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Revisiting electricity market of more charges, less power supply

By Kingsley Jeremiah, Abuja
23 January 2022   |   3:00 am
The power sector was privatised by the Federal Government on November 1, 2013, with the expectation that supply to homes and industries would by now exceed 40, 000 Megawatts (MW).

In a common sense economy, service usually comes before payment. But where payment comes first, expectations are that service providers would build trust by justifying what they have been paid. This is not the case in the Nigerian Electricity Supply Industry (NESI), where customers have been deceived to pay more for non-available electricity. KINGSLEY JEREMIAH writes on the recently introduced Service-based Tariff (SBT), which increased the cost of electricity across the country.

The power sector was privatised by the Federal Government on November 1, 2013, with the expectation that supply to homes and industries would by now exceed 40, 000 Megawatts (MW).

Eight years after that promise was made, data obtained by The Guardian from the Osogbo-based Nigerian Electricity System Operator showed that only a meagre 4224.9MW was available. Although the data showed that grid generation installed capacity stands at 13, 014.14MW, the actual generation capacity was put at 7, 652.6MW, while transmission wheeling capacity hovers around 8, 100MW. By implication, transmission and distribution bottlenecks are compounding reality as the country only improved supply to consumers by a mere 400MW since privatisation.

Consequently, there has been immense finger-pointing sessions, elaborate dramas, blame games and intrigues regarding the failure of the privatisation exercise to boost the nation’s electricity supply. 

However, one of the major reasons blamed for this ugly development is the low tariff. That indeed explains why the 11 distribution companies, which are the revenue collectors in the sector are always chorusing one language-tariff increase.

With electricity still being seen by many as a social amenity, which they don’t need to pay for, the Federal Government, after years of going back and forth, in concert with the Nigerian Electricity Regulatory Commission (NERC) and the Distribution Companies (DisCos), increased the unit price of electricity for homes and industries.  

In September last year, after years of permutations and repeated failed attempts, the “December 2019 Minor Review Order (MYTO)” for the 11 electricity distribution companies (DisCos) came into force. The tariff increase was termed service-based tariff. By implication, the tariff was pegged on the promise of improved power. Residential and commercial customers were divided into bands, depending on the number of hours of electricity that they enjoy.

While the tariff was increased by more than 100 per cent, the end-users were classified into Band A to Band E. Those in Band A were meant to enjoy power for at least 20 hours daily, Band B 16 hours daily, and occupants of Band C were to enjoy 12 hours of power supply. Bands D and E are made up of those that would enjoy less than 8 hours of power supply. The increase was frozen in bands D and E for government to subsidise.

The amount payable by each band also differs across the 11 DisCos. For instance, Band A occupants serviced by the Kaduna Electric Distribution Company (KEDC) were to pay N56 per kilowatt/hour, while customers on Band B pay N54 per kilowatt/hour, and those in Band C pay N50 depending on whether they are residential or commercial users.

Under Ikeja Electricity Distribution Company, a residential customer on single-phase Band C pays N42.73 per kilowatt/hour, up from N21.30 per kWh. The same class of customers serviced by Eko Electricity Distribution Company (EEDC), pays N43.01 per kWh, up from N24 per kWh. Those under the same Band C in the franchise on the platform of Abuja Electricity Distribution Company (AEDC) pay N45.69 per kWh, up from N24.30 per kWh. At Ibadan Electricity Distribution Company (IEDC), which was Friday taken over by the Asset Management Corporation of Nigeria, customers on Band C now pay N53.97 per kWh up from N24.97 per kWh.
 
More Money, Less Power Supply
IN the second quarter of 2020 before SBT was introduced, a total invoice of N222.5b was issued to the 11 DisCos for energy received from the Nigerian Bulk Electricity Trading Plc., (NBET) and for service charge by market operators, out of which a sum of N62.41b was settled, representing a remittance performance of 28.05 per cent, NERC data had shown that SBT had, in the second quarter of the year, pushed electricity consumption in the country to N259.7b. About N130.11b was settled by the 11 DisCos. 

NERC noted that the total DisCos remittance to NBET was 50.11 per cent of the expected figure for the quarter. This is almost double the 28.05 per cent remittance in the same quarter of 2020.

The Special Adviser to President Muhammadu Buhari on Infrastructure, Ahmed Zakari told The Guardian that the “SBT raised aggregate average tariffs by 36 per cent, and collections by DisCos in the sector went up by above 60 per cent.

“We had a record of N65b in NESI collections in January (2021) billing cycle and have maintained a high rate,” Zakari said.

While the sector may be smiling to the bank from the increase in revenue, service improvement has been abysmal. Service, which many expected to get better is getting worse, and the burden passed over to the masses.

Throughout the year, electricity capacity in the country remained the same on average and indeed worsened in recent times to an average of 2, 500 megawatts for a population of about 200 million people.

Ejiga Ibrahim, a Kaduna- based tailor is one of those who believe that they have been deceived by the authorities that promised them an improved power supply. 

Ibrahim runs a fashion house and hires eight others who run a shift and help him to design clothes for clients across the country.

On the eve of the tariff increase, he was informed that he was on Band A, and would enjoy 20 hours of supply daily, but the reverse is the case now, even as the increase in tariff has doubled his bills. But “we do not get up to 12 hours supply daily,” he lamented, hence the bill is factored into production cost and passed down to his consumers.

“With the new tariff in place, small business owners are paying more bills, yet power supply has dropped a great deal. The number of hours of power supply has also dropped making small business owners spend more on fuel and power plant maintenance.

“All these must be spread into clients bills one way or the other as seen in the cost of production, which in turn increases the cost of the product,” he stated.

Despite spending about N40, 000 monthly to fuel his power generating plant, Ibrahim still run into troubled waters from time to time. 

“Just yesterday, we had some urgent deliveries to make. But since there was no power supply, we had to use the power generating set. Along the line, the generator developed a fault and we had to fix it. Doing that took over three hours, which ultimately affected our delivery time,” he said.

Lagos resident, Mosunmola Adesina who is served by the Ikeja Electricity Distribution Company (IEDC) is also facing hard times. Her 83-year-old mother resides in her three-bedroom apartment, which has nine electric bulbs, one television set as well as a refrigerator. 

After Adeshina applied severally for a smart metre without success, she made peace with herself and settled for the available – estimated bills.

“Initially, our monthly bill was N10, 000. It later increased to N15, 000. Whatever amount that the bill was, we used to pay at least N5, 000, but in December 2021, IEDC sent me two bills. The first one was N22, 326.68, and the second was N36, 302. 48. They claimed that the first one was a mistake, stressing that the real bill was the second one sent. 

Adeshina lamented that her mother has been in darkness since last December that her house was disconnected over her inability to settle the crazy bill. At the moment, she prays that a miracle happens so that she would have access to a pre-paid metre that would resolve her niggling billing challenge. 

Manufacturing Sector In Dire Straits As Economy Suffocates
THE Federal Government’s failure to deliver affordable power to Nigerians, despite perennial promise to do so has continued to rile many electricity consumers. 
 
One of those peeved by this development is the Speaker of the House of Representatives, Femi Gbajabiamila, who said that “most people recognise that a situation where we cannot expect 24-hour electricity in our cities, and many rural areas remain wholly disconnected from the benefits of access to electricity. This is unacceptable.”

While residential customers and small businesses are groaning, manufacturers are suffocating having spent about N143.29b on alternative power supply from 2019 to 2020.
  
Corroborating the grim scenario, the President of the African Development Bank (AfDB), Akinwumi Adesina, recently said that the lack of reliable power supply remained the number one enemy of the growth of industries in the country. 

While quoting a report by the International Monetary Fund (IMF), Adesina said the country loses $29b yearly, which is about 5.8 per cent of its gross domestic product (GDP) due to a lack of reliable power supply, adding that Nigerians spend $14b yearly on power generating sets and fuel.

“Today, no business can survive in Nigeria without generators. Consequently, the abnormal has become normal,” he said.

Adesina continued: “Traveling on a road one day in Lagos, I saw an advertisement on a billboard, which caught my attention. It was advertising generators with the bold statement “we are the nation’s number one reliable power supplier!”

Epileptic Grid, Round Pegs In Square Holes As A Disincentive To Thriving Sector
ON August 23 last year, the country’s electricity grid, which has not been working in optimal condition collapsed for the fourth time in the year causing a nationwide blackout. Before that incident, the peak of power ever generated and transmitted in the country stood at 5, 802MW, and that was on March 1, 2021, at 9.30 p.m.

The August 2021 incident was not the first time that the system would collapse in 2021, or since the sector was privatised in 2013. As a matter of fact, by the last count, the country had experienced national grid collapse 126 times, a development that experts say is one of the cardinal reasons that the sector has failed to perform since the privatisation.

Unlike many other countries, Nigeria operates a single grid system, and anytime the system collapses, the entire country is thrown into darkness. On average, it takes about nine hours to restore power since the system is restored gradually.

With the constant grid collapse and attendant poor service delivery, consumer rights advocates have consistently decried the unending monetary contributions made by electricity consumers for the acquisition of electricity transformers, electric poles, wires and the like. 

Unfortunately, President Muhammadu Buhari’s best efforts, stakeholders insist, has failed to make any mark, as the sector has continued to underperform, and remained far off the mark.

His appointment of former Lagos State governor, Babatunde Fashola, in 2015, to rejuvenate the sector also failed to change the status quo leading to the former governor being relieved of his appointment after four years.
 
Fashola’s removal from office paved way for the appointment of Saleh Mamman, who was equally sacked two months ago for poor performance and replaced with Abubakar Aliyu.

While Buhari had approved the composition of a Power Sector Reform Coordination Working Group proposed by the National Economic Council and chaired by the Kaduna State governor, Nasir el-Rufai, with no visible results about one year after, the many committees set up at the level of the National Assembly also appear to have no idea whatsoever on how to optimise the sector.

Stakeholders Raise Concerns Over Poor Service Delivery
A professor of electricity law at the University of Lagos, Yemi Oke, insisted that from when the privatisation exercise took effect till date, what has been added to the national grid and transmitted as new megawatts has been less than 500MW, despite all the hues and cries from key sector players and regulators.

Describing developments in the sector as amounting to motion without movement, Oke specifically decried a situation where the sector has remained comatose stressing that, “it’s a big shame!”

Not long ago, electricity generation companies (GenCos) informed that stranded electricity, which currently stands at a record high, has created losses totalling over N1.5t on their investments. The Executive Secretary of the Association of Power Generation Companies (APGC), Dr. Joy Ogaji, said the market is faced with financial, operational, construction, market, macroeconomic, contract and regulatory risks.

According to her, while statistics from the Nigerian System Operator (SO) show that load demand currently stands at 28, 850MW, there were indications that there is suppressed demand of over 22, 000MW when compared to what is available for grid generation.
  
“The lack of sanctity of contracts has resulted in huge debt burden on the (GenCos) who are seldom fully paid for power generated and supplied to the market.
  
“The reform path may be long, but there is need for the will to begin, and the government has no doubt demonstrated that will. Yes, there are challenges, but the benefits outweigh the challenges. Where there is a will, there is a way. Without doubt, challenges do exist in the sector; Nigeria must position itself to overcome the above challenges to evolve from a developing to a developed, or matured market,” Ogaji stated.
  
An energy expert at the University of Ibadan, Prof. Adeola Adenikinju, stated that the privatisation of the power sector has not met the expectations of most Nigerians, stressing that the sector has underperformed.
  
According to him, while interventions by the Central Bank of Nigeria (CBN) are commendable, and have produced some results with resolving some of the liquidity challenges and the metering problem, fundamental challenges plaguing the sector have remained unresolved.
  
“Stakeholders must come together to review the privatisation contract, and put in place sanctions for parties that are not meeting their obligations. Pricing and investment are at the heart of solving the power problems,” he said.
  
For the President of the Nigeria Association for Energy Economics, Prof. Yinka Omorogbe, the sector was privatised to inexperienced companies that have failed to improve the decrepit transmission system. Omorogbe said: “I think we need to rethink, re-strategise, and realise that an enabling environment is incredibly essential, and that is the primary role of government.”

Emerging Issues Signal No Hope Yet
SURPRISINGLY though the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) Limited, Mele Kyari, and other stakeholders find it hard to connect the intention of gas pipelines vandals and the immediate pecuniary advantage that accrues to them. 
  
Kyari also maintained that prevailing realities have led to the shutdown of over seven power plants in less than two months.  
  
For instance, a breach on the Trans-Forcardos Pipeline (TFP), last month impacted key power plants including, Olorunsogo, Omotosho, Sapele, Ihovbor, Geregu and Ughelli East Plant, just as vandals last week, hit the TotalEnergies pipeline, crippling the 504 megawatts Alaoji Power Plant.  
  
Last month, the Nigeria Gas Company (NGC) issued a notice of gas curtailment arising from the abysmal system pressure levels that must be managed to avoid the collapse of the gas grid.
  
This is coming as transmission and distribution bottlenecks pushed average stranded electricity generation to an average of 2, 248.50 MW in 2021 amid erratic supply to homes and industries.
  
With the power sector operating mainly with gas-fired generation plants, the country may have more worries to contend with besides existing challenges that have kept electricity at an average of 4, 000 MW over the past years.
  
TotalEnergies EP Nigeria Limited, last week declared a force majeure resulting from its NOPL Line vandalisation at KP41. 
  
The Head of Communication and Public Relations, Niger Delta Power Holding Company Limited (NDPHC), Emmanuel Ojor, recently informed that the Line Block Valve at KP38 of the pipeline was closed to isolate the sabotage point and depressurise the line that affected gas supply to Alaoji Power Plant.
  
Indeed, vandalism remains a huge drain on the country, especially through economic losses and environmental degradation, and now the country’s power sector.  
  
Dr. Ogaji, the APGC executive secretary noted that power generation would continually be threatened across the country if the situation persists.

  
According to her, about 80 per cent of electricity generation in the country is from gas-fired plants. “The current impact on generation is not much yet. It has not affected much of the generation capacity. If vandalism continues, then it becomes a danger given that 80 per cent of our electricity comes from gas. We need to optimise,” Ogaji said.

Possible Solutions
EIGHT years after privatisation, there is an urgent need for the Federal Government to review the sector and allow the market to be in the hands of willing buyers, willing sellers. This will instill discipline and aid the dispatch of stranded capacity.
  
There is also the need for the Nigerian Electricity Regulatory Commission (NERC) to live to expectation in terms of enforcing sanctions that are already prescribed in the sector. The key performance index (KPI) of the entities in the sector must be followed strictly.
  
The Federal Government also needs to fast-track the mass metering programme to ensure that consumers are billed appropriately.  
  
Most stakeholders also believe that the recapitalisation of non-performing entities remain critical to get more money into the sector, and reduce liquidity issues, just as they maintain that radical initiatives and policy reforms must be peioritised.
  
Additionally, there is also a need for investment in the expansion of distribution and transmission infrastructure, to ensure that power is improved before talking about appropriate payment by end-users.

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