Despite the approval of these licenses, only a handful has managed to become operational.

Currently, there are over thirty IPP licensees in Nigeria (www.nercng.org). However, despite the huge costs involved in procuring these licences which averages about fifty thousand US dollars (www.nercnng.org), a review of the licences granted so far to the IPPs has shown that most of them have not been functional (http//ndn.nigeriadailynews.com/templates/?a=21724) February 2010.

It is in the light of the inability of most these licensees to come on board despite acquiring licences with huge sums of money and very little successes recorded by a very few of them that I have decided to conduct a research to shed light on their failures. It is my belief that a critical study of the hindrances or challenges faced by these IPPs will reveal the reasons for their failures. If the reasons for these failures are known this will generate further enquiries as to how they could be solved.

1.2      Objective of the study

This research aims to unravel the problems or causal factors responsible for the failure of IPPs in Nigeria despite been granted operation licence for over five years.

1.3      The research problem

Quite a lot of studies have been conducted with a view to determining the problems and challenges faced by the sector, the linkages between the sector and other sectors of the economy, the economic gains that may accrue to the country if the sector is up and functioning optimally etc.

These and many more researches, have however, not been able to solve the problems at hand i.e. the consequences of an inefficient energy sector topmost of which is inadequate or erratic power supply. This is due to the fact that for proper positioning and efficiency of the sector, private investors must be allowed to run the sector while the government provides the enabling environment and legal framework for the investors to operate.

Most recently, researches have delved into studying the likely effects of the power sector reforms in Nigeria on power reliability and stability in the country (Adoghe, A.U. 2008)