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Buck-passing: The long road to fixing Nigeria’s electricity challenges

By Femi Adekoya
11 March 2020   |   3:47 am
Despite electoral promises, the problem with Nigeria’s power sector has remained largely unresolved in the almost five years of President Muhammadu Buhari’s administration. It has rather been characterised by buck-passing by officers of his government. FEMI ADEKOYA writes.

Despite electoral promises, the problem with Nigeria’s power sector has remained largely unresolved in the almost five years of President Muhammadu Buhari’s administration. It has rather been characterised by buck-passing by officers of his government. FEMI ADEKOYA writes.

It is now recognised that the industry is complex and characterised by issues such as regulatory challenges, geopolitical pressures, environmental issues, and bad leadership, and a host of others.

To solve these problems, regulators must develop the will to challenge certain institutions and individuals beyond mere pronouncements.

Nigeria has more than 190 million people, including large industrial and commercial ventures scattered unevenly across the country. About 40 per cent of the population has no access to electricity, and supply is usually epileptic for those that have.

However, the country’s current operational capacity stands at less than 4,000 megawatts (MW), over 50 per cent less than the 8,400MW projected for 2018, in the Multi-Year Tariff Order (MYTO).

MYTO is a tariff model for incentive-based regulation that seeks to reward performance above certain benchmarks, reduces technical and non-technical/commercial losses, and leads to cost recovery and improved performance standards from all industry operators along the electricity value chain.

The installed capacity of 7,000MW is also below pre-privatisation target of 11,879MW by 2012, and post-privatisation target of 14,218MW and 40,000MW by 2013 and 2020, respectively.

Indeed, the bulk of electricity generated comes from thermal sources (gas-fired power plants). As a result, inadequate gas supply often affects generation.

Furthermore, consumers of electricity comprising households, industries, commercial ventures, among others, have risen significantly.

Rising population and improvement in industrial and commercial activities are key factors driving the trend. As a result, demand for electricity has outpaced generation, transmission and distribution capacity.

Industry observers note that the ideal power delivery model for Nigeria envisages a transmission wheeling capacity that is at least 20 per cent higher than the generation capability and a distribution capability that is at least 20 per cent higher than the transmission wheeling capacity.

The generation companies have an available capacity of about 8,000 megawatts (MW), with a transmission system, which can only wheel about 5,000MW, and a distribution network not capable of absorbing about 4600MW.

Due to sub-standard transmission and distribution system, generated power becomes rejected or is forced to load-shed to match the infrastructure that distributes electricity to customers, making GenCos operate below their optimum. The generation plants are now being run as regulated power reserves by TCN, via its subsidiary, System Operation/National Control Centre (SO/NCC).

To address the infrastructure challenges, the Transmission Company of Nigeria (TCN), unveiled the Transmission Rehabilitation and Expansion Programme (TREP). TREP is a strategy initiated to rehabilitate and expand transmission infrastructures to stabilise the grid for optimum performance, through massive investment, in line with international best practice. TREP is also expected to expand the capacity of the Transmission Grid to 20,000MW by 2022.

Experts have prescribed solutions such as procurement of regulating and spinning reserves as well as tools to manage the grid.

TREP seeks to reduce system instability through the procurement of functional Supervisory Control and Data Acquisition/Energy Management System (SCADA/EMS), ensuring frequency control, provision of adequate spinning reserve, installation of effective relays and ensuring effective relays coordination.

TCN, however, requires a significant amount of financial resources to implement TREP, but unfortunately, it has the lowest tariff in the Nigerian Electricity Market (NEM).

The problem is compounded by the fact that even with the lower tariff; only less than 40 per cent of TCN’s invoice is usually paid because of the poor liquidity of the market.

Problematic pricing structure
The framework that governs electricity tariff framework in Nigeria is the MYTO, which provides cost-reflective tariffs across several years that is fair to generation, transmission and distribution companies, and other industry stakeholders.

Industry participants often complain that electricity charges to customers do not reflect the cost of generation, transmission, and distribution.

Introduced by NERC in 2008, MYTO was the proposed solution to this challenge as it provides a 15-year tariff path for the electricity industry, which is subject to minor reviews twice every year, and a major review once every five years. MYTO has undergone different reviews since 2008.

Essentially, many of the DISCOs have been unable to collect a significant proportion of their billings to customers, as total revenue collected by all the companies for energy distributed significantly falls short of total billings.

While it is believed that metering customers will reduce the liquidity challenges currently grappling the power sector, meter delivery progress has been slow so far.

According to the Nigerian Electricity Regulatory Commission (NERC), the number of electricity consumers has risen to over 10 million within seven years, with over 52 per cent being invoiced on estimated billing.

NERC noted that the significant level of customer dissatisfaction arising from unrealistic estimated bills has also adversely impacted on the market revenues as a consequence of customer apathy and declining willingness to settle invoices in full.

NERC also acknowledged the shortcomings of the Meter Asset Provide (MAP) scheme, stating that changes in fiscal policy and limited availability of long-term funding led to the limited success in the meter roll out.

Upon hand over of the facilities to the DisCos after privatisation, the performance agreement insisted that they must reduce losses otherwise known as Aggregate Technical Commercial Collection (ATC&C) losses.

The basic means of pruning the losses would be an investment in equipment such as transformers, meters, poles, and cables.

But the achievement has been a far cry from what the agreement expects of the companies. From the words the Minister of Power, Sale Mamman, at the Federal Executive Council meeting recently, the DisCos can only supply a neighbourhood of 3,000MW to the consumers.

Metering, which is the tool for counting units of consumption in the electricity market, has not really attained its objective since the privatisation of the industry.

For instance, the Credit Advanced Payment Metering Initiative (CAPMI) recorded a dismal 201,756-meter installation by the 11 DisCos out of the 410,796 that the customers bought. The NERC had to jettison the initiative.

Furthermore, the Commission in its 2019 Third Quarter (Q3) Report said commercial viability and financial liquidity performance continued to be a major challenge with a slight improvement in Q2.

During the quarter, “total billing to electricity consumers by the 11 DisCos rose to N186.08billion with a total collection of N121.32billion…The level of collection efficiency during the period under review indicates that as much as N3.9 out of every N10 worth of energy sold during the second quarter of 2019, still remained uncollected as and when due.”

Continuing, the report said during Q2 2019, out of the total invoice of N180.08billion issued to the 11 DisCos for energy from the Nigerian Bulk Electricity Trading (NBET), and for service charge by Market Operator (MO), about N55.10billion of the total invoice was settled.

This performance of the DisCos, in a nutshell, shows how far they have fared in terms of commercial and collection losses.

Had they installed meters to reasonably, the collections would have been higher than the figure recorded above. However, as the estimated billings have no accurate record, those benefitting from the spoils should be happier, after all.

NERC had in an order released late February and titled: “Order on the capping of estimated bills in the Nigerian Electricity Supply Industry (NESI),” repealed Estimated Billing Methodology Regulation, stressing that the regulation shall cease to have an effect on unmetered customers in the country.

Chairman of the NERC, Prof. James Momoh, had in January said the new regulation to enforce metering for electricity consumers would favour consumers and as it will stop electricity DisCos from fleecing their customers through the old regime of estimated billing.

The TCN Managing Director, Dr. Usman Gur Mohammed, in a recent chat with The Guardian, reiterated the need for Discos to recapitalise to match the investment of the TCN in the network.

He said TCN’s efforts are yet to manifest because of the DisCos’ refusal to invest in distribution equipment.

Mohammed said some of the transmission transformers in Abuja and Benin City were lost to lack of protective equipment on the part of the DisCos.

He said: “Part of the problems we have with the DisCos is that most of the funding that they have come from Nigerian commercial banks, which are short term in nature and very expensive. We need funding that will have repayment period of at least 10 years moratorium period; you can’t get it from the Nigerian financial market. So, we are not talking about recapitalisation by bringing all those short-terms.

“Short terms are expensive, and they will not be able to build the infrastructure successfully. If you look at our interface now we have 738 interfaces across the country. Out of these 738 interfaces we have, only 421 that are fully protected. So, even TCN investments cannot be protected if we don’t have significant investments in DisCos.”

Partner and Chief Economist, PwC Nigeria, Dr. Andrew Nevin, urged that, “To revitalise liquidity in DISCOs, we consider 50% of energy received by DISCOs is transmitted to industries at a cost-reflective rate of N80/Kwh. At N80/Kwh charged to industries, an estimated N400billion will be injected into the power sector yearly.

“The effect of charging industries a tariff of N80/Kwh and supplying 50% of electricity received by DISCOs to industries 24/7 is an increase in the level of manufacturing GDP from N6.4 trillion to N13.3 trillion,” he added.

On his part, Managing Director/CEO of Niger Delta Power Holding Company (NDPHC), Chiedu Ugbo, in a keynote address, advocated the need to explore alternative financing models that would spur economic growth and revitalise the power sector.

Similarly, Group Managing Director, Sahara Power Group, Kola Adesina, whose group operates Nigeria’s biggest generation company, the 1,320-MW Egbin Thermal Plant, in Lagos, argued that inappropriate pricing has reduced the power sector to the blame-game syndrome since its privatisation almost seven years ago.

He noted that even though GenCos are producing more power and Discos selling more to consumers, the impact has not been felt because, “the population is increasing and the infrastructure is decaying, arising from the fact that the investment required to make the system work has not been triggered due to inappropriate pricing.”

He continued: “There is a cost structure associated with electricity supply. In that cost structure, you find gas, generation, transportation, and distribution. Now the distribution side of it, which is what you want me to speak to, the cost there includes and is not limited to metering, billing, monitoring, cash collection, transformer, lines, the feeder, and the substation. If I’ve built this humongous infrastructure for me to validate what you’ve received and the revenue I am receiving, when my revenue is not commensurate with the energy that I’ve dispatched, then there is a problem. What that simply means is that there is an additional cost required for me to get it right”.