Despite service-based tariff, nation still groans in darkness
Many electricity consumers in the country are increasingly getting frustrated that the more end-user tariff goes up, the less power supply they get from the authorities.
This indeed is one of the factors that has given rise to some popular comments by aggrieved persons, one of which goes thus: “Nigeria is a country where you fuel your power generating sets to run your business so that you can earn money to pay electricity companies for services that perpetually remain dismal.”
Poor electricity supply has remained an albatross for years. Currently, the daily power load distributed to the 11 electricity distribution companies in the country is a meagre 2, 000 Megawatts, according to the Chief Marketing Officer at Abuja Electricity Distribution Company (AEDC), Donald Etim.
Sadly, this 2, 000MW is meant for consumption by over 200 million people, and thousands of industries in Africa’s largest country by population, where the unemployment rate hovers around 33 per cent.
Nigeria’s current generation capacity is close to what a city like Miami in the United States with a population of about seven million consumes daily.
The country’s electricity challenge was at its peak in 2012, and this forced the Goodluck Jonathan-led Federal Government to, in 2013, privatise the sector for $2.5b, a development that saw the distribution and generation segments divided into 17 companies – six GenCos and 11 DisCos.
In the privatisation process, Transcorp/Woodrock Consortium got Ughelli Power Plant, at about $300m; Amperion Power Distribution Limited got Geregu Power Plant, at about $132m, Mainstream Energy Solutions Limited got Kainji Hydro Electric Plant, and Jebba Hydro Station for $170m; North South Power Company Limited went for Shiroro Power Station and got it for about $111.7m. Egbin Power Station went to KEPCO Energy Resources Limited, and for $407.3m.
NEDC/KEPCO Consortium got Ikeja Electricity Distribution Company for $131m; Vigeo Power Limited acquired Benin Electricity Distribution Company for $129m, while KANN Utility Consortium Company Limited got the Abuja Electricity Distribution Company for $164m, and Sahelian Power SPV Limited, grabbed the Kano Electricity Distribution Company for about $102m.
4Power Consortium Limited got Port Harcourt Electricity Distribution Company for $124m; Integrated Energy Distributing and Marketing Limited got Ibadan Electricity Distribution Company, and Yola Electricity Distribution Company for $126.75m while, Interstate Electrics Limited got Enugu Electricity Distribution Company for $107.4m. West Power and Gas Limited snapped up Eko Electricity Distribution Company for $135m, and Aura Energy Limited settled for Jos Electricity Distribution Company at the cost of $82m.
Before the privatisation exercise, the administration of former President Olusegun Obasanjo had been accused of spending more than $15b on power projects, with no power to show.
And on one such occasion, President Muhammadu Buhari said in 2018: “One of the former Heads of State between that time was bragging that he spent more than 15 billion American dollars on power. Where is the power? Where is the power? And now we have to pay the debts.”
While the former president has consistently countered the claim, that more money is not only being spent by the Buhari administration, the sector is also going from bad to worse with generation capacity now worst than in the pre privatisation era.
At the Federal Executive Council (FEC) meeting, which took place in April this year, and presided over by President Buhari, multi-billion naira contracts were approved for the power sector, as the Minister of Power, Abubakar Aliyu, while briefing State House correspondents, explained that all the three memos that his ministry presented scaled through.
The approvals, according to him, were for the purchase of major electricity transmission equipment, which includes the procurement of power transformers and construction of a 260km transmission line in Kebbi State, costing N21.7b.
The Minister of Science and Technology, Ogbonnaya Onu, on his part, said that the FEC approved the country’s Revised Energy Policy (2022), just as he explained that the revision of the policy became imperative to enable the country to take maximum advantage of all available sources of energy in the country.
He stressed that the country has an abundance of crude oil, fossil fuels, and variants of renewal energy (solar, hydro, wind, geothermal, and biomass), in commercial quantities, and a good mix of all these would greatly improve the energy supply in the country.
This is coming two weeks after the Council approved N1.4b for the purchase of additional equipment for the Transmission Company of Nigeria (TCN), as part of efforts to improve power supply. This is in addition to the $2.3b Siemens deal.
The Central Bank of Nigeria (CBN) is funding the sector with over N1.3t. The CBN launched the Power and Aviation Intervention Fund (PAIF) of about N300b; the Nigerian Electricity Market Stabilisation Facility (NEMSF) of about N213b, and the N140b Solar Connection Intervention Facility among others.
In April last year, the World Bank informed that it had aided the country’s power sector with the sum of $1.25b within two years.
Also in 2020, the Federal Government disclosed that it had secured $6.150b for infrastructural development of critical projects.
A breakdown of the fund showed that $3.2b was secured from Siemens and $1.6b from donor agencies for the Transmission Rehabilitation and Expansion Programme (TREP).
About $1.7b was said to be secured from the World Bank, African Development Bank (AfDB), and the Japan International Cooperation Agency (JICA).
As all these went on, the government kept subsidising the sector while the Nigerian Electricity Regulatory Commission (NERC) suspended the periodic review of tariffs since there was no improvement in service provision to justify any increase. At the same time, the Federal Government maintained borrowing as economic indexes and the operating environment compounded challenges in the sector.
Consequently, a series of planned tariff reviews were deadlocked as civil society organisations and labour clamour for improved service delivery, while the World Bank and International Monetary Fund (IMF) pressured the country to end the subsidy.
In 2020, the NERC finally approved tariff increases through its Service-Based Tariff (SBT). As the name suggests, the tariff was expected to be based on service provision. President Buhari, while defending the increase in September of the same year, stressed that it was the only gateway to improving the power supply to the masses.
Speaking at the First Year Ministerial Performance Review Retreat for Ministers, Permanent Secretary, and top government functionaries at the State House Conference Centre, Aso Villa, Buhari, represented by Vice President Yemi Osinbajo said: “The other painful adjustment we have had to make in recent days is a review of the electricity tariff regime. The recent service-based tariff adjustment by the DisCos has been a source of concern to many of us. Let me say frankly that like many Nigerians, I have been very unhappy about the quality of service given by the DisCos. That is why we have directed that tariff adjustments be made, only based on guaranteed improvement in service.”
While the SBT implies billing consumers depending on the hours of electricity that they enjoy per day, the World Bank in the latest survey insisted that 78 per cent of power consumers in Nigeria get less than 12 hours of supply daily. But data from the government data alleged that above 45 per cent of Nigerians categorised under Band A, B, and C are enjoying between 13 to 24 hours of electricity daily.
Among other things, the increase was expected to address liquidity challenges alongside an improvement in the provision of electricity. As part of the bargain, consumers were also to be spared the trauma of purchasing electric poles, cables, transformers, and other basic needs that the privatised electricity companies should be fixing.
But as end users and consumer rights advocates were still clamouring against the unrealistic promises of the SBT, the NERC last January increased the tariff basing the hike on gas price, inflation, exchange rate, and available generation capacity. It added that these indices should be reviewed every six months to update the tariffs with changes in the indices as applicable in line with the Multi-year Tariff Order (MYTO).
The new tariff has about two to five naira increase for consumers under Band A to C, the previously frozen Band D and E, which the Federal Government claimed were subsidised to reduce the burden on poor Nigerians now have over N5 increase.
After NERC increased the tariff in January, it initially remained silent before releasing an order, earlier last month, and just a few days after openly defending the DisCos, by saying that they have been faced with inflation, foreign exchange challenges, and insecurity all of which have led to their inability to collect revenue.
But most stakeholders are miffed at this development, hence they are pointing out that electricity supply has not improved, and the companies (especially the distribution companies) have equally failed to up service provision.
For instance, while generation capacity averaged 4, 500WM in 2020 when the SBT came into effect, it has now dropped to about 2,000MW and has remained like that for months. The same blame game is going on among other key players.
Even though revenue collection went up slightly, all the DisCos except one met the minimum remittance order that was set by the NERC. The mass-metering programme, which was launched against the backdrop of the SBT, did not also progress. Indeed, the national grid collapsed repeatedly after the introduction of the SBT.
The mounting troubles hit the roof in March this year when 14 power plants went down due to lack of gas and other issues.
The power generation companies (GenCos) also accused the government of not meeting up with its financial obligations, adding that its (government’s) indebtedness to the GenCos was above N1.6t.
The Nigerian Bulk Electricity Trading Company Plc, which stands between the generating companies, and the DisCos to trade electricity, instead of a willing buyer and willing seller market, claimed that the GenCos were paid. On the other hand, the DisCos are blaming TCN for running obsolete equipment leading to frequent grid collapse.
While the blame being bandied is largely system-based and not from the end-users/consumers who are yet to understand the rationale behind the tariff increase, the NERC has disclosed that a review of tariff would go on every six months. This implies that a new review is due in July this year.
The SBT divided electricity consumers along hours of supply from band A to E.
In the tariff Band A, end-users must enjoy 20 hours of electricity supply daily. Under Band B, consumers must, at least, enjoy at least 16 hours of power supply; 12 hours of power supply is reserved for those under Band C, and eight for those under Band D. Those under Band E must enjoy at least four hours of electricity daily.
Sadly, the reality on the ground simply presents the SBT as a grand scam, as electricity generation capacity has continued to drop while consumers are frequently thrown into darkness over the persistent collapse of the national grid.
In the last eight years, the national grid has collapsed more than 140 times despite over $1.6b investment being pumped into the transmission segment of the sector from donor funds and borrowings from the World Bank and the African Development Bank.
Most industry players and consumer rights groups are livid with the situation and are even calling on the Federal Government to cancel the 2013 privatisation exercise, which sold assets of the public electricity operator to private hands.
Still heavily dependent on borrowing, donor funding, and government funding, the power sector, according to some consumer rights advocates, is surviving on the sweat of end-users, who continually procure electricity transformers, poles, wires, and others for their use, while the ownership of such utility changes to the privately-owned distribution companies immediately after purchase.
For a former NERC chairman, Sam Amadi, the country would continue to experience electricity tariff hikes for a long time without improved supply because of the innumerable gaps in the electricity network, which have not been addressed.
“These frailties have been worsened by failures of the government occasioned by lax policy and regulatory environments. In spite of these failures, investors are demanding cost-reflective tariffs. The international financial institutions are also putting pressure on the government to remove subsidies in the sector, which arises because of revenue shortfalls,” Amadi said.
He noted that consumers might continue to bear the brunt of the compounding inefficiencies of the sector, stressing that there are no indications that there would be significant service improvement until the country “has a more efficient policy, effective regulatory environment, and interventions.”
The pioneer Managing Director of the Nigerian Bulk Electricity Trading Company Plc., (NBET), Rumundaka Wonodi, is of the view that while prevailing economic realities may cause tariffs to go up, it remains a serious concern that the increase is not delivering service levels contemplated in service-based tariffs.
“Many of the clusters hardly experience the supply hours in whichever tariff band they have been placed. Imagine that in the past few months, the supply to the grid has been dismal, leading to reduced hours of supply to all bands of tariff consumers, even for band A, yet, the tariff has remained the same.
“The DisCos rightly claim that they are not responsible for the recent decrease in supply, but that is not for the consumers to pick up the bill because, at the same time, consumers have to make up with self-generation at a time that the price of diesel has gone through the roof,” Wonodi said.
According to him, even before the latest supply squeeze, many consumers in the tariff bands had complained that supply had not been consistent with their respective tariff bands.
While consumer groups are calling for a reversal of the privatisation exercise, Wonodi noted that such calls were counterproductive. For him, what was needed is for the regulator to come down hard on non-performing players.
According to him, the NERC and the Bureau of Public Enterprise (BPE) need to be empowered and encouraged to remove non-performing investors in each entity, either in the DisCos, or generating companies (GenCos).
“Again, wholesome reversal of the privatisation will be expensive in terms of time and resources, just as the call for reversal disrupts capital injection. Any successor company looking to raise either debt or equity will have a higher hurdle to jump when there is a consistent call for reversal of the privatisation,” Wonodi cautioned.
But a legal practitioner and consumer rights advocate, Kunle Olubiyo, begged to differ with Wonodi, and insisted that the reversal of the privatisation exercise remained the only leeway in the face of the continuous dismal performance.
He added that improving the sector might remain a mirage if the government sticks to the current investors.
According to him, consumers are being shortchanged by what is presently happening, and the sector has been fleecing customers mechanically through suspicious, rogue meters.
Olubiyo’s thoughts align with Consumer advocate and Convener of PowerUp Nigeria, Adetayo Adegbemle, who noted: “I don’t blame all those calling for a reversal of the privatisation, even though I still don’t see it as the way forward.”
And for a professor of energy law at the Lagos State University (LASU), Yemi Oke, tariff increase would never address challenges in the power sector because the fundamental issues would continue to corrode the sector.
“You can continue to adjust tariff. At some point, it will make no sense to patronise DisCos for power because the other options would become relatively cheaper. The last adjustment was premised on an improved power supply. That has not happened,” Oke said.
He added that while the adjustment may make sense for commercial customers, who use diesel, the household user may not cope, and even industrial users may resort to embedded generation, as no serious manufacturer would rely on DisCos.
In proffering solutions to these niggling issues, Consultant, Nextier Power, Chiamaka Asoegwu, told The Guardian that performance agreements that led to the unbundling of the defunct power sector into the 11 electricity distribution companies were the setting of cost-reflective tariffs that would incentivise more investments in power supply reliability and availability. To move forward, the regulator and the DisCos must honour these agreements.
“The macroeconomic factor in Nigeria that is especially important to tariff setting is foreign exchange (because gas prices and many capital expenditures are indexed to the dollar). There are continuous security threats in various parts of Nigeria. In the North, terrorists blew up parts of the transmission network. In the South, we have continuous pipeline destruction making gas unavailable, and DisCos continue to experience cable vandalism and theft in various areas of their network, to mention but a few,” Asoegwu noted.
According to her, the prevailing factors have affected power availability to the customers and hamper DisCos’ best efforts at providing reliable supply, adding that the same economic and security challenges affect every Nigerian in their various endeavours, and potentially lead to the inability of customers to pay the higher tariffs.
She noted that the country must therefore create an enabling environment for both businesses, and the populace to increase their disposable income, ensure security, and a thriving atmosphere for businesses and foreign investments.
“There is a need to review existing policies and be ready with the political will to drive implementation. The DisCos should be accountable, as well as regulators on the requirements of their performance contracts. The discos should optimise their operations and clean their systems to generate more revenue and reduce wastages and losses,” she stated.
Asoegwu stated that with a poorly diversified energy mix where the majority (85 per cent) of installed capacity is fueled by gas and still operating in the Transitional Electricity Market (TEM), as against the Final Market (FM), with bilateral contracts between electricity buyers and sellers at all levels, and a central balancing mechanism through the creation of a spot electricity market, the country must increase energy mix and drive the adoption of other energy sources.