The Perennial Crisis In The Power Sector


It would appear Nigeria’s privatised electricity sector has refused to break away from the many troubles that hold it from turning the corner. Based on its recent outputs it may be long before the sector comes around

Recent records on power generation and supplies in the country from the System Operations department of the Transmission Company of Nigeria (TCN) have shown that services from the sector to the Nigerian public have been quite poor.

The development, though not entirely new, speaks deeply of the shortcomings of the sector and its stakeholders in bringing to reality the expectations of Nigerians, who at the inception of privatisation in 2013, believed the country was on a strong path to ending its historically bad public power supply services.

But after four years of testing the waters of electricity privatisation( in which private operators have taken over and are running the business of generation and distribution of the services while the government still holds on to that of transmission), it would appear the sector still has not overcome its initial teething problems.

So far, while not overlooking the impact of these teething challenges on the sector, experts who have followed its growth, have variously posited that the troubles of the sector were multifaceted and thus need to be appropriately dimensioned to allow for fitting solutions to them.

Though the country’s capacity to produce power appears to have grown with investments reportedly made by investors in generation companies (Gencos), extant constraints from gas supplies and water management have continued to cut into the final production levels of the Gencos.

Often guilty for this glitch is the periodic damage of gas pipelines transporting gas to the Gencos from the Niger Delta, as well as huge debts owed gas producers for supplies made but not paid as expected from the revenues remitted by the distribution companies (Discos).

As at last week, for instance, constraints from gas and water management chipped off about 2,785 megawatts (MW) of generation volume from the system, leaving the country with just about 3,624.90MW of electricity to transmit and distribute across the 11 distribution networks.

According to the daily operational statistics from the government, average power generation as at April 05, 2017, was 3,441MW. This hovered around 3,653.8MW and then dropped to 3,624.90MW. The country last generated up to 5,000MW of electricity, which was still short of the projection in the Multi Year Tariff Order (MYTO), in February 2016.

The reported gas and water constraints were 2,695MW and 90MW respectively, while no constraints from the transmission lines were recorded. However, the government’s record also stated that the power sector lost an estimated N1, 337,000, 000 on April 05, 2017 due to these constraints.

Similarly, on April 11, 2017, average power sent out was 2,950MW, down by 254MW, while reported gas constraint was 2,627MW, and high frequency constraint was 27MW. The power sector also lost an estimated N1, 274,000, 000 on April 11 2017 due to these constraints.

For the transmission and distribution sectors, both segments have frequently blamed each other for the failings of the sector.

According to the Discos, while the government maintained that it had continued to invest to upgrade the transmission network to be able to wheel up to 6,700MW of electricity generated by the Gencos, the country’s transmission system remains the weakest link in the sector’s value chain.

Frequently, the Discos have blamed the TCN for failing to send power to parts of their networks where stable distribution would be guaranteed, while the TCN in response claimed that the Discos have failed to invest in the upgrade of their distribution facilities thus leaving them with obsolete and weak distribution facilities that allows them reject load allocated to them.

According a recent claim by the TCN, the Discos have, based on their rejection of load allocation, forced it to ask the Gencos to cut down on their generation levels. It explained that excess volumes without the distribution networks taking them would collapse the country’s transmission system, hence, the request to drop down on their volumes.

Additionally, the Discos have equally blamed the lack of funds, or poor collection levels for their inability to upgrade and expand their networks. They also claimed that historical debts owed them by governments agencies had impacted their financial abilities.

In addition to the technical challenges of the sector, operators have also found it difficult to operate with the very difficult financial mess the sector suddenly got itself into.

While speaking in a recent interview, the immediate past Managing Director of the Nigerian Bulk Electricity Trading Plc (NBET), Mr. Rumundaka Wonodi, explained that before he left office in June 2016, the sector’s regulator – Nigerian Electricity Regulatory Commission (NERC) and other relevant operators had drafted and was almost implementing a framework that could have solved the financial troubles in the sector.

Wonodi, however, pointed out that certain decisions and actions of some stakeholders overturned that action plan which he added would have massively taken care of widespread disregard for financial and governance processes in the market.

“As at June, we have had issues with liquidity in the market and payments or remittances by Discos to the market that would allow payments to the Gencos. One of the issues then was having a tariff everybody thought was cost reflective and if the Discos would be able to pay in full for services, but we could not ascertain if that was possible,” said Wonodi.

He stated, however, that, “One thing we knew then was that the regulator, NBET and Market Operator could apply sanctions because at least, the commercial frameworks which we worked on would apply to everybody.”

“We were able to finish the commercial and security frameworks that would compel people to play by rules in the market, and there were excitements especially from the upstream Gencos and gas suppliers. We were also able to assign the Letters of Credits (LCs) from the Discos to the Gencos, which meant that the usual reticence of government acting was taken off and most Discos that believed they would perform welcomed this, but the ones that could struggle to meet the terms felt the pressure because it was now time to perform.”

He said while the framework afforded everybody the prospect of looking at an industry that may have changed in its form of commitment and level of obligation, “some ill-informed ruling came out from the court reversing the tariff and stating that the regulator had not done all that it needed to do before the tariff review.”

“Once that was done, the underpinning legislation and foundation for all the work we did went loose, and the Discos sensing an opportunity to relieve themselves from their obligations also went to court and got an injunction that without cost reflective tariff the NERC cannot enforce compliance and NBET cannot call on their LCs.

“That was granted them, and after that, everything in the market happened on best endeavour basis and a coupled industry suddenly became loosened and decoupled. From then until now, it became a basic challenge that included the generation levels, and macroeconomics,” added Wonodi.

According to him: “There would have been firmer commitments and standards that would have allowed everybody to operate.”

He equally noted that the sector was going to benefit from a parallel bond to support the revenues of the Discos in the short-term for capital expenditures, but this as well was frustrated by the absence of a cost reflective tariff, and firm commitments.

Asked if the Discos, which had become the sector’s whipping boy, had contributed to these troubles, Wonodi said: “The truth of the matter is that when it comes to trust, it is totally broken in the industry and the Discos have not helped themselves in this. From my view, the Discos are monopolies and running them as private business where they feel that they are not required to share information is faulty.”

He thus added: “It behoves the Discos to be as transparent as possible and the regulator should demand that from them. Where the Discos have refused to be open, they have attracted condemnation and to a large extent, some of that are self-inflicted, but I cannot say if they are fair or all true. The only thing I advise is that they should be open.

“If there are claims that they receive revenues and hold on to some of them, there is only one thing to do – agree to an escrowing or a full transparent mechanism that hold together the industry finance and that way everybody sees your books, but to the extent that they do not want that, they cannot claim it is an unfair allegation.

“The Bulk Trader and others do not want to know how much you are making as long as you are paying your bills, but if you are unable to pay and seeking some interventions from the market, then, participants need to know what you are doing.”

Source: ThisDay

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