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Power sector in need of better coordination

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Photo: Pexels

Photo: Pexels

First of all, I would like to wish you all happy holiday!

Steady power supplies are a basic necessity for growth and development in any economy. A study carried out about three years ago showed that if “full power” is attained and made routinely available to businesses and households, it could add two percentage points to annual GDP growth.

In 2013, the Federal Government privatised its interests in the local power generation and distribution capacity. The assets were 70% sold to private investors. The unbundling created 11 DISCOs and six GENCOs.

The promise of a more efficient and profitable power sector is yet to materialise. The key question here is, were the private investors ready for the challenge? Recently, there have been debates over the financial and technical capacity of the new investors, particularly with regards to the distribution companies (DISCOs). The loudest of which was from a prominent Nigerian national who recently suggested that the FGN should re-possess the assets. The Honourable Minister of Power, Works and Housing, Babatunde Fashola, has however stated in clear terms that there is no going back on the privatisation. Understandably, the government might be reluctant to rock what is already an unstable business environment. However, a reversal could well be within the government’s rights given the existence of contractual agreements.

The power generation firms (GENCOs) are steadily building capacity and currently have an installed on-grid capacity of 6.8GW. Nonetheless, it would take some time to reach lofty generation targets. On the other hand, the DISCOs have struggled to follow suit. For now, there is no real difference between the methods pre and post privatisation for the DISCOs. The main issue for the DISCOs is revenue collection, with metering well behind projections. It is generally accepted that prepaid metering is the most agreeable method for assessing consumption. However, the DISCOs have struggled to fulfil their role in achieving this objective.

There is a high likelihood that the DISCOs might be more comfortable with estimating bills for consumers. This is clearly not best practice and should be avoided completely. Protests from Nigerians are growing louder with some calling for a forced blackout. If achieved, the ultimate losers would be the DISCOs. Already, revenue projections are falling short of expectations.

The CBN has supported the power sector financially by providing a N213bn power intervention fund to aid settlement of the DISCOs outstanding invoices (N107bn had been disbursed as at October 2016). Given the existing fiscal pressures on the government, another support programme in this magnitude would be a stretch for the FGN. However, this cannot be totally ruled out.

A short term measure put in place to close the metering gap was the Credit Advance Payment Metering Initiative (CAPMI) whereby the underlying cost for metering was undertaken by the consumer. This indeed is a rare privilege for any private business. The central idea was that since the DISCOs did not have the funds to provide prepaid meters, consumers who participated in the scheme would be refunded by additional top ups following power credit purchases. A few weeks ago the programme was discontinued due to the delays in providing meters as well as issues with top ups.

An alternative for the provision of prepaid meters is essential. If the DISCOs cannot meet up with funding metering targets and the FGN is reluctant to reverse the sale, consumers should be shielded from aggressive overestimation of electricity bills. For able and willing consumers, a simple arrangement can be developed whereby those capable of bearing the full cost for the meters are rewarded with electricity credit top ups equivalent to the price of the meters. As such, DISCOs would not be entitled to generating income from such consumers until the rewarded credit has elapsed.

Alternatively, for consumers that refuse to pay for meters, a flat rate could be agreed upon. In the absence of such, estimated billing should be declared illegal. Rectifying this discord within the power sector provides an opportunity for the Buhari-led government to show its true commitment to the average Nigerian. So far, the current administration has taken a few good steps forward; such as removing the fixed electricity charge.

In June 2015 the Nigerian Electricity Regulatory Commission (NERC) announced a review to transfer the responsibility for determining appropriate tariffs in part to the DISCOs. This new tariff structure also removed the fixed capacity charge paid by consumers and adjusted tariffs to ensure customers only pay for electricity consumed; it came into effect in February 2016 with a substantial increase. The net effect of the tariff review has not resolved the liquidity challenge within the sector. The adjusted tariff will need to be adequately metered and collected.

However, in reality the tariffs have increased by an average of 50% across all distribution companies in the country; infuriating many Nigerians as the supply of power still remains highly unreliable. To set the sector free and allow for market determined pricing, prepaid metering is essential thus more effort should be made in ensuring that customers are metered appropriately. In the absence of this, the power sector is likely to continue to struggle.


In this article:
Chinwe EgwimDISCOsGENCOs

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