From NEPA to PHCN: Understanding Its Legacy

Nigeria’s journey with public power generation and distribution officially began with the establishment of the National Electric Power Authority (NEPA) in 1972. This creation, under military decree, merged the Electricity Corporation of Nigeria (ECN) and the Niger Dams Authority, aiming to create a single, vertically integrated entity responsible for the entire electricity value chain, from generation through transmission to distribution across the nation.

NEPA was initially envisioned as a cornerstone of national development, providing the essential infrastructure needed to power industries, light up homes, and facilitate economic growth. For a time, especially in its early years, it held the promise of reliable electricity, a fundamental service expected of a growing nation, operating largely as a government monopoly with little competition.

However, as the decades progressed, NEPA’s operational efficiency began a noticeable decline. Decades of underfunding, poor maintenance culture, managerial inefficiencies, and a growing population outstripping capacity led to frequent breakdowns and unreliable supply. The national grid struggled to meet demand, and technical and commercial losses became rampant, bleeding the company financially.

This era saw NEPA become a byword for inconsistency and frustration among Nigerians. The acronym was colloquially reinterpreted as “Never Expect Power Always” or “No Electric Power Available,” reflecting the pervasive experience of darkness rather than light. Public trust eroded significantly as outages became the norm, impacting daily life and hindering economic activities.

In an attempt to revitalise the ailing sector and improve performance, NEPA underwent a rebranding and restructuring exercise in 2005. It was officially renamed the Power Holding Company of Nigeria (PHCN) under the Power Sector Reform Act (PSRA) of 2005, though it remained a government-owned entity intended to serve as a transitional body towards a more market-oriented structure.

The rebranding, however, did little to fundamentally change the operational realities or improve service delivery in the short term. PHCN inherited the same infrastructure deficits, workforce challenges, and systemic inefficiencies that plagued NEPA. It continued to operate as a large, unwieldy government parastatal struggling to manage the complex demands of the power sector.

Under PHCN, the structural issues persisted: inadequate generation capacity that rarely met peak demand, a fragile and overloaded transmission network prone to collapses, and a dilapidated distribution system unable to efficiently deliver power to consumers, marked by meter bypass, non-payment, and massive losses. The company remained heavily reliant on government funding, which was often insufficient or delayed.

By the late 2000s and early 2010s, it became clear that the PHCN structure, like NEPA before it, was unsustainable and incapable of delivering the reliable, sufficient power supply Nigeria desperately needed. The legacy of a poorly maintained monopoly, coupled with the failure of the rebranding to instigate real operational change, solidified the consensus that a more radical transformation was necessary, leading directly to the unbundling and privatisation push.

The Imperative for Change: Unbundling PHCN

The decision to unbundle and privatise PHCN was not taken lightly, but rather emerged from a stark recognition of the crippling impact of inadequate power on the Nigerian economy and the lives of its citizens. The existing monolithic structure under state control had demonstrably failed to keep pace with the country’s growth and energy needs, necessitating a fundamental shift in approach.

Nigeria, with its large population and aspirations for industrialisation, consistently ranked among countries with the lowest per capita electricity consumption despite having significant energy resources, particularly natural gas. Businesses were forced to rely heavily on expensive and environmentally unfriendly generators, increasing operating costs by as much as 40% in some sectors, severely hindering competitiveness and job creation.

Decades of incremental reforms and state-led initiatives had proven insufficient to address the deep-seated issues of funding, technical capacity, and operational efficiency within the sector. It became apparent that simply injecting money into the old structure was akin to pouring water into a leaky bucket; the fundamental problems required a systemic overhaul, not just piecemeal fixes.

The global trend towards liberalising and privatising power sectors also served as a model, suggesting that private sector participation could inject needed capital, technology, and managerial expertise. The Power Sector Reform Act (PSRA) of 2005 provided the legal framework for this transformation, mandating the unbundling of PHCN into separate entities responsible for generation, transmission, and distribution.

The core idea behind the unbundling was to dismantle the single, inefficient government monopoly and create distinct, commercially-oriented entities along the value chain. This separation was intended to foster competition where possible (generation) and create regulated entities (transmission and distribution) that could be held accountable for performance, attracting private investment in the process.

The goals of the unbundling and subsequent privatisation were ambitious: to significantly increase generation capacity, upgrade the dilapidated transmission network, improve the efficiency of distribution, reduce losses, enhance service delivery, and ultimately provide reliable, affordable electricity to all Nigerians. It was seen as the critical unlock needed for the country’s economic potential.

Key government agencies, particularly the Bureau of Public Enterprises (BPE) and the Ministry of Power, spearheaded the reform process, overseeing the complex task of legally and operationally separating PHCN’s assets, liabilities, and workforce. This required extensive planning, negotiation, and the development of regulatory frameworks under the Nigerian Electricity Regulatory Commission (NERC).

The state of PHCN’s inherited infrastructure was a major driver for this drastic change. Ageing power plants, insufficient transmission lines, and a distribution network unable to handle increased load or accurately meter consumption meant that any meaningful improvement required massive capital injection and technical know-how that the government structure had failed to provide. The imperative was clear: bring in the private sector to fix what the public sector couldn’t.

Power’s New Face: Discos, Gencos, Transco Emerge

The unbundling of PHCN resulted in the birth of a new structure for the Nigerian power sector, replacing the former monopoly with a segmented model comprising generation, transmission, and distribution entities, each intended to operate with greater focus and commercial orientation. This marked a significant departure from the integrated NEPA/PHCN era.

At the generation end of the value chain emerged the Generation Companies (Gencos). These entities took over the management and operation of the power plants previously owned and run by PHCN. They are responsible for producing electricity from various sources, primarily thermal (gas-fired) and hydro power plants located across the country, selling their output to the market.

Connecting the Gencos to the distribution points is the Transmission Company of Nigeria (TCN). Unlike the generation and distribution segments which were largely privatised, TCN remained a state-owned entity, initially under a management contract with a foreign firm (Manitoba Hydro International) for a period, before reverting to primarily Nigerian management. TCN is the ‘custodian’ of the national grid, managing the high-voltage network that wheels power across vast distances.

At the consumer end are the Distribution Companies (Discos). Nigeria was carved into 11 distinct geographical franchise areas, and a Disco was created or selected for each area. These Discos are responsible for taking the power from the transmission points and distributing it through their networks to homes, businesses, and industries within their designated zones, as well as billing and collecting revenue from consumers.

The 11 Discos are: Abuja, Benin, Eko, Enugu, Ibadan, Ikeja, Jos, Kaduna, Kano, Port Harcourt, and Yola. Each services a specific region, inheriting the distribution infrastructure and customer base within that territory, with the mandate to invest in network upgrades, reduce losses, and improve service quality.

The initial structure under the PSRA 2005 envisaged a Holding Company structure (PHCN) overseeing these entities during a transition phase, but the eventual model that emerged fully separated them into independent companies ready for privatization or, in TCN’s case, distinct management, supervised by the regulator.

The Nigerian Electricity Regulatory Commission (NERC) was established as the independent regulator overseeing all these entities. NERC’s role is crucial in setting tariffs, establishing market rules, licensing operators, protecting consumer interests, and ensuring fair competition and compliance across the generation, transmission, and distribution segments.

This new structure was designed to introduce efficiency by allowing each segment to focus on its core function, attract specialised investment, and enable better performance measurement and accountability. While the Gencos generate, TCN transmits, and Discos distribute, their interdependence means that bottlenecks or failures in any one segment critically affect the entire value chain and the final consumer experience.

Handing Over Power: Privatizing PHCN’s Components

The climax of the PHCN unbundling process was the handing over of the ownership and operational control of the generation and distribution assets to private investors. This landmark event took place on November 1, 2013, a date widely cited as the formal end of the government’s monopoly over the bulk of the power sector’s operations in Nigeria.

The privatisation process was managed by the Bureau of Public Enterprises (BPE) and involved a competitive bidding process. Prospective investors, both local and international consortia, submitted technical and financial bids to acquire controlling stakes in the various generation plants (Gencos) and the 11 distribution companies (Discos).

For the generation assets, the government sold controlling stakes in six thermal power generation companies built under the National Integrated Power Projects (NIPP) scheme, along with the four existing hydro power plants (though specific arrangements varied for hydro plants like Kainji/Jebba and Shiroro). Successful bidders included companies like Transcorp Plc which acquired Ughelli Power Plc, and Forte Oil (later Ardova Plc) which acquired Geregu Power Plc, among others.

Similarly, control of the 11 Distribution Companies was transferred to winning consortia who had demonstrated technical capacity and financial muscle to take over the operational and investment responsibilities. These included prominent Nigerian businesses and their technical partners, such as the entities that took over Ikeja Electric, Eko Electricity Distribution Company, Abuja Electricity Distribution Company, etc., covering the diverse geographical zones.

The handover ceremony was symbolic, marking the departure from decades of public sector management with the hope that private sector efficiency and capital would transform the sector. Investors committed to investment plans aimed at upgrading infrastructure, reducing losses, and improving service delivery within a specified timeframe.

Despite the optimistic outlook at the handover, the process was not without challenges. Labour issues, particularly the payment of entitlements and severance packages to the thousands of ex-PHCN staff, were a significant hurdle that required extensive negotiation and government intervention. Verification of assets and liabilities transferred also proved complex.

The decision to keep the Transmission Company of Nigeria (TCN) state-owned, initially under a management contract, reflected the strategic importance and perceived security implications of the national grid infrastructure. While Gencos and Discos were placed in private hands, TCN remained the vital link managed primarily by the government, though its performance heavily impacts the private players.

The core principle driving this massive handover was the belief that only private capital, estimated in billions of dollars, and operational expertise could rescue the sector from its inherited state of disrepair and underperformance. The government transferred assets hoping that the new owners would bring the necessary investments and management practices to achieve the ambitious goals of the power sector reform.

Navigating the Transition: Initial Post-PHCN Challenges

The period immediately following the November 2013 handover of PHCN assets to private operators was marked by significant transitional challenges, revealing the depth of the rot inherited by the new owners and highlighting the complexity of reforming such a critical sector. The optimistic pronouncements at the handover faced the harsh realities on the ground.

A major and immediate hurdle was managing the inherited workforce and dealing with labour unions. While a framework for severance payments for ex-PHCN staff was established, the actual process of verification, payment, and resolution of outstanding issues dragged on for years, creating industrial tension and sometimes impacting operations as new owners tried to assert control and implement necessary organisational changes.

The physical state of the inherited infrastructure was far worse than perhaps fully appreciated during the bidding process. Decades of under-investment meant that power plants required extensive rehabilitation, transmission lines were overloaded and fragile, and distribution networks were dilapidated, with overloaded transformers, faulty lines, and a massive deficit in customer meters, leading to high technical losses.

Commercial losses proved to be an even greater financial strain. The culture of non-payment, meter bypass, and energy theft, deeply ingrained during the NEPA/PHCN era, persisted. Discos struggled immensely with revenue collection, facing resistance from consumers accustomed to irregular billing or estimated bills that often did not reflect actual consumption, creating trust issues and payment apathy.

The metering gap was perhaps the most visible challenge for consumers and the Discos alike. Millions of customers lacked functional meters, forcing Discos to rely on estimated billing, notoriously known as “crazy bills.” This practice led to widespread customer complaints, disputes, and non-payment, severely impacting the Discos’ ability to accurately bill and collect revenue needed for investment.

Reliable fuel supply, particularly gas for the thermal power plants which constitute the bulk of generation capacity, remained a major constraint. Vandalism of gas pipelines, contractual disputes, and insufficient gas infrastructure often meant that even when power plants were operational and ready to generate, they were starved of fuel, limiting available power on the grid.

The transmission network, still state-owned under TCN, continued to be a significant bottleneck. Insufficient wheeling capacity, frequent grid collapses due to system instability, and congestion on critical transmission lines prevented generated power from reaching the distribution companies and, ultimately, consumers, negating potential improvements in generation.

Furthermore, the regulatory environment was still evolving. While NERC was established, setting tariffs, ensuring compliance, and enforcing market rules in a newly privatised sector with complex inherited issues required significant capacity building and policy adjustments. Initial tariffs were often not cost-reflective, hindering the ability of Discos and Gencos to recover costs and invest. Navigating these multifaceted challenges required constant adjustments, policy interventions, and patience from all stakeholders.

Light or Dark? Consumer Experience Post-Unbundling

For the average Nigerian, the ultimate measure of the power sector reforms is whether the lights stay on consistently. The period post-unbundling has presented a mixed, and often frustrating, experience for consumers, marked by some areas of potential improvement juxtaposed with persistent and widespread challenges inherited from the PHCN era.

While there have been instances of increased generation capacity reaching the grid at times – pushing available power beyond previous averages – the reliability of supply at the household or business level remains highly inconsistent across the country. Many Nigerians still experience frequent and prolonged power outages, sometimes lasting for days, rendering the concept of “constant light” a distant reality.

A major source of friction between Discos and consumers is the continued issue of metering. Despite commitments by Discos and subsequent regulatory interventions like the Meter Asset Provider (MAP) and the National Mass Metering Programme (NMMP), millions of customers remain unmetered or have faulty meters. This perpetuates the reliance on estimated billing, which consumers widely distrust, often leading to disputes and non-payment.

The cost of electricity has also been a point of contention. Successive tariff reviews aimed at making tariffs more cost-reflective (to allow investors to recoup costs and invest) have led to significant price increases for many consumers. While necessary for sector viability according to operators and the regulator, these increases are often perceived as unjustified given the poor quality and unreliability of service received.

Customer service from the new Discos has also been a learning curve, often attracting complaints about responsiveness, billing errors, and difficulty in resolving issues. Moving from a government monopoly to private operators was expected to improve customer focus, but many consumers report little improvement in getting timely responses to faults or billing queries.

The persistence of unreliable power means that the reliance on alternative sources, particularly petrol and diesel generators (“I better pass my neighbour” generators being common), remains extremely high across Nigerian households and businesses. The significant cost of fuel and generator maintenance represents a massive, hidden ‘tariff’ paid by consumers, demonstrating the failure of the grid to adequately serve needs.

However, it’s not a uniform picture. Some industrial clusters or specific areas with dedicated power feeders or newer infrastructure might have seen some marginal improvements in reliability. Similarly, consumers who have successfully acquired prepaid meters generally report better control over their spending and avoid estimated bills, highlighting the importance of accurate metering.

The gap between the promise of improved service delivery following privatisation and the lived reality for the majority of Nigerians remains wide. While the structural unbundling has occurred and private capital is theoretically in place, the tangible benefits of reliable, affordable power have not yet materialised consistently for the average consumer.

This disconnect fuels public dissatisfaction and scepticism about the effectiveness of the reforms, reinforcing the perception that while the name changed from NEPA to PHCN and now to Gencos, TCN, and Discos, the fundamental problem of darkness persists in many places.

Attracting Capital: Investing in Nigeria’s Power Grid

A core objective of unbundling and privatising PHCN was to attract the significant private capital required to rehabilitate and expand Nigeria’s dilapidated power infrastructure. Estimates vary, but experts generally agree that billions of dollars – potentially tens of billions over a decade – are needed across the generation, transmission, and distribution segments to build a stable and efficient power sector.

However, the hoped-for flood of investment has been more of a trickle, at least compared to the scale of the need. While the core investors did make initial commitments and some investments have occurred, the pace and magnitude have been constrained by several factors, dampening investor confidence and slowing the desired infrastructure transformation.

Investors in the Nigerian power sector face a complex web of risks. Regulatory uncertainty, including frequent changes or lack of enforcement of market rules by NERC, can deter long-term commitments. The ability to recover costs and earn a reasonable return is heavily dependent on cost-reflective tariffs and effective billing/collection, both of which have been persistent challenges.

Liquidity issues within the sector are a major deterrent. Discos often struggle to collect sufficient revenue from consumers due to metering gaps, non-payment, and energy theft. This impacts their ability to pay for the power they receive from TCN and the Gencos, creating a chain of debt across the value chain that makes the sector financially unattractive and unsustainable for investors seeking reliable returns.

Specific risks also plague different segments. Gencos face risks related to gas supply shortages and payment uncertainty from the market operator. TCN, despite being government-owned, requires massive investment in new lines and substations, and its performance limits the potential of the private Gencos and Discos. Discos grapple with grid infrastructure theft, community issues, and the high cost of operations in a difficult collection environment.

Despite these challenges, some investments have been made. Gencos have undertaken rehabilitation efforts on existing plants and some new Independent Power Producers (IPPs) have come online or are under development, albeit often facing their own set of challenges. TCN has benefited from multilateral funding (e.g., from the World Bank, AfDB, JICA) for specific transmission line and substation projects aimed at decongesting the grid.

Discos have made some investments in network rehabilitation and metering, but often not at the scale initially envisaged or required. The slow rollout of meters, for instance, is a direct consequence of the financial constraints and the difficulties in attracting sufficient capital for this essential infrastructure component.

The Nigerian government has attempted to attract investment through various initiatives, including partial risk guarantees, payment assurances (though their effectiveness is debated), and policies aimed at encouraging off-grid solutions like solar mini-grids. However, these efforts have often been overshadowed by the macroeconomic instability and the fundamental sector risks.

Ultimately, attracting the scale of capital needed to transform the power sector hinges on creating a more stable, predictable, and commercially viable environment. This requires resolving issues around cost-reflective tariffs, metering, collection efficiency, gas supply, and grid stability to build investor confidence and unlock the significant domestic and international funding required for the sector’s future.

What Lies Ahead: Prospects for Nigerian Power

The journey since the unbundling of PHCN in 2013 has been a period of significant structural change and ongoing challenges, but the prospects for Nigeria’s power sector are continuously debated, with potential for improvement tempered by the scale of the remaining hurdles. The path forward involves tackling deep-seated issues and adapting to new opportunities.

A critical focus area for the future is addressing the revenue shortfall and liquidity crisis in the sector. This involves accelerating meter deployment to improve billing accuracy and collection efficiency, implementing cost-reflective tariffs that allow operators to recover costs and invest, and enforcing payment discipline across the value chain, including ensuring government ministries and agencies pay their bills.

Expanding and strengthening the transmission network under TCN is paramount. Regardless of how much power Gencos can generate or how efficient Discos become, bottlenecks in the transmission system will continue to constrain the flow of electricity. Significant investment is needed to build new lines, upgrade substations, and improve grid stability to wheel power reliably across the country.

The potential for renewable energy, particularly solar power, offers a promising avenue for diversifying the generation mix and improving access, especially in underserved rural areas. Decentralised solutions like solar mini-grids and solar home systems can bypass the limitations of the national grid and provide quicker access to electricity, attracting investment from specialised players.

Improving gas infrastructure and ensuring reliable gas supply to thermal power plants is non-negotiable for stable grid generation. This requires better coordination between the power and petroleum sectors, addressing pipeline vandalism, and potentially developing gas supply contracts that prioritise power generation needs to ensure available capacity can actually be dispatched.

Regulatory effectiveness by NERC will be key. The regulator needs to be strong, independent, and consistent in enforcing rules, resolving disputes, protecting consumer interests, and ensuring that licensed operators meet their performance obligations and investment commitments. Clear and predictable policies are essential for attracting and retaining investment.

There is an ongoing debate about the effectiveness of the current privatisation model and whether further interventions, including recapitalisation of Discos or even potential renationalisation in some instances, might be necessary if private owners fail to deliver on their mandates. The government continues to explore options to ensure performance improvement.

Ultimately, the long-term prospect for Nigerian power lies in achieving a virtuous cycle: investment leads to better infrastructure and service, which leads to improved collection and revenue, which in turn attracts more investment. Breaking the current cycle of underperformance, poor collection, and insufficient investment is the core challenge ahead.

While the road has been bumpy since PHCN was unbundled, the fundamental need for reliable power persists. The future trajectory depends heavily on sustained government commitment to reform, increased regulatory effectiveness, private sector performance, and consumer cooperation in embracing metering and payment discipline, determining whether the post-PHCN era will truly bring light to Nigeria.