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Politics of free electricity amid debts, inefficiency

By Femi Adekoya and Kingsley Jeremiah
13 May 2020   |   3:44 am
Despite years of privatisation in the power sector, there appears to be a fundamental lack of clarity as to whether electricity is to be delivered by a competitive market, or whether government will intervene on a regular basis to ensure...

Like every other country, Nigerian leaders decided to jump on the bandwagon of providing palliatives to citizens to reduce the impact of the COVID-19 pandemic on their wellbeing, but without effective strategies to deliver such interventions. While other countries chose the path of deferred payment without penalties as well as avoidance of disconnection during lockdown, Nigeria treaded the path of free electricity without recourse to who picks the bill, at a time the country’s revenue is on the downhill. Should electricity be treated as a social service or market commodity? FEMI ADEKOYA and KINGSLEY JEREMIAH write.

Despite years of privatisation in the power sector, there appears to be a fundamental lack of clarity as to whether electricity is to be delivered by a competitive market, or whether government will intervene on a regular basis to ensure, or seek to ensure, the delivery of a series of social and industrial goals.

While the underlying issues in the power sector cannot be dismissed nor brief held for any of the value-chain operators, the recent announcement of plan to give Nigerians two months of free electricity as part of palliatives for COVID-19, further affirms that political leaders might really not understand the operations of the sector.

For a sector that has huge debts and hardly meets the energy demands of the Nigerian population, proposing or declaring a free service without a strategy as to who picks the bill and how such intervention reaches the common man raises more concerns about how issues in the sector are being addressed.

Lessons from the UK and Ghana
At the onset of the pandemic and lockdown in the United Kingdom, the UK government unveiled palliatives for utilities like energy, water, among others.
Indeed, those who are struggling with money problems or who are repaying a debt to their energy provider are being offered options that include: a review of bill payment plans, including debt repayment plans, payment breaks or reductions in how much is payable, an increase in the time to pay bills and access to hardship funds.

For those concerned about not being able to afford the cost of the extra gas or electricity they are using because they are having to self-isolate at home, support measures were made available through their energy supplier.

“Suppliers will consider each customer’s financial circumstances. No-one with a standard credit meter, where bills are paid in arrears each month by direct debit or each quarter by cash or cheque, will be cut off during the crisis.

“Energy companies are working to ensure that those with prepayment meters are provided with the necessary credits, with top-up cards sent in the post if required. No credit meters will be disconnected during the outbreak. Anyone concerned about their ability to pay their energy bills on time is urged to contact their energy supplier as soon as possible.

“Customers should not simply stop paying their bills without contacting their supplier. The energy industry is also managing its resources to ensure maintenance of supply across the UK during the course of the pandemic. For example, the roll-out of smart meters has been suspended to allow staff to be deployed in other roles concerned with guarantee of supply”, a document on the proposal stated.

In Ghana, President Nana Akufo-Addo announced that the Ghana Water Company and the Electricity Company of Ghana will ensure stable supply of water and electricity as directed by the government for three months, including April, May and June.

According to him, the government will absorb the full electricity bill of the country’s poorest consumers while the rest who do not fall within the low-income consumers will enjoy 50 percent reduction in cost of electricity for those months.

In Nigeria, free electricity is proposed as palliative despite debts
In Nigeria however, the Speaker of the House of Representatives, Femi Gbajabiamila, had made the proposal before considering measures to implement the palliatives.

To most stakeholders in the power sector, the prevailing situation in the power sector, especially the level of financial shortfall and epileptic state of power supply make a mockery of the attempt by the Federal Government to provide free electricity, and raised fundamental question on the approach of the government to the distressed electricity sector.

To underscore the financial crisis, in January this year, the invoice for the energy consumed by Nigerians stood at N52 billion going by the statistics published by the Nigerian Bulk Electricity Trading Plc (NBET), the DisCos failed to pay a total of N37.22bn to for electricity sold to them in the month.

The Association of Nigerian Electricity Distributors (ANED), had earlier said the Federal Government’s indebtedness to the power distribution companies (DisCos) in terms of tariff shortfall was N1.728 trillion as at December 31, 2019.

The power generation companies (GenCos), had also said based on a power purchase agreement, the Federal Government had in the past five years owed the companies N1.2 trillion for stranded electricity standing at about 21,184.62 megawatts to end users.

This could account for the reason, the Programme Lead, Power, United Kingdom – Nigeria Infrastructure Advisory Facility, Frank Edozie, noted that given the situation in the power, there was no need for the Federal Government to bring up the issue of free electricity knowing the level of shortfall that is currently available in the sector.

Indeed, Edozie does not believe there is anything like free electricity, especially in privatized entity, stressing that the value must secure the funding, meaning that someone would have to pay for the product.

“if the government doesn’t want the consumers to pay, they that is okay. But you cannot talk about free electricity and level the DisCos, GenCos and the Transmission Company to figure out the payment. And when you now look deeper, I will suggest that given the state of finance in the power sector, government is not in the position to talk about free electricity,” he stated.

Recall that while the DisCos had supported the move for free electricity, the Executive Secretary, Association of Power Generation Companies (APGC), Joy Ogaji, sounded uncertain about the workability of the plan.

Part of the APGC concern is where the needed finance to generate the electricity that would be distributed freely would come from since the power companies would have to pay for services and products, including gas.

“There is a number of issues to be considered. For us to have free power, the gas suppliers have to be engaged. Would they give the GenCos free gas? Apart from free gas, they have O & M cost and other obligations before power is generated.

“We have not been engaged by the government. But I believe that they are in the process of engaging us. When we know the full details then we will be able to respond,” Ogaji said.

The pioneer Managing Director of the Bulk Electricity Trading (NBET), Rumundaka Wonodi, had noted that the biggest beneficiaries of the largesse would be upper- and middle-class citizens who own and run several air conditioners, water heaters and other high electricity-consuming appliances.

An expert, Prof. Adeola Adenikinju, of the Department of Economics, and Centre for Petroleum, Energy Economics and Law, University of Ibadan insisted that Oyo State need to making the sector work would help Nigerians more than the proposed two-month free electricity.

Adenikinju said: “Nigerians will prefer more stable electricity at this time than anything. There should be a cap on estimated billing paid by unmetered households.

“In considering the bill, I hope that the National Assembly will ensure that electricity producers and others on the value chain are paid for the electricity because there is no free launch anywhere. My preference will be to support the producers to make electricity supply more stable during the period, support poor households and possibly cap estimated billing to prevent DisCos from taking advantage of Nigerians at this tough time,” Adenikinju stated.

Like Adenikinju, the immediate past president of Nigerian Association for Energy Economics, (NAEE), Prof. Wumi Iledare, flayed Gbajabiamila’s proposal.
“I am disappointed. I have utmost respect for the Speaker, but I think this is not the way to go. Put money in the hands of vulnerable Nigerians. Don’t spend it for them,” Iledare said.

He also sees the move as a political entitlement, saying that electricity remained a private commodity owned not by government but private investors.

“How are they going to pay for the commodity? Where is the budget? Do they even know the estimate of free electricity to 100 million households? It is a woolly thinking!

“Is the government the owner of the product they want to give for free? And at what cost to the society in the long run? Let the economic adviser team look at the sector of the economy that would be badly affected after this ordeal and develop a stimulus package to ameliorate or palliate the social economic impact. Blanket stimulus will not have as much palliative effects as targeted sectoral stimulation of the economy,” he said.

Should government insist on the move, PricewaterhouseCoopers’s Associate Director, Energy, Utilities and Resources, Habeeb Jaiyeola, seeks clear modalities to ensure that additional challenges are not created within the existing challenges that the government and power sector expert are looking to resolve.

According to him, a bill such as this needs to look at termed as well as the beneficiary, considering that while the informal sector could be targeted, most of the players are not connected to the grip.

“So, if this is free power, how does it cater for the informal sector, who then may have made a conscious decision to opt out of being connected or the infrastructure is yet to reach them? They may be cut out of this plan. That area must be looked into.

“Another issue has to do with liquidity, which is the number one issue in the sector presently. DisCos are struggling with collection from customers and that same problem is going into transmission and generation.

“When we say we want to provide free power, the discussion doesn’t have to end in the discos alone because power is a chain. The conversation is not at the DisCos end alone because the GenCos who are generating the power has to be certain about how their power would be generated and be paid for,” he said.

Jaiyeola also noted that at a time when crude oil prices are down and the country is currently struggling with global crude oil market that is over glutted with products, with clear inability to sell, caution would be required, especially on the needed fund.