Tariff Changes Have Not Helped Electricity market – Ajifowobaje

Ajifowobaje

The Principal Partner and Chief Executive Officer, Abe Lee Engineering Company Limited and former CEO, Ikeja Electric, Mr. Abiodun Ajifowobaje, tells ’Femi Asu that the funding shortfall in the power sector needs to be urgently addressed

Has Nigeria seen considerable investments in the power sector as envisaged, three years after the privatisation of the sector?

The financial expectations from the privatisation of the power sector were to raise funds for the government from the divestment; encourage share ownership by members of the public, leading to a more efficient mobilisation of savings within the economy and act as a catalyst for the revitalisation of the capital market. The privatisation was also aimed at attracting foreign capital to the country and reducing government’s expenditure in the power sector.

Almost three years after the handover of the electricity generation and distribution companies, the power sector deficit is about N25bn per month. The distribution companies are only meeting an average of 55 per cent of invoices issued for energy received from the national grid. All players in the supply chain, including gas suppliers, generation companies, the Transmission Company of Nigeria, market operator and the Nigerian Electricity Regulatory Commission, are owed huge amounts in unpaid bills.

Investment in the sector has been very slow due to paucity of funds, with tariff not being stable and cost reflective.

What, in your view, are the implications of the funding gap in the sector for electricity supply?

It has affected gas availability and development. The Gencos owed about N100bn to gas suppliers as of May 31, 2016. There is serious cash crunch on gas development and supply. Gencos are owed about N225bn for power pumped to the grid, with reduced expansion and maintenance plans by the Gencos.

There are also transmission bottlenecks. Transmission is the weakest link in the supply chain as the network can only wheel about 4,000 megawatts on a continuous basis.

Another effect is poor government funding. The government is owed huge sum of money by the market, contributing to the very slow expansion and maintenance regime.

I think the distribution network is slightly better than the pre-privatisation era. With reduced collection efficiency and payment obligation to the market; there are no funds to pursue aggressive metering and network mordernisation.

The Central Bank of Nigeria recently disbursed part of its intervention fund to some power firms; do you think the fund has significantly helped the electricity market?

The sum of N213bn was put together by the Central Bank of Nigeria under an intervention regime anchored by NERC. This has not helped the market for certain reasons.

Firstly, the computations as per shortfall due to each Disco were based on technical loss figures that were derived from the ATC&C (aggregate technical, commercial and collections) baseline studies hurriedly put together by the Discos. The resultant figures were heavily disadvantageous to some Discos.

The disbursement of the fund was to be carried out after the declaration of the Transitional Electricity Market by NERC. But without meeting some of the conditions precedent, TEM was declared by NERC.

NERC changed the baseline figures used in computing the CBN funds by removing the collection loss figures from the ATC&C, but the amount due to each of the Discos was not amended to reflect the new ATC&C figures.

As of May 2016, only N120.2bn (about 56 per cent) of the fund had been disbursed by the CBN, over a year after it was introduced.

Are you satisfied with the efforts made by the regulator in tackling the funding challenge in the sector?

NERC has tried to improve the funding in the Nigerian Electricity Supply Industry through various adjustments to the electricity tariff.

From November 1, 2013 to date, the Discos have gone through three tariff changes, namely: Multi-Year Tariff Order 2.1, MYTO 2.1 (amended) and MYTO 2015. These tariffs have not helped the market for the following reasons: definition of what is considered a cost-reflective tariff is still being debated; indices such as exchange rate, rate of inflation, cost of gas, and power availability for computing the tariff change almost on monthly basis and sometimes, make nonsense of the tariff and frequent adjustments to the tariffs – through major and minor reviews.

Other reasons are the lack of adequate power to drive collection by the Discos; increase in tariff has often led to poorer collection efficiency, and wide metering gap.

What solutions would you proffer in resolving the challenges in the sector?

We need to address the funding shortfall in the Nigerian electricity supply industry. Machinery should be put in place immediately for the investors and the government to raise money from the capital market.

There is a need to reduce foreign exchange flight. The technical partners brought in by the investors were supposed to bring in some external funding apart from their technological know-how. Almost all the investors are paying heavily in dollars to retain the services of these so-called experts. Discos should use partners that will not only bring in needed funds, but will not take away the scarce available foreign currency.

There is hardly any country in the world where government does not, in one way or another, provide incentives for the power sector. The government should provide incentives; for instance, bridging funds to assist the sector or institute a subsidy regime. Forex for the purpose of investments in the power sector should be pegged at the official rate.

There is a need to drastically reduce capital expenditure and operating expenditure funds by allowing favourable exchange rates for power equipment importation and encouragement of local manufacturers. Currently, most of the power assets are sourced from abroad. Discos should find other means of getting more power to their customers through embedded and captive power generation to raise additional funds.

I think it is necessary for the CBN through the local banks to warehouse an intervention fund to be assessed by the Gencos, the Discos and the TCN at very liberal rates to fund expansion and operational projects.

Also, the three main players in the industry should avail themselves of all the international funds for infrastructural development, for example, from the Africa Development Bank.

Local banks should embrace long-term loans for power instead of the present short-term facilities that go with heavy interest rates.

More generation is needed to drive the improved tariff and thus generate more revenue to enable the Discos to increase their remittances for energy used.

Enforcement of performance indicators by all players in the sector is also very important.

Sour

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