Stakeholders reflect on rescuing power sector from imminent collapse

Sahara Power Group held its maiden power summit in Lagos recently, with the aim of rescuing the power sector from imminent collapse due to challenges of policy somersault, illiquidity plaguing the sector and increasing ATC&C losses. OLATUNDE DODONDAWA, who was at the summit, reports.

Declaration of eligibility in power sector

In a major policy directive, the Honourable Minister of Power, Works & Housing, Mr Babatunde Raji Fashola, on May 15, 2017, declared four categories of eligible customers in the Nigerian Electricity Supply Industry (NESI). The declaration permits electricity customers to buy power directly from the generation companies, other than electricity distribution companies.

The first category of eligible customers comprises of a group of end-users registered with the Commission whose consumption is no less than 2MWhr/h and connected to a metered 11kV or 33kV delivery point on the distribution network and subject to a distribution use of system agreement for the delivery of electrical energy.

The next category of eligible customers are those connected to a metered 132kV or 330kV delivery point on the transmission network under a transmission use of system agreement for connection and delivery of energy.

Other category of customers under the declaration consists of those with consumption in excess of 2MWhr/h on monthly basis and connected directly to a metered 33kV delivery point on the transmission network under a transmission use of system agreement.

Eligible customers in this category must have entered into a bilateral agreement with the distribution licensee licensed to operate in the location, for the construction, installation and operation of a distribution system for connection to the 33kV delivery point.

The last category are eligible customers whose minimum consumption is more than 2MWhr/h over a period of one month and directly connected to the metering facility of a generation company, and has entered into a bilateral agreement for the construction and operation of a distribution line with the distribution licensee licensed to operate in the location.

The new policy directive is expected to bring into play new and stranded generation capacities which may be contracted between generation companies and eligible customers. The declaration further provides that at least 20 percent of the generation capacity added by the existing or prospective generation licensee to supply eligible customer must be above the requirement of the eligible customer and is supplied under a contract with a distribution or trading licensee at a price not exceeding the average wholesale price being charged electricity distribution companies by the Nigerian Bulk Electricity Trader Ltd.

Contrary to expectation, the regulation has been met with stiff opposition from the discos which claimed that NERC is taking over their market by allowing customers to buy electricity directly from the Gencos.

Speaking at a Power Summit in Lagos recently, the Commissioner for Energy in Lagos State, Wale Oluwo, urged the regulator not to create the 12th disco from the Transmission Company of Nigeria (TCN).

According to him, “The discos are struggling to cope with eligible buyers where you take maximum buyers off the network of the discos. No matter what we do, we must ensure that TCN (Transmission Company of  Nigeria) does not become the 12th disco in Nigeria.”

On his part, the Managing Director of TCN, Usman Gur Mohammed, said in

2015 when the Transitional Stage Electricity Market (TEM) was declared, NERC Commissioners, through regulatory order, transferred 123Kv and 33Kv to the discos. The transfer created more problems to the sector than solution. The transfer increased illiquidity in the sector. According to the Power Sector Reform Act 2005, a disco is any network other than 330kva and 120kva.

“If you’re defined by a network, you can’t trade outside that network. The eligible customer regulation is an innovation. The problem is that when we were doing training on the regulation so that they can reflect their interest in the regulation before the order is passed, but many of them didn’t attend in person. They sent lower representatives.

“And that’s why they didn’t understand the eligible customer regulation.

Eligible customer regulation is like a bilateral relationship. What will drive the power sector to growth is willing buyer-willing seller.

In the eligible customer chain, the TCN will not sign any agreement with the customer, it is the network. If the network that will transmit power to the customer will pass through the TCN then that Genco will sign transmission user system with the TCN. If the Gencos will use the network, it will sign distribution user system with the discos. There is also transmission competitive charge whether the disco is losing as a result of the regulation; there is a certain charge that will go to the disco. But the problem is that people are not interested but just left it for us to continue.

“Look at the advantage, for every eligible customer that signs, it means that liability is taken off the government. Meaning every eligible customers that have signed will be removed from NBET liability. If we have people that can afford to pay, the government must guarantee supply to them and that’s what eligible customer is all about.”

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Stakeholders urge for policy re-appraisal

The Managing Director, Sahara Power Group, Mr Kola Adesina, urged policy makers to critically re-assess existing policies with the aim of analysing their consequential impact on stakeholders.

According to him, “There is need to constantly do a systemic revaluation of every policy that is churned out. I want to recommend to government and policy makers that any action being taken, every stakeholder, the relevant public that will be affected by the policy must assess the degree to which those policies will affect them.”

According to him, significant results have been recorded by some operators across the sub-sector following the privatisation, but certain setbacks caused by misalignment of vision, objectives, strategy, policy and regulations in the sector have inhibited its progress.

“While it is easier for economists to speak to the theory of pricing from the standpoint of cost, revenue and profit, affordability is another issue some are not paying attention to. We all are aware that there are citizens in Nigeria who are not employed and/or incapable of paying the appropriate tariff, it invariably behooves on the government to step in and cover the gap so that the shortfall currently impeding on the success of the sector can be erased. The social contract of government is to ensure everybody lives a good life. So for everybody to live well there is a need for everyone to be electrified,” he added.

He noted that there is no economic margin that anyone can put in place to remedy and guarantee efficiency and effectiveness of supply when the cost of the commodity is higher than the commodity itself.

“Every Nigerian deserves to have electricity, it is a right. The value chain equally have a right to be paid cost reflective tariff. If the revenue of every member of the value chain is not guaranteed, there cannot be guarantee of supply of commodity in question,” he noted.

While speaking on the objectives of Sahara Power Roundtable, Adesina said “Through discourse and constructive conversation, we hope to examine the current state of the power sector in Nigeria and how both the intrinsic and extrinsic are combining, evolving and reacting against each other to shape the future.”

ALSO READ: NERC opposes criminalisation of non-provision of prepaid meters

Meanwhile, the President, Consumer Advocacy Foundation of Nigeria,

Sola Salako, opined that the discos need to bridge the communication gap between them and the customers.

“You need the consumers to partner with you to make it work. Consumers

need much education because there is gap in level of awareness. This is because credible customers are paying for those customers that are by-passing meters.

“But when I don’t know the reason why I should be paying for power which I didn’t consume, I won’t cooperate with you. Don’t come and tell us how much you are losing because I’m not interested and average consumers are not interested but they feel you’re over charging them anyways.

“But if you explain to them that this is what happened. We give you crazy bill because people are by-passing meters and are not paying, they will help you fish them out. Most importantly, we have to bridge that deficit of trust as soon as we can. After this, we can work as partners because we don’t want the sector to collapse,” she said.

Commissioner Oluwo called for each State of the Federation with capacity to afford cost reflective energy to generate their power. “In that process, you will relief the grid and help TCN in that process.”

However, concerning the future of the discos, he said he is very optimistic because the product they are trading in is characterised by inelastic demand and as much as power is available, people will buy.

The close substitute to power is not very efficient and that makes it a premium product anyway you look at it.

“What I think is preventing growth of the discos is the constraint in their balance sheet. Firstly, they don’t have control over the pricing of their product, the business may become unprofitable if you don’t have control over pricing. Asset conversion cycle is also a challenge.

When you inject fund into the discos, you don’t seem to get it at the end of the cycle.

“Maybe they are realising 60-80 per cent which is not sustainable. It is difficult for them to access find because the balance isn’t there.

That takes me to the shareholding structure of the discos. There have been calls that discos must invest, they must meter all customers so that power

distribution can improve but the question is if it is possible for them to do, they would have done it because they are businessmen.

“We have also forgotten that the federal government is a significant shareholder in the discos. This should be a joint responsibility (between the Federal Government and the owners of the discos).

“If the federal government continues to hold on to 40 per cent interest in the discos and 100 per cent ownership of the TCN, and cannot fulfill its financial obligations to the business, it must open up the sector to other investors who will bring the money. So it’s a double jeopardy that on one hand, you are holding on to the sector and on the other hand you don’t have the money to invest in the sector. We need to allow for new investors that will invest and upgrade the sector so that it can operate at the level at which it ought to operate. We have come to a point where we would ask, do we need light. If we want light, the structure that is being operated currently at the disco level may not give us light.”