DEREGULATION OF ELECTRICITY SECTOR IN NIGERIA

Deregulation of Electricity Sector in Nigeria

Abstract

Constant electricity supply is the bedrock of a developed economy. A nation whose electricity need is erratic in supply suffers development and drive away potential international investors. The energy industry around the world has witnessed an enormous growth in the past few decades. The major characteristic of this growth is the deregulation of the electricity sector from the traditional structure (vertical integrated model) which tends to be monopolistic in nature and wholly owned by the government. With the emergence of democratic government in Nigeria in 1999, the government embarked on the deregulation of the power sector due to lack of maintenance of the sector's infrastructure, inefficiency and corruption.

Unlike Nigeria, Chilean electricity sector deregulation started in 1980.Although not a smooth process, Chile has recorded remarkable growth in this regard so much that it offers ample opportunity from which Nigeria can learn from. The primary objective of this paper is to discuss how the Nigerian government can learn from the Chilean experience. The paper contends that given that both Chile and Nigeria share the same economic system and environment, the former's experience offers enormous opportunities for the latter.

Table of Contents

Introduction4

Literature Review4

Model Specification18

Price Function/Equation19

Average Cost Function19

Production Function20

Production Activity21

Factor Demand Function23

Household/industrial Demand Function25

Assumptions of the Partial General Equilibrium Model27

Methodology28

Discussion28

Conclusion31

References33

Deregulation of Electricity Sector in Nigeria

Introduction

What lesson from Chile experience, deregulation of electricity sector in Nigeria can have, to achieve this objective, the paper shall be divided into four parts. The first is a review of literature and brief analysis of the Nigerian power sector. The second part shall discuss issues in regulatory and institutional mechanism of deregulation in Nigeria. The third part shall focus on the deregulation process in Chile and the implications of that for Nigeria. The last part summarizes and concludes the paper. Here also, recommendations on how to achieve effective deregulation are proffered.

Literature Review

The electricity industry has witnessed a profound growth in the last few decades across the globe. A noticeable feature of this growth is the deregulation of the sub-sector, which used to be a monopolistic and state owned parastatal to a more vibrant oligopolistic market structure. The pace and magnitude of the trend has been remarkable and, by the end of 1990, the majority of Organisation for Economic Cooperation and Development (OECD) countries and over 70 developing and transition countries had taken some steps towards reforming their electricity sector Bacon, (1999). Perhaps, the advancement in technology coupled with the changes in economic perception must have accounted for this development.

However, the motivation for electricity reform differs considerably among developed and developing countries. In developed countries, the principal aim has been to improve the economic and financial performance of the sub sector. However, in developing countries and transition countries, macroeconomic conditions played a rather critical role. This is obvious as many governments are no longer willing or able to support the burden of subsidies, low service quality, non-collection rates, higher network losses and poor service ...