What is the status of the power sector particularly the distribution of electricity?
We clamoured for the Federal Government since 2013 to live up to the obligations as contained in the performance agreement, which we both signed at the point of take over. The crucial part of that agreement, which the government did not obey was that the electricity product would be appropriately priced. What is contained in that agreement was a cost-reflective tariff effective from November 1, 2013.
Two and a half years later, nothing of such happened and the effect of that was that there was a big shortfall. Hence, the falling gap and the needed investment have not been sufficient enough because Discos businesses are not bankable.
A business is bankable only when banks and other financial institutions can look at your bottom line and see that they can finance it and be able to recoup their investment. But when they know that an entrepreneur is running a business at a loss, they would not be able or willing to finance it.
So, that was the situation and until December 2015 when the Nigerian Electricity Regulatory Commission (NERC) board was constituted at the eve of their departure, a new Multi Year Tariff Order (MYTO) 2015 that was supposed to be effective from February 1, 2016 was approved. For that to take effect on February 1, 2016, there was a shortfall and another shortfall in January 2016.
Nevertheless, from February 1, 2016, we had a tariff that was structured over a 10-year period. This was designed in a way that Discos under recover now and then recovered later. It is over a 10-year period and tariff is up. Sometimes in third year, the tariff would start coming down.
That is the model and we are not the one that invented it. This method that we are using in Nigeria was copied from New Delhi in India where it has worked very perfectly and other countries like Georgia and several countries in Africa have adopted this model. However, where we are today is that a gentleman went to court and a court judgment, which had been given asking us to reverse the tariff.
It means just when we think we are getting there, we were sent back to the drawing board. As for the court case, for me as a lawyer, I respect every judgment and every court ruling.
The Discos as a body, respect the judgment and shall obey it, and do the appropriate things normally done when we receive court judgement for such instance. Users of electricity need to be aware of the fact that we still have the Court of Appeal and the Supreme Court, which is the apex court where the finality lies.
I thanked the Honourable Judge for his judgment, we respect it and we shall obey it. We shall follow the rule of the court in taking the next step. Back to the issue in the electricity sector, people also need to realise that there is a value chain in this sector. We have the generation companies, transmission companies and the distribution companies.
So, when we are talking about tariff, this tariff is not all about the Discos alone. The Discos only receive 24 per cent of what is collected and all the rest goes to the value chain.
For instance, 11 per cent goes to the transmission companies and four per cent goes to the Central Bank of Nigeria (CBN) because they gave us intervention loan, which some people mischievously call bailout. It is intervention loan payable over a 10-year period at the rate of 10 per cent.
Another four per cent goes to NERC and other stakeholders in that value chain. Fifty Seven per cent also goes to the generation companies because they have to pay gas suppliers.
Remember, in this country, we use gas and out of 26 power plants that are working now, only three of them are hydro including Jebba, Shiroro and Kainji . All the others including Egbin power station depend on gas and we have to pay power producers as well and that leads to tariff increase.
Since you have accepted the verdict of the court, are you going to return the amount collected as 45 per cent hike in tariff back to customers?
I have just told you that there is what we refer to as the rules of court and I just mention to you what we call finality. The finality of any judgment or any court processes lies with the Supreme Court. So, when you have a judgment of the High court and you are appealing that judgment at the same time filing a Stay of execution of that judgment pending appeal, I think we still have some other steps to take.
I have no doubt in the Honourable justice. In this case he would give us the opportunity to appeal and grant us a stay of execution in the interest of Nigerians, not in the interest of the Discos. We want to put Nigerians first because all of us should work together so that this sector will not collapse or else we would wake up one morning and everywhere would be dark.
Once the power sector crumbles, it affects everybody everywhere including the presidency; businesses and all of us would be affected. We need to come together to save the sector, where ever we get it wrong, we need to be corrected and sanctioned but wherever others are stealing energy for instance or people are not paying. For instance, Federal, states, local governments, ministries, and agencies owe N100 billion.
The worse among them is the military especially the Army. The Nigerian Army is a set of bullies that owe debt and refuses to pay. When we persuade them, they harass and beat us up. Under Ibadan Disco at a place called Alamala in Abeokuta, they assigned one of the officers to beat up our staff in the dispatch room. If people do not pay how do we invest in the system? How do we even refund our loans?.
Do not forget that there is an acquisition loan on this. There was 30 per cent equity and 70 per cent loan investment in the power sector. When you invest in system like this, there are allowable ravines.
When you can’t collect revenue, that means your collection losses will keep going up. Your commercial losses, which is the energy theft, keep going up. How do we revive the industry? People need to have light, how do we ensure that there is adequate power supply?
What we are doing now and thanks to the present Minister for Power, Works and Housing, Babatunde Fashola is working on incremental power, which allows us to increase the power through generation everywhere. That leads to increase in distribution. After incremental power, we can now discuss stable electricity.
After stable power, we now discuss uninterrupted power supply. Those are the three phases we are working on. But we are stalled on how to get incremental power because the Niger Delta Avengers are denying us the much needed gas to fire the turbines. Now the power plants are performing below their installed capacity and when they cannot generate, we cannot distribute. We can only distribute what has been generated to us.
So, when we talk about the power sector, we should remember the value chain, we should know that they are interconnected to each other. We should be thinking of how to reach 20,000 megawatts (mw) that would guarantee stable electricity.
As a stakeholder, how do we address the issue of inadequate gas supply and challenges of Niger Delta militants?
The issue of essential power supply is linked with Niger Delta militants. I think government needs to be up in their game. I do not believe we should negotiate with criminals. We should negotiate with stakeholders in Niger Delta instead. All the bombers are not from heaven and they are within our communities in the Niger Delta. We should also address their reasonable grievances.
The Federal Government should look at that as a way out of the Niger Delta problem. The military also should do their job particularly by focusing on intelligent gathering and get to the root of the matter. I think we are covering criminals in our communities. I don’t think we are doing enough in terms of intelligent gathering in this country. It is not just using force, consultation also matters.
If the area is peaceful, there would be opportunity to supply gas. Government has a very credible and sustainable roadmap to sustain that. I remember that the Nigerian National Petroleum Corporation (NNPC) senior officials also partake in our power sector’s meeting every month. I have no doubt that NNPC has a very good and robust plan of how to get gas to the power generating stations.
The problem that we have that is delaying us from progressing is the consistent and continuous criminal bombing of the gas pipeline not about planning.
What price do you think is adequate to help Discos recover cost?
Power tariffs are set by the regulator anywhere in the world including Nigeria’s NERC. They consider a lot of factors relating to the cost of doing business. They take into account, bank interest rates, foreign exchange and many more.
We need a price that can cover the cost of production like any other products. It is not for us to fix price, it is the duty of the NERC and we agreed with MYTO2015 as a good starting point.
Not that we were there yet but we are going there. Prior to MYTO 2015, we had a shortfall of over N300 billion down and nobody is talking about that. We are not even talking about who is going to pay that. From November 2013 to January 31, 2016, there is a massive shortfall in that system to that funding gap because we didn’t have that funding gap.