It is over one month since the Minister of Power, Works and Housing, Babatunde Fashola, declared the “Eligible customers” policy and ordered the Nigerian Electricity Regulatory Commission (NERC) to issue a directive to that effect.
The declaration which permits electricity customers to buy power directly from the generation companies is in line with the provisions of Section 27 of the Electric Power Sector Reform Act (EPSRA) 2005, whereby some customers are permitted to buy power from a licensee other than electricity distribution companies.
The commission further explained that the declaration ensures that at least 20 per cent of the generation capacity is reserved for supply to “eligible customers” so that it does not affect the DisCos’ customers.
Fashola, at the 16th power sector operators’ meeting in Enugu last Monday provided further insight into the declaration as he urged the DisCos to improve on their services so that customers would remain under them instead of buying power from the GenCos.
State governments were also encouraged to key into the the ‘eligible customers’ idea, so that they can buy more power from GenCos to supply to people in their states, thereby reducing cases of incessant blackouts.
EPSRA 2005 and customer eligibility
The DisCos’ group, Association of Nigerian Electricity Distributors (ANED) expressed reservation about the idea. The spokesman of ANED, Mr Sunday Oduntan, in a statement said, “Our understanding is that Eligible Customers may only be declared by the Minister when a competitive market exists in the Nigerian Electricity Supply Industry (NESI).”
The Daily Trust on Sunday analysis of EPSRA 2005 shows that Section 24 Subsection 2 gives the minister powers to declare customer eligibility in the electricity market. However, that ought to have been done before the privatization of the sector. The sad situation is that the DisCos, since the era of the defunct PHCN, have been the only ones selling power to the consumers. There was no other group to encourage competition in the system.
But the GenCos long before privatisation had competitors. Section 26 of the EPSRA 2005, subsection 1a,b and c capture what the market should be post privatization thus: “following the declaration by the minister, a more competitive market is to be initiated: (b) successor GenCos shall, in accordance with their licences, sell electrical power to DisCos and eligible customers, under the terms of any contract existing prior to the declaration by the minister… or under the terms of any new contracts between the DisCos and eligible customer.” This also applies to the IPPs selling power to DisCos and eligible customers too in subsection D of the Act.
But for the failure to declare the eligibility before the privatization, the present Transitional Electricity Market (TEM) that is witnessing poor performance would have been stronger and much more contractually competitive.
Gains of the declaration
ANED and other sector players noted that there was no competition in the market and that the sector needs to grow more before such declaration should be made. However, a careful study of the EPSRA 2005, sections 24 and 26 show that the declaration is a factor to initiating competition in the market.
In the meantime, the Association of Power Generating Companies (APGC) has backed the declaration. The group which represents the GenCos said the declaration came “after government’s assessment of the market status and as an answer to the clarion call through pressures from consumers due to the inability of the DisCos to fulfill their obligations and the need to promote retail competition in the market.”
They said the declaration will ensure that issues of stranded generation and poor market liquidity are resolved.
“This policy directive will lead to increased energy generation/available and expanded generation capacity as GENCOs would potentially ramp up their generation capacities to provide supply to eligible customers, addressing issues bothering on financial viability of the electricity supply value chain,” the group noted.
In the clarification report issued by APGC Executive Secretary, Dr. Joy Ogaji, GenCos said the declaration does not spell doom because they can now sell power to suppressed load centres, thereby making up dwindling revenue and pay their gas suppliers.
APGC said while the declaration will enhance competition and complete the liberalization of NESI and improve efficiency, the issues of load rejection by DisCos will also be tackled as such excess power will be channeled to the eligible customers and no longer to the DisCos.
Representing the consumer group, the President, Nigeria Consumer Protection Network, Mr. Kunle Olubiyo, said declaring eligible customers became imperative to drive competition in the post privatisation era.
“It means that DisCos and any other customer can buy power directly from GenCos”, he said.
In a telephone interview, Olubiyo said, “the challenges we are having now is about settlement terms. The DisCos are saying they are not breaking even and the GenCos say they can’t pay for gas. If this continues, the power sector will collapse. That is why we have to move to eligible customers to ensure more liquidity.
“When GenCos generate, customers like industry clusters, factories, SMEs who are willing can take power directly from them and there will now be a willing buyer, willing seller understanding. This will boost the liquidity in the power sector and it will encourage the DisCos to put in more money to improve the residential customers”.
Envisaged constraints for DisCos, customers
The DisCos had argued in April 2017, through issued statements that the plan to make the declaration would affect customers’ tariff system. Many customers have adjudged the present tariff to be high in the face of inconsistent power supply; the declaration could heighten this concern, the DisCos had said.
Experts fear that the DisCos may lose customers due to the declaration and hence the federal government must put in place modalities for compensating them. ANED citing section 28 of the Act said DisCos “must be compensated for any reduction in their ability to “earn permitted rates of return on their assets” or any inadequacy in their revenues.
DisCos said they must be compensated for the sunk costs associated with supplying the customers that will be designated as Eligible Customers, as well as any loss of revenue associated with such declaration.
“What this means is that consumers will have to suffer an increase in their electricity tariff, to accommodate this premature declaration of Eligible Customers,” it noted.
But Section 28 of the EPSRA 2005 shows that after the declaration becomes effective, the minister can intervene once he consults with the President.
“If the directive issued on section 27 will result in decreasing electricity prices to such an extent that a DisCo would have inadequate revenue to pay for its expenditures or ‘earn permitted rates of return on its assets’, despite its efficient management, the minister may issue further directives to NERC on the collection of a Competition Transition Charges (CTC) from consumers and eligible customers and distribute same to the DisCos and other participants with duration for it,” part of the section read.
Although, the public must be consulted by NERC before determining what amount to set as the CTC as stated in Section 30, the impact of the declaration will ultimately come to the customers as they will have to pay for the liquidity gap.
A weakness in this, analysis shows is that the Act said both customers who are not part of the declaration and the eligible customers will have to bear the burden of CTC.
An expert and power consumer advocate, Mr. Okoh Anebi in Abuja, also highlighted another problem with the declaration. He said there could be issues of power supply to customers not listed on the eligibility.
“The declaration said 20 per cent of GenCos power mostly stranded should be sold to the eligible customers.
“However, if the network continues to be weak, the GenCos, DisCos and the Transmission Company of Nigeria (TCN) will have to first supply those customers before they think of residential customers because of the strict contractual terms and sanctions that may be in place. That may actually threaten the power supply strength for residential category of electricity users,” he said.
Allaying fears of targeting the DisCos, Mr Olubiyo said the present electricity grid and network should have franchise areas within the DisCos’ control.
“They are captured in the Act that any eligible customer must have to sign the DUOS pact with the DisCos to use their network. This will fetch a charge for network use.
“So they cannot be ruled out of the market and have nothing to fear. They will be on the benefiting side because GenCos do not have their networks and so DisCos will be paid for using their networks. Maybe in time to come, GenCos and such eligible customers will have a dedicated network, but it is still a long distance. It is for now a good idea for the power sector,” Olubiyo added.
Source: Daily Trust