Nigeria’s ‘Hopeless’ Power Sector and Making Sense of Fashola’s Efforts

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Nigerians may be more willing to pay the right price for other essential items like food, water, clothes and internet even when the prices go up. We may not think much of it but we also pay the ‘appropriate’ costs for private alternatives to public power supply – buying and fuelling generators. A long-term conditioning that electricity, when supplied by the government, is a social good and should be retailed at a cheap price if not given freely, influences guaranteed uproar anytime there is an increment in electricity tariff.

Maybe electricity was a social good years back when the National Electric Power Authority (NEPA) was fully in charge of all aspects of power generation, transmission and distribution but not anymore. Under the current framework where private corporations handle the generation and distribution of electricity, we may need to adjust to seeing it in the same manner we consider bags of ‘pure water’ we buy to fill the lacuna created by the absence of potable water supply.

The government, through the Transmission Company of Nigeria (TCN) and the Nigerian Bulk Electricity Trading Company (NBET), has retained control of the transmission segment. NBET buys electricity in bulk from the generation companies and delivers it to the distribution companies through TCN which manages the national grid and affiliated assets like substations and transmission lines.

As consumers, we only interface with the distribution companies (DISCOs), 11 of them across the country. The DISCOs receive tariffs from which they are expected to pay the transmission company, the distribution companies, the regulator and in fact every other person on the electricity chain. Where, due to failure to pay electricity bills, the DISCOs are unable to raise enough funds to settle the invoices submitted by the generation companies, TCN and NBET, it is recorded as a debt in their books, which is the present reality.

The above said, the willingness of consumers, including government ministries, departments and agencies, to pay significant sums for electricity is not the major reason why there is pervasive darkness across the land. There are more fundamental issues with tariff set by the industry regulator which is the Nigerian Electricity Regulatory Commission (NERC), gas supply to power plants and the generating capacity of existing plants, quality of the transmission network occasioning losses, electricity theft, and vandalism among others.

Due to a lapse in observing the requirements set down by the law before carrying out a much-needed tariff increment, the Federal High Court ordered NERC to reverse the tariff increment, a decision that was hailed by many perhaps unaware of its real implications. Politicians have also been playing to the gallery on the issue of tariff, assuring the people that they would oppose attempts to increase tariffs until power supply has improved but also failing to explain to the people that players in the sector are unable to recover cost and should the present situation persist, may have no choice but completely surrender and divest just like other investors in the aviation and manufacturing sectors have done.

It is generally agreed that generation capacity is somewhere around 5,000MW and is expected to rise with increased investment by government and the private sector. Over time, the generation companies have complained of shortfalls arising from the cost of getting gas supply and their inability to pay for same in the face of declining returns from DISCOs similarly faced by the challenge of unpaid bills. For a while, militant activities and vandalism of gas pipelines also disrupted supplies to the power plants.

In recent months, the present government led by President Muhammadu Buhari has managed to calm the unrest in the Niger Delta and thus able to ensure increased gas supply to power plants which should lead to increased power generation if other constraints are similarly addressed. Fashola has, for instance, been able to get the federal executive council to approve the sum of N701 billion as Power Assurance Guarantee (PAG) which will help pay for evacuation of electricity generated by the generation companies who can then in turn pay gas suppliers.

There is still some uncertainty as to the exact nature of the PAG; whether it is to be paid out as grant or subsidy or loans, but there is one bigger challenge which is with the national grid to be used in evacuating the increased power production. The national grid cannot exactly wheel the power generated without breaking down and there were at least 10 of such collapses between January and March 2017.

Fashola is currently overseeing the upgrade of transmission infrastructure and, perhaps for political reasons, is refusing to admit the extent of the challenge. He regularly claims the bigger challenge is with generation and that there is adequate transmission capacity for current generation capacity. With 10 system collapses in the first quarter of the year however, the reality appears different. When the transmission system fails, DISCOs are unable to receive the power generated but for which they may have already been charged just as they cannot charge customers for power they are unable to deliver to them.

The capital expenditure provision for TCN under the Multi-Year Tariff Order (MYTO) – 2015 Financial Model (which indicates amounts that need to be spent) is N418.504bn but only N40bn has been earmarked for transmission projects under the 2017 budget. It is understood that the government has other pressing needs contending for resources and therefore needs to attract private investors into that segment of the market. But with regulatory restrictions on licences and also on charging cost-reflective tariffs, it is doubtful any sane investor will jump into the fray.

The World Bank and affiliate bodies are presently consulting with Fashola’s ministry on technical and financial interventions for the power sector. There is talk of a possible $1bn investment in the transmission infrastructure and we only hope the minister sees it through before campaign distractions ahead of the 2019 elections set in. It is hoped that the minister will also look more closely at assisting distribution companies achieve metering objectives to boost consumer confidence and further meet the statutory conditions for tariff increments by the regulator.

Using an industry rule of thumb estimation that approximately 1,000MW serves around a million people in a population, Nigeria needs to generate at least 150,000MW of electricity to adequately cater for its population and meet industrialisation goals. We are very far away from that target but by addressing some of the issues inhibiting increased private investment, we can start to move faster and how much of that Fashola can do before 2019 remains to be seen.

 

Source: Iwin.org

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