Power headache: Will it Ever Get The Right Pill?

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Despite proven oil reserves of over 36 billion barrels, 187 trillion cubic feet of gas, abundant sunshine, wind, water body and over 30 power generating plants, Nigeria has never wheeled more than 5,074.7 megawatts (Mw) through the national grid.
Rather than abate, the power supply situation is worsening by the day. It has become so worrisome that House of Representatives Speaker Yakubu Dogara concluded that those paying electricity bills do so for darkness. Dogara, who spoke at a stakeholders’ workshop on the power sector organised by the National Assembly, stated that despite the over N2.74 trillion invested into the power sector between 1999 and 2015, services by the power firms have depreciated.
Although the Speaker called on the stakeholders to make concerted efforts to address the power sector woes, he raised some fundamental posers. The posers are: “What happened to the N2.74 trillion spent on the sector from 1999-2015? Why is it that the more we (Nigerians) spend on the power sector, the more darkness we attract? Why has power generation remained at less than 5,000Mw in Nigeria’s 56 years of independence? Why have various policies on power by successive governments failed? Why has the transmission infrastructure remained inadequate in wheeling the available power? How can the Federal Government rapidly expand the transmission infrastructure? Why are electric meters not available to most consumers thereby leading to contentious estimated billing?”
With the questions waiting for answers, Nigerians continue to grapple with darkness.
The power sector challenges run across the entire value chain – generation, transmission and distribution. To the Speaker, inadequate funding, poor energy mix, fuel supply issues, flawed regulatory framework and commercial issues, among others, are some of the problems facing the sector.
As germane as Dogara’s posers were, other stakeholders also listed lack of enforcement of rules, sanctions and other ancillary interests as major problems in the sector. According to them, nobody ever got punished for inefficiency or acts of sabotage.
They recalled that former ministers, who came into office with the aim to sanitise the system, were frustrated by vested interests.
Citing the substantial improvement recorded in power supply during Prof Barth Nnaji’s brief tenure as the Power Minister between July 2011 and August 2012, they said the professor of Mechanical and Industrial Engineering, raised power output from 2,800Mw to 4,348Mw.
Prof Nnaji sacked five chief executive officers, including those of Eko Electricity Distribution Company (DisCo), Ibadan, Benin and Jos DisCos and that of Olorunsogo power station. He achieved that much because he allegedly stepped on the toes of some selfish interests.
It is believed that some external forces are bent on stunting the growth in the power sector, as according to Nnaji, such interests teamed up to ease him out of office. He was forced to resign from the Federal Executive Council on August 28, 2012.
Nnaji said while in office: “The Federal Ministry of Power has always known that the beneficiaries of the old and decadent order in the electric power sector would not accept the new, far-reaching changes in the power sector without a fight.
“With power supply at an all-time high across the nation in the last few weeks and with the privatisation of PHCN assets at an advanced stage to the delight of the Nigerians, those who have been feeding fat on the misery of our citizens have been fighting back with unimaginable ferocity.”
Before he left office, Nnaji usually paid unscheduled visits to power facilities to get the true state of health of equipment, facilities, personnel and operations and cover ups. He was able to tackle issues head on.
So, in line with Dogara’s obsevation, there is the need for a holistic diagnosis of these challenges in order to reposition the Nigerian Electricity Supply Industry (NESI) for stable service.
Senate President Bukola Saraki lent credence to the postulations. He identified fraudulent tendencies and ignorance as some of the major problems confronting the power sector. He said the mistakes of past governments, “born out of ignorance, selfish interests and fraud,” boxed Nigeria to a corner, noting that despite the enormous resources committed to the sector in the last 17 years, the sector remained in an awful state.
Saraki noted that during the privatisation of the sector, licences were issued and power assets sold to people who had little or no knowledge of the business. He urged stakeholders to make sacrifices to tame the sector’s monsters.
Saraki said: “We must accept mistakes and make sacrifices because some of the problems are fraudulently, ignorantly and intentionally made. This is an opportunity for both the legislature and executive to come together to forge a solution to this perennial problem. We cannot afford to waste the opportunity we have now because the problems in the sector were the country’s own making.”

The issues

To the Association of Nigerian Electricity Distributors (ANED), the umbrella body of all the electricity Distribution Companies (DisCos), the challenges in the power today are huge and difficult. Its Executive Director, Research & Advocacy, Mr. Sunday Oduntan, confirmed that the entire supply chain remained comatose.
According to Oduntan, the promised increase in generation and reliability as part of privatisation ended up as a mirage as generation continued to between 3000Mw to 4000Mw. Energy theft and meter bypassing have been rampant as well as insufficient number of meters due to liquidity gap and massive shortfalls. The Generation companies (GenCos) have been bedeviled by gas supply issues, cost and vandalism of gas pipeline networks, delay and frustration in construction of power plant. For security of power supply, Oduntan said there must be cost-reflective tariffs for DisCos and genuine commitment to funding of the transmission value chain.
He noted that many Nigerians still do not see power as a commodity that should be paid for. Even with the privatisation of the sector, the ‘no-pay-for-power-supply’ mentality remains in vogue. Expectations were high that there would be attitudinal change with privatisation and consumer sensitisation.
But the new owners of the power facilities are being faced with the reality of problems in the sector.
Oduntan said: “Indeed, anyone who has followed the privatisation of the Nigerian Electricity Supply Industry (NESI) would recognise that the sector has been bedeviled by a number of challenges that would make the most hardened risk-seeking investor to run in the opposite direction.
“The absence of a cost recovery regime (a fundamental pre-requisite for sustainability and development of NESI), regulatory uncertainty, customers’ non-payment of their bills, limited or no access to financing (a result of the limited cost recovery), gas supply limitation, gas pipeline vandalism, neglected and aging power turbines, and limited transmission capacity, among others, are some of the challenges. All of these came on the back of approximately 63 years of a failed centralised management of the power sector.
“Besides, most of the generation assets were sold outright, with the sale of the distribution assets structured on a 30 per cent, 70 per cent equity and debt split. Similarly, the tariff is also structured along the same lines for DisCos’ operations.
“The split between equity and debt follows conventional knowledge that it is cheaper to fund operations via debt than equity. Given the highly regulated nature of the tariff, the approved return on equity would preclude the injection of such funding by the investors.
“In addition, the customers would, ultimately, have to bear the cost of the associated returns, and with a tariff that does not allow for a complete cost recovery, no lender will be willing to provide the required financing for the sector. And this is a problem that cascades along the electricity value chain.
“If businesses don’t show profitability or break-even cost recovery, no lender would extend the credit or debt financing that such businesses require.
“The market revenue shortfalls projected at N809 billion by December 2016 has risen to N1.1 trillion as at the end of January 2017, which is a direct consequence of the non-cost recovery nature of the tariff.
“While it is fair to state that inefficiencies, corruption and limited information associated with the Power Holding Company of Nigeria (PHCN) is still a challenge to the privatisation, the bigger challenges are adverse macro-economic changes (devaluation of the naira and inflation), gas pipeline vandalism, limited gas supply, regulatory uncertainty, lack of respect for contract sanctity and government’s policy inconsistency.”
Speaking generation, transmission and distribution as the three mutually exclusive and necessary components of the power sector, the Executive Secretary, Association of Power Generation Companies (APGC), Dr. Joy Ogaji, all tiers of the value chain must work optimally to attain the desired improvement in the sector.
At the generation level, there are enormous challenges – shortage of natural gas worsened by increasing vandalism of gas pipelines. The rising cases of pipeline vandalism have further diminished the supply of gas to generation plants and consequently resulted in reduced capacity generation. Gas constitutes about 40 per cent of wholesale electricity tariffs in Nigeria. There is also the need to address the difficulty in accessing foreign exchange (forex).
As at the time of the acquiring the assets, the exchange rate was N198 to the dollar. The investors, who raised capital from banks, now have to pay back in time of economic down turn.
So, the high liquidity squeeze in the market has been a major setback for generation companies.
“It is on record that GenCos are being owed over N500 billion. This huge debt burden has reduced their ability to pay for gas supplies, and hence, threatens to completely undermine the electricity value chain and its ability to continue to serve customers, Mrs. Ogaji added.
Stressing the need to improve on grid stability, she said the national grid has a “wheeling capacity” of around 5,000Mw. Therefore, generation above 5,000Mw may either be lost or rejected.
The DisCos are responsible for the marketing and sale of electricity to customers. This is an extremely important function in the electricity value chain as DisCos are the cash boxes of the entire electricity value chain.
All the revenue needed to sustain the electricity industry is earned through the distribution sector. However, over time the distributors have failed to fully meter their customers thereby fostering irregularities in revenue collection, she added.
The Federal Government has to embrace budgetary, local and international financing such as the $174 million loan from the African Development Bank (AfDB) to reinforce the transmission network.
The Senate and the AfDB must resolve their differences over the management of the proposed credit facility and find a way around it to move the power sector forward.
AfDB had reportedly requested to take over of management of the Transmission Company of Nigeria (TCN) to monitor the deployment and usage of the funds, a proposal the Senate kicked against.
The AfDB has insisted on managing the fund to prevent it from go the way of the huge billions injected into the sector in the past. But the Senate felt it was unpatriotic to hand over such public legacy project to foreigners because of financial assistance. However, The Nation gathered that consultations are ongoing on the matter.

The way forward

To achieve sustainable stability in the power sector, the nation must go beyond the blame game. The poor performance of the sector was initially blamed on rot and corruption caused by decades of neglect by successive military administrations. But, when democracy returned in 1999, the blame shifted to government’s inability to properly and effectively manage businesses.
In 2013, the power sector was privatised to enable the private sector take control. Yet, the blame game continued. At the root of the prevailing instability are gas pipeline vandalism in the Niger Delta by militants and lack of funds due to huge debts owed by customers or energy theft and destruction of power equipment. There is no end to the blame game. Yet, consumers – residential, commercial and industrial concerns – suffer.
Mrs Ogaji said erratic power supply will linger until the challenges in the power chain are tackled.
The generation companies are ready and willing to generate power that will sustain the country on a daily basis, but they are being constrained by factors beyond their control. If power output must improve, the transmission and distribution arm of the chain must be strictly regulated.
The transmission grid must be upgraded to ensure that 8000Mw available capacity from GenCos is put on the grid. The distributors (DisCos) must be strictly monitored to ensure remittances of the revenues collected for electricity supplied. For both short and long term solutions, instituting a competent independent regulator is key to private sector confidence in the sector and has a significant effect on the ability of government to attract and sustain investments. Alos vital is the of a cost reflective tariff. If electricity is treated as a luxury, then a cost-reflective collectable tariff should be provided and payment of all ministries, departments and agencies (MDAs) debts made. Payment of all monies accruable to the GenCos from international customers, clear management and funding of the TCN is important. The TCN must be on concession or fully funded.
Mrs Ogaji also urged the Federal Government to ensure payment guarantee and block no payment shortfall in for services provided by the utility companies.
She said: “It is imperative to state here that the investment on generation is at the instance of the off-taker, the Nigerian Bulk Electricity Trading Plc (NBET) – a Federal Government’s owned public liability company. Due to high market liquidity squeeze, GenCos both thermal and hydro plants, lack the necessary funding for their operations, acquiring spare parts and equipment, and meeting other obligations for the power generation stations.
“Market payment statistics show that on a monthly basis, GenCos’ invoices amount to about N35-40 billion out of which only about N7 billion is paid. The implication is that the debt profile of the Gencos is about N30 billion per month with no plans in place to clear these and put a sustainable solution for the sector.
“We have been given unfulfilled promises that the government is working out a solution but without a timeline and fulfillment. We are all on life support and could be dead any moment from now. Therefore, there is need for transparency in market funds and remittances, declaration of eligible customers to enable the GenCos to have some form of relief.
“Besides, the government should give a special concession to the GenCos in sourcing for foreign exchange (forex) and ensure full payment of Central Bank of Nigeria and Nigeria Electricity Market Stabilization Facility (CBN-NEMSF), NBET, Market Operator (MO) and all owing market participants to pay immediately all monies owed the GenCos, and the creation of a forex stabilisation fund to avoid tariff hikes, she noted adding that the electricity market should be run as a contract based market with penalties fully enforced. There must be a revision of the Ancillary Services Agreement (ASA) rates.
“There will be more incentive to put power plants on ancillary services if the rates are more comparable to market tariff numbers. Currently, we (GenCos) have a maximum return of N2, 250 per megawatt/hour (Mwh) for spinning reserve services as opposed to N15, 183/Mwh when same energy is placed on the grid.”
She noted privatisation has reduced the government’s role has been reduced to policy making.

 

Source: TheNation

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