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At 45%, Nigeria’s electrification rate is low – much lower than that of Ghana (72%) and SouthAfrica (85%). Furthermore, unreliable power supply forces both households and industry torely on privately owned generators for much of their power. These generators are more thantwice as expensive (NGN 62 - 94/kWh) than grid-based power (end user tariff of NGN 26 - 38/kWh).There are three stages in the delivery of power to customers: generation at the power plant(requiring a source of primary energy, i.e., water or gas), transmission to the distributioncompanies and distribution to the end user.Only 25% of Nigeria’s 12,522MW of installed capacity reaches the end user. Widespreadinefficiency means that only 3,879MW of this capacity is operational (average January to15 August, 2015), with 3,600MW transmitted and 3,100MW distributed (Exhibit 1).Exhibit 1Only 25% of Nigeria’s installed capacity is distributedNigeria power sector energy flowMWCONCEPTUALEstimated max.transmission capacityEstimated max.distribution capacity12,522 7.4%transmission loss5,381 6.9% commercial and36.5% collection losses 12.5% 2distributedDistribution1 Refers to average daily capacity of units non-available and non-operational from Jan to Aug 15 2015; assumes peak demand2 Effective capacity for transmission and distribution post-losses; assumes peak demandSource: Team analysis, TCN reports, Advisory Power TeamMost of the short fall (5,381MW average January to 15 August, 2015) is capacity that isunavailable due to obsolete equipment and poor maintenance or to ongoing maintenanceand repair activities at existing power plants. Also, 3,262MW (average January to 15 August,2015) is non-operational primarily due to gas, water, high frequency, and line constraints.In addition, the financial health of the sector is below par, as the distribution companies areunable to collect sufficient revenue to pay their full market costs. As a consequence, all ofthe upstream sectors (TCN, generation companies, and gas producers) do not receive fullcompensation for their costs.7

Reform timeline and major playersSince 2005, Nigeria has undertaken a long-term structural reform of the sector to improvethe provision of power to its citizens. The Roadmap for Power Sector Reform launched in2010 has provided major impetus. The government has developed the power sector from asingle state-owned utility to an unbundled system with private participation and ownershipof assets across generation and distribution (Exhibit 2).Exhibit 2Nigeria’s power sector privatisation timelinePrivatisation timelineFEB-MAR: BOE and preferred bidders sign industryagreements and preferred bidders pay initial depositsMAR: Electric Power Sector Reform Actpassed NEPA unbundled Power Holding Company of Nigeria(PHCN) created consisting of– 6 generation companies(GenCos)– 11 distribution companies(DisCos)– 1 transmission company(Transmission Company ofNigeria – TCN)FEB–MAR: Shareholders and Share SaleAgreements signed and initial deposits (25%) paidby preferred bidders of 10 DisCos (ex-Kaduna)MAR: Pre-due diligence conducted for retender of Kaduna DisCo and Afam GenCoMAR: EOIs received;requests for proposal(RFPs) sent toshortlisted bidders20052009/10AUG: Launch of roadmapfor Power Sector Reformto guide acceleration ofEPSR reforms. One of thekey tenets of theRoadmap was PHCN’sprivatisation2011DEC 2010: Bureau ofPublic Enterprises (BPE)sends outadvertisements forExpressions of Interest(EOIs) for PHCNsuccessor companiesMAR: Privatisation of Alaoji,Omoku and Gbarain NIPPGenCos temporarily suspendedpending ruling on EthiopeEnergy case challenging theirdisqualificationSEP: Share certificates and licences handedover to purchasers of PHCN GencosSEP: Requestsfor proposal(RFPs) issuedNOV: Incorporation of11 new successor DisCosand 6 successor GenCosMAR: Technically qualified biddersfor NIPP GenCos announcedJUL: Technical andfinancial proposalsfrom pre-qualifiedbidders receivedfor PHCN successorcompanies (exKaduna DisCo)NOV: After several shifts in hand-overdate owing to issues especially labourprotests, 10 DisCos were handed overon 1 Nov2012AUG: Preferred bidderselected for Afam GenCo2013OCT: National Council onPrivatisation (NCP) approvedpreferred bidders for legacyGenCos and DisCos (exAfam GenCo or KadunaDisCo)APR: Deadline of preferredand reserved bidders to paybank guarantee of 15% ofamount bid2014AUG:Northwestmissesdeadline forpayingbalance ofbid priceOCT:Northwestmeets theextendeddeadline forpaying thebalanceDEC:Handoverof KadunaDisCoSource: CSL 2014; press searchThe key decision, policy, and regulatory bodies active in the sector are: The Presidency Nigerian Electricity Regulatory Commission (NERC) Ministry of Power (MoP) Ministry of Petroleum Resources (MoPR) Ministry of Finance (MoF) National Council on Privatisation (NCP) with its secretariat, the Bureau of PublicEnterprises (BPE).8

There are seven main players in the daily operations of the power market: Nigeria Bulk Electricity Trader (NBET) Transmission Company of Nigeria (TCN) Nigerian National Petroleum Corporation (NNPC) and its key operational subsidiaries,the Nigerian Gas Company (NGC) and the Nigerian Petroleum Development Company(NPDC) Niger Delta Power Holding Company (NDPHC), which owns and operates the NIPPpower plants and is responsible for completing construction of parts of the critical newtransmission and distribution infrastructure Private sector natural gas producers: international oil companies (IOCs) and indigenousoil and gas companies The divested generation companies The divested distribution companiesThe remainder of this document looks in detail at the four components of the powersector value chain (generation, primary energy – gas, transmission, and distribution) andtheir status.9

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Nigeria’s power landscapeNERC(NIGERIAN ELECTRICITY REGULATORY COMMISSION) Overarching power sector regulator Responsible for licensing, tariffs, codes and other policiesNBET(NIGERIAN BULK ELECTRICITYTRADING PLC)GASPURCHASEAGREEMENTS Creditworthy intermediarybetween DisCos, TCN and GenCos Temporary role until sectorachieves fiscal GAS PRODUCERSGENCOS NNPC, IOCs, and Local Independents JV, PSC, and Independent fielddevelopment(GENERATION COMPANIES) 25 grid-connected power plants Mix of public and private ownership(privatised PHCN, NIPP and IPP)HYDROGAS15%85%8.9 BSCFD110.8 BSCFD Daily productionSupplied to power plantsGASTHERMALPLANTS 85% of installedcapacity 22 gas thermalplants HYDROELECTRICPLANTS 15% of installedcapacity 3 hydro plants

STARIFFSCUSTOMERSCUSTOMERS 8 million 8 millioncustomerscustomers 36% 36%collectioncollectionloss lossVESTINGVESTINGCONTRACTSCONTRACTS1 NYCOMPANYOF IES)COMPANIES) Owns gridgrid Managed Managedby onal 11 privatised11 privatisedDisCosDisCos Sell directlySell directlyto customersto customersandandindustryindustry pacity 3,6003,600MWMW3,1003,100MWMW nand otherand teredby marketby marketoperatoroperator2AverageAveragedaily operationaldaily operationalcapacitycapacityfrom Januaryfrom Januaryto Augustto August15, 201515, 201512

GenerationBetween January and 15 August, 2015, Nigeria’s power plants sent out an average3,317MWh/h of electricity daily from 25 grid-connected power plants (located largely in thesouth) with installed capacity of 12,522MW. The plants are run by generation companiesincluding those formerly under the PHCN, National Integrated Power Project (NIPP), andIndependent Power Producers (IPPs).Eighty-five percent of installed capacity is generated by gas thermal power plants and theremaining 15% is generated by hydroelectric power plants (Exhibit 3).Exhibit 3Nigeria has 25 on-grid power plants1, concentrated in southern oBauchiNigerGombeKadunaAdamawaPower plant installed capacity MWPlateauFCTKwaraOyoOsunOgun50-200Nassarawa verIn addition, 3 more NIPP plants are underconstruction and NERC has issued licensesfor additional on-grid projects with capacityover 9,000 MW, including IPPs such as AzuraPower, which is nearing financial close1 Includes plants connected to the grid with at least one constructed turbine2 IPP: Independent Power Project – note Ibom, Omoku, Rivers IPP, and Trans Amadi are sponsored by state governments 3 NIPP: National Integrated Power Project plantSource: TCN Reports, Advisory Power Team, NERCAlthough installed capacity totals 12,522MW, the average available capacity (January to 15August, 2015; 57% of installed capacity). Available capacity is capacity that could be usedfor generation but is constrained by internal plant issues – mainly maintenance and repairrequirements. Some of these are routine general maintenance and inspections, but mostare the result of unplanned issues (e.g., trips, faults, leakages, burnt components, vibrationand filter issues) and units needing rehabilitation/overhaul.13

Nigeria’s powergeneration efficiency1INSTALLED CAPACITY25 gas-fired and hydro-electric power plants3 HYDRO PLANTS1,930MW22 GAS PLANTS10,592MW12,522MWINSTALLEDAVAILABLE CAPACITYNon-availability reduced power generation by 5,381MWMAINTENANCEAND REPAIR ISSUESREDUCED CAPACITY21PLANTS7,141MWAVAILABLE CAPACITYOPERATIONAL CAPACITYGas, water management, transmission, and other constraints reduce power generationby 3,262MWGAS CONSTRAINTWATER CONSTRAINTHIGH FREQUENCYLINE CONSTRAINTOTHER CONSTRAINTS11,995MW444MW179MW84MW560MWAvailable and operational capacity data points are daily averages from January to 15 August 20153,879MW14

Although available capacity is 7,141MW, power plant operational capacity is even lower at3,879MW (average January to 15 August, 2015; 31% of installed capacity).The key constraintsto operational generation capacity are: Insufficient gas supply due to low production, insufficient infrastructure and vandalism Poor water management High frequency due to demand imbalances Line constraints due to inadequate transmission infrastructure.Exhibit 4All plants have sub-optimal utilisation; 7 operate at less than 10% of installed capacityLess than 10% operationalAvg. available capacity2MWInstalled capacity1MWPower plantEGBINIPPAFAM VIPRIVATISED PHCNOKPAIIPPDELTANIPPJEBBAIPPOLORUNSOGO GASPRIVATISED PHCNIHOVBOR NIPPPRIVATISED PHCN434GEREGU NIPPPRIVATISED PHCN450KAINJINIPPOLORUNSOGO NIPPIPPOMOTOSHO NIPPNIPPOMOTOSHO GASPRIVATISED PHCNSHIROROPRIVATISED PHCNGEREGU GASNIPPSAPELE NIPPIPPIBOMPRIVATISED PHCNSAPELENIPPALAOJI NIPPIPPODUKPANI NIPPPRIVATISED PHCNAFAM IV-VNIPPASCOIPPOMOKUPRIVATISED PHCNTRANS AMADINIPP150AES GASPRIVATISED PHCNRIVERS vg. operationalcapacity2, MW000001750007,14157%54%3,87931%1 Average daily capacity Jan to Aug 15 2015 with data extrapolated for days on which data not available2 Average of daily total across plantsSource: TCN Reports, Nesistats.org, Advisory Power TeamThese constraints cause the power industry to lose an average NGN1.4 billion (USD7 million)of revenue1 daily.Improving Nigeria’s power generation is key factor to resolving the power shortage. Ongoingrefurbishment of existing generation plants and construction of new gas-fired power plantswill help. However, building more generation capacity alone is not enough; it needs tobe supported upstream with improved gas availability and downstream with additionaltransmission capacity.115 Using net, average and levelised, tariff of N20/kWh (i.e. net of all ATC&C losses) per MYTO 2.1 assumptions(source: Nesistats.org)

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Primary energy – gasNigeria has the world’s ninth-largest proven gas reserves (estimated 180,105 bscf). However,insufficient gas supply is the biggest constraint to available generating capacity andreduces operating capacity by an average of 2,060 MW daily.Although the country has abundant reserves, its gas production is low – it ranks 22 on theglobal production scale. The low level of gas supplied to power plants is exacerbated byinsufficient gas production for the domestic market. In 2014, total gas production was 8.9bscfd but less than 10% was supplied to the domestic power sector for generation.This is insufficient to run the country’s gas thermal power plants. As a result, only 56% of gasplants’ available generating capacity is operational. An additional 0.6 bscfd would berequired to sustain current available generating capacity.The low level of gas produced for the domestic market is the result of:—— Insufficient gas-processing and pipeline infrastructure. Long-term under-investmentand delays in the delivery of planned gas infrastructure have resulted in a shortageof gas-processing and pipeline infrastructure. Lack of investment in gas-processingfacilities and failure to complete already funded projects are key challenges. Regularvandalism of existing pipelines is another big challenge.—— Poor economics. Low domestic gas prices do not justify investment in gasdevelopment by upstream oil and gas companies. Recent tariff increases haveimproved the situation but it is estimated by OPTS2 that further increases are neededto fund projects requiring new infrastructure, e.g., processing facilities and pipelines.In addition, gas producers are not consistently paid for the gas they supply becausethe generation companies do not receive full remittances from the NBET due todownstream collection issues.—— Limited joint venture funding. From 2010 to 2013, the gas industry received USD6billion less than required from NNPC to fully implement its joint-venture business plans(on a yearly average basis). Resolving these funding challenges could increase gasproduction by 2.8 bscfd by 2020 under current fiscal terms.—— Regulatory issues. Nigeria’s oil and gas regulatory regime, specifically the PetroleumIndustry Bill, has been under debate since 2008, causing investor uncertainty.Gas is the primary feedstock for the Nigerian power industry and the failure to deliver has alarge downstream impact on all players from generation to distribution. Current and futurepower plants will not meet power demand unless gas supply improves significantly.172Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry

Nigeria’s gas utilisation8%RE-INJECTEDPRODUCERINTERNAL USE27% T GAS TO POWERPOWER REQUIREMENTS FOR AVAILABLE CAPACITY11.4BSCFDneeded for gas generationPOWER 0.8BSCFD1,995MWlost to gas constraint28%of available capacity unutilizeddue to gas constraints1Average available capacity of 7,414MW from January to 15 August 201518

TransmissionTCN manages the transmission system under management contract with Manitoba HydroInternational. TCN consists of three departments:1. Transmission Service Provider (TSP) that is responsible for the development andmaintenance of transmission infrastructure.2. System Operator (SO) that manages the flow of electricity throughout the powersystem from generation to distribution companies.3. Market Operator (MO) that administers power market rules.TCN is the last legacy asset to be reorganised and is to be structured to operate independentlyfrom the SO and MO.Nigeria’s transmission network consists of 159 substations with a total (theoretical)transformation capacity of 19,000MW and 15,022km of transmission lines.Currently, transmission capacity ( 5,300MW) is higher than average operational generationcapacity of 3,879MW (average January to 15 August, 2015), but it is far below the totalinstalled capacity of 12,522MW. When operational generation capacity grows to the samelevel as transmission capacity, transmission will become a critical bottleneck to electricitydelivery – early signs were visible in July and August.At an average 7.4% (January to July 2015), transmission losses across the network are highcompared to emerging country benchmarks of 2-6%. This reflects the critical infrastructureand operational challenges.Ineffective maintenance and poor system management contribute to partial or total systemcollapses. The number of system collapses has fallen over the last seven years from a peakof 42 in 2010 to 13 in 2014 (Exhibit 5). The incidence of forced outages has not improved atthe same rate and maintenance challenges persist with an average of just 67% plannedmaintenance works completed per month (February to July 2015).19

Exhibit 5System collapses have declined over the last 7 years, but remain a significant challengedue to insufficient maintenance and poor system managementNumber of 132010201141692012201320148352015 YTD11 January to August 15, 2015Source: TCN ReportsOne hundred and twenty-six approved TCN projects worth USD1.5 billion are underway tostrengthen the transmission network and a further 118 NIPP projects have been approved(Exhibit 6). As in generation, however, delivery has been slow and only 22 of the TCN projectshave been completed, primarily because of inadequate funding and invoicing delays(ongoing FGN funded projects are generally ineligible to access external funding reservedfor new projects). Of those yet to be completed, 30% have been underway for more thanfive years and eight were started in 2001. In addition, various external funding sources3have been made available to finance new projects within the transmission sector. However,much funding has yet to be accessed as the number of bankable projects is low.When complete, these projects could increase grid-wheeling capacity to 7,200MW andthe length of the network to 21,000km.3 From the African Development Bank, FGN Eurobond issue, French Development Agency, China EXIM, World Bank,Japan International Cooperation Agency20

Exhibit 6Approved projects aim to stabilise and strengthen the transmission networkApproved TCN and NIPP transmissionprojects1Number of projects126Potential impact of projects approvedNot completedPotential increase from projectsCompletedExisting118Grid wheeling capacity, MW5,3381,8927,23058Detailedfurther104Transmission line, km6015,02222TCNNIPP1 As of May 20152 Assuming power factor of 0.85 per minimum stated in Grid Code for the Nigeria Electricity Transmission System 2014Source: TCN Reports, Nesistats.org, Advisory P

generation and distribution companies and the Transmission Company of Nigeria (TCN). Beginning in 2013, the generation and distribution companies were handed over to private owners with the FGN retaining a minority stake. The TCN is still 100% owned by the FGN but is currently under a man