Beyond single-buyer trap: How Nigeria can power its industrial future - Punch Newspapers

After the fall of the Berlin Wall, a particular kind of certainty settled over the offices of the World Bank in Washington, the Asian Development Bank in Manila, and the consulting houses of London. These people had watched the all-powerful Soviet Union dissolve, and they drew a lesson about the state: it could not be trusted to run anything; a market could. Electricity, a public service almost everywhere for most of the century, sat near the top of their list. In what now feels like hubris, they wrote the same prescription for Lagos as for Lima, for Nairobi as for Manila. Break up the state utility. Create an independent regulator. Sell the power plants and the distribution networks to private investors. Let a competitive wholesale market set the price. It was presented not as one theory among several but as settled science, the way a doctor might describe the treatment for malaria. Private capital would bring discipline; discipline would bring solvency; and solvency would bring light. Hurray, Up NEPA! Reality was less obedient. When the World Bank looked back over 25 years of this experiment in Rethinking Power Sector Reform in the Developing World (Foster and Rana, 2020), the finding was sobering. Of the 88 developing countries that set out on this road, barely a dozen completed the full model. The rest stopped somewhere in the middle, hemmed in by political resistance, half-finished reforms and utilities that were still bleeding money. Many developing countries, including Nigeria, drank the Kool-Aid; China did not. Some states in India did, others didn’t–providing a natural randomised control trial. Two neighbouring Indian states, at the turn of the millennium, show just how differently the same recipe can turn out. Odisha did everything the donors asked. It unbundled its state electricity board and in 1999 became the first state in India to privatise its distribution companies. Foreign consultants produced elegant multi-year tariff models, and private concessionaires took the keys. It fell apart quickly. The sale had been built on baseline data that was, to put it politely, generous. The new owners arrived to find that technical and commercial losses were not the tidy figures in the bid documents but something closer to a hole in the ground. When they tried to disconnect non-paying customers or raise tariffs to reflect the actual cost of power, the political backlash was immediate. Starved of capital and unable to charge a cost-reflective price, the first operator walked away within two years, and the state eventually took back all four networks amid litigation that lasted more than a decade. Odisha’s lesson is one Nigerians will recognise in their DisCos: if you privatise an asset without fixing the data and building political consensus, you have simply privatised the insolvency or replaced public corruption with private greed. Next door, Andhra Pradesh chose a different road. Under Chief Minister Chandrababu Naidu, the state kept its distribution network in public hands but ran it like a business. It unbundled the sector and set up an independent regulator, yes, but it started with the unglamorous work: competitive recruitment, transparent performance tracking for staff, heavy investment in feeder metering so the utility actually knew where its electricity was going, and, from January 2000, a sustained campaign against power theft backed by laws that made it a criminal offense with real consequences. Andhra Pradesh proved what the global data later confirmed. What turns a utility around is corporate governance: strict billing and collection, disciplined staff, and hard budget limits. Who owns the shares matters far less than whether anyone is counting the money.See more Punch stories on Google.Add Punch on Google I saw this play out up close while working in India on the design and rollout of its 100 GW solar reverse auction programme. The auctions were a triumph of clean market rules. Transparent, standardised, competitive bidding took the backroom out of procurement, lowered the risk for investors, and pushed solar tariffs to some of the lowest prices the world had ever seen. But they also exposed a truth Nigeria is now living with. You can buy generation at record-low prices, but if the company at the other end of the wire cannot pay its bills, the whole chain is living on borrowed time. Nigeria followed the textbook almost line by line. When the Goodluck Jonathan administration completed the landmark 2013 privatisation, with Professor Bart Nnaji at the Presidential Task Force on Power and the Bureau of Public Enterprises (BPE) driving the process, the ambition was bold: dismantle the Power Holding Company of Nigeria (PHCN), carve it into six generation companies (GenCos) and eleven distribution companies (DisCos), and hand them to private investors. Then Nigeria walked into the single-buyer trap that had caught dozens of countries before it. Everyone knew the new DisCos lacked the balance sheets and credit history to sign long-term contracts, so the Federal Government created the Nigerian Bulk Electricity Trading Plc as a stopgap. NBET would stand between the generators and the distributors, signing long-term take-or-pay power purchase agreements with the GenCos, backed by sovereign guarantees, and reselling that power to the DisCos through vesting contracts. It was meant to be temporary. It became the permanent middleman. With NBET in the way, no direct commercial relationship existed between the people who produced power and the people who sold it to households. DisCos collected only a fraction of what they billed, retail tariffs were kept below cost for political reasons, and NBET filled the gap. For years, DisCos remitted only 30 to 50 per cent of their monthly invoices, and NBET had to turn to the Federal Treasury and the Central Bank of Nigeria for multi-trillion Naira interventions, beginning with the N701bn Payment Assurance Facility in 2017 and a N600bn successor, just to stop gas suppliers and GenCos from turning off the taps. Nigeria had unbundled the sector on paper, but in practice it had piled the entire financial risk of the power system onto the sovereign balance sheet. The result is a circular-debt crisis that looks uncomfortably like Pakistan’s. Under the Electricity Act of 2023, and with Minister of Power Joseph Tegbe and the Nigerian Electricity Regulatory Commission pushing hard, Nigeria is now correcting course. The strategy is to end NBET’s monopoly as the buyer of last resort and move to a contract-driven bilateral trading market where generators and buyers deal with each other directly. Under this shift, solvent DisCos and eligible customers can contract straight with GenCos. NERC has also taken the politically painful step of the Band A tariff realignment of April 2024, which cut general subsidies sharply by moving customers on premium feeders, those ostensibly receiving at least 20 hours of supply a day, to about cost-reflective prices. It was the first time in a generation that a large group of Nigerians was asked to pay something close to what their electricity costs, and the argument it started has not yet ended. Ending Nigeria’s endless electricity challenges Many Nigerians still lack reliable electricity supply – Power minister Why Ajaokuta Steel must go private The Federal Government is also working through the legacy debt overhang through securitisation, while states such as Lagos, Edo and Kaduna set up their own electricity markets under the constitutional amendment. At the same time, the Rural Electrification Agency (REA) is scaling up productive-use renewable mini-grids, taking solar power directly to farming clusters, rice mills, cold rooms and market centres, and bypassing the ailing national grid altogether. Bilateral contracts and decentralised power are the right direction. But two traps lie on this road, and Nigeria must avoid both if it wants a stable, solvent wholesale market. For decades, Nigeria’s biggest economic engines have run entirely off the grid. Dangote Industries, from the 650,000 barrel-per-day refinery in Lekki to the cement plants in Obajana and Ibese, runs on hundreds of megawatts of its own gas and heavy fuel oil generation. Industrial clusters in Ikeja, Bompai and Trans-Amadi keep their own generator fleets because the grid cannot promise stable voltage or uninterrupted supply. The small “I better pass my neighbour” generator outside your tailor’s shop runs on the same logic at a much smaller scale. As Nigeria legalises bilateral contracts and third-party access, DisCos face what power economists call the utility death spiral. Big industrial and commercial customers pay higher tariffs, and those tariffs quietly subsidise the household in Mushin or Sabon Gari. If the heavy users leave for bilateral deals or self-generation without contributing to the cost of the shared system, the DisCos will be left with the customers who are most expensive to serve and least able to pay cost-reflective tariffs. Without properly funded, targeted lifeline subsidies from government, that is a fast road to bankruptcy. The United States recently offered a useful lesson at the Susquehanna Nuclear Power Plant in Pennsylvania. Talen Energy (Genco) agreed to sell power directly to an Amazon Web Services data centre built next door, through an amended Interconnection Service Agreement that would have raised the behind-the-meter connection from 300 MW to 480 MW, on the way to a campus of up to 960 MW. In November 2024, the Federal Energy Regulatory Commission rejected it. Neighbouring utilities (“DISCos”), Exelon and American Electric Power, had argued that letting a huge private user plug in behind the plant’s meter could shift as much as $140 million a year in transmission costs onto ordinary ratepayers. The principle FERC laid down is simple: a large load cannot take its primary power in private while treating the public grid as a free backup. Talen disagreed but had to restructure to supply Amazon with roughly 1.9 GW through the DISCOs until 2042, setting a precedent for how large loads interconnect despite co-located generation. For Nigerian regulators, that ruling is practically a policy roadmap: Fair wheeling and ancillary charges. Large users such as industrial parks and data centres that contract directly with GenCos must pay cost-reflective wheeling tariffs to the Transmission Company of Nigeria, so the wires that carry their power are maintained. Standby capacity contributions. Captive users who rely on the grid when their own generators fail must pay structured standby fees, so the cost of their insurance is not passed on to everyday consumers. Nigeria’s reforms cannot end at a patchwork of bilateral contracts and regional pockets. The destination has to be a liquid wholesale electricity spot market: a transparent pool where every licensed generator, from Kainji hydro to the gas plants of the Niger Delta to the solar farms of the north, bids into the national grid, is dispatched in order of cost, and where prices are discovered in real time. But no spot market has ever worked on top of a broken grid. Competition needs power to move freely, without transmission bottlenecks turning each region into a small monopoly. That makes fixing the Transmission Company of Nigeria the non-negotiable heart of reform. But you cannot fix what you don’t measure. Which is why Mr Tegbe’s transmission audit is crucial before heavy investments are made in Transmission lines that go nowhere. Beyond that, TCN needs to be fully unbundled into a Transmission Service Provider and an Independent System Operator. These successor organisations, similar to Andhra Pradesh, must commit to the unglamorous work of commercial discipline: competitive recruitment, transparent performance tracking for staff, heavy investment in feeder metering, and attracting long-term capital to clear the wheeling bottlenecks. This is the price of admission to spot competition. Nigeria’s power reform is not a matter of ideology. It is economic engineering. We must learn from our own and other countries’ failures, and focus on what works: prioritise operational governance over ownership debates and balance private initiative with the public grid’s survival. The certainty of 1990 was that markets would do the work on their own. The lesson of the thirty years of this failed experiment is that markets only do the work that institutions have prepared for them.  Nigeria has spent long enough learning this the hard way. It is time to put the lesson to use. Dr Oluwatola, a partner at AP3 Advisory and CEO at TAO Technologies, writes from Abuja, Kindly share this story:

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