We must identify missing links to fix electricity crisis – Ezekwere

The Board of Fellows/College of Fellows of the Nigerian Society of Engineers (NSE), recently held the 5th Fellowship Conferment Lecture And Fellowship Conferment ceremony on Power Sector Reform In Nigeria: The Missing Link: Implementation Agenda in Abuja. Debo Oladimeji spoke to the guest lecturer Emmanuel Ezekwere, FNSE, on how to resolve the power challenge.

Why is it so difficult to fix the electricity emergency, because as we speak many of the IPPs are packing up? 
LET us go down the memory lane and recall that it was the poor state of the power sector that led to the ongoing reforms.  The reform process is a journey, which started with the unbundling of National Electric Power Authority (NEPA), commercialization of Power Holding Company of Nigeria (PHCN) and eventual privatization of state owned utilities. The destination is a full-blown competitive electricity market.

Currently we are in the middle of the journey. Today the state of the power sector has not changed much and therefore people complain about the difficulty of bringing about radical progress. In our approach at the lecture, we used the device of four self-evident truths or propositions to identify the missing links in the reforms in a holistic way. It is when we can determine where the problems are that we can then proffer meaningful solutions.

Adopting the wisdom of government, we agree that the private sector, rather than the federal government should play the central role as the engine that drives the power sector. So the missing links using this first proposition as a magnifying lens are investment inflows from the private sector, least cost regime, cost reflective tariff to support the private sector, and operational efficiency.

We also agreed that the power sector must be intentionally linked backwardly and forwardly with the real economy. In other words, at the output end of the power sector the economy should be industrialized as the off-taker of electricity from the sector. On the other hand, at the input end we have to make sure there is adequate local content within the economy to provide the in-feed to the power sector, necessary to make the sector viable.

The missing links therefore are local content as the push, and industrial off-takers as the pull to induce the required extraordinary growth of the power sector. We are moved to assert that there will be no changes in the power sector of world-class level until we take deliberate actions to drive industrial production in our economy on a bold scale.

The power sector and the reform process cannot be successful in its trajectory if those in control are not independent, effective and stable. Those in control are the policy-makers who determine direction and the regulator who polices the journey. The missing links are stable controls, strong enforcement regime, and up-to-date policies.

We need to adopt the mindset that the power sector is a platform on which a vibrant ecosystem can flourish. If the power system is to evolve it must be modelled as an all-inclusive living organism, which involves different people, different sets of activities, different sets of technologies and different influences.

However, the point is also made that Engineers, because of their know-how naturally own the power sector platform.  They are expected to play a leadership role as inventors, innovators, managers and entrepreneurs. The missing link here is the absence of the ecosystem mindset. For this reason, many Nigerians see the problems of the power sector as ‘their’ problem rather than as ‘our’ problem.

All the mentioned missing links have contributed in making it difficult to solve the problems of the electricity sector in Nigeria. As we can see, these deficiencies span the investible operations of utilities, external controls, vibrancy of the economy, and innovations to drive the evolution of the sector.

Now coming to answer the second part of your question, I am aware that some of the Independent Power Producers (IPPs) and legacy plants have been under severe stress because of the serious shortfalls in the electricity market. I am not aware of those that have collapsed.

As we all know, electricity is a product and like any product, it must be paid for to cover costs and make decent profit for the venture to be sustainable. When the producers are not recovering their costs there is no way they can remain afloat in their business.

Again the lack of the push-pull of industrial activity has not incentivised generation investments. Yet again, poor operation and maintenance practices can take its toll on power plants. Be it as it may, pack up the IPPs definitely will, if the present trend continues.  

To achieve success, what is the road map, with definite and definable timeliness?
First we should start with low hanging fruits. A cost-reflective tariff should be put in place right away by Nigerian Electricity Regulatory Commission (NERC), which must ensure that the cost component is not padded to hide operational inefficiencies in the name of revenue requirement. NERC should be prepared to take responsibility for its statutory decisions, which are of course subject to its review or High Court review. The internal hemorrhaging of the sector cannot continue unabated else the system will pack up. Endless bailouts and subsidies cannot solve the problem.

For private operators found deficient in their capabilities, their equity holding should be scaled back in consonance to their capability, to be taken over by tested hands with the investment clout. The government equity of 40 percent in the DISCOs should be divested to tested operators. The role of government is to draw attention to golden opportunities and having done so, to withdraw from the balance sheet to avoid conflict of interest and clear contradictions. There should be equipment supply/installation in return for divested equity by new participants.

Swearing in a Chairman/CEO of NERC to fill the existing vacancy is another thing that could be done by government without further delay.

There should not be any delays in the appointment of Commissioners since the Electric Power Electric Sector Reform 1 (EPSR) Act sees them as the Commission. On expiration of tenure, they should be obliged to continue if one month before that, their replacements have not been sworn in. This is an amendment to the Act that could be done in the near term by the National Assembly to avoid creating a regulatory vacuum in the sector at any given point in time.
 
Regulators have to be strengthened to do their job effectively. We should have regulatory independence and regulatory certainty. There should be no attempt at regulatory capture to make the regulator dance according to who is blowing the trumpet or beating the drum.  It is important to emphasise that the appointment of well-qualified Commissioners is crucial since the EPSR Act 2005 sees them as the Commission. They should be given individual Mandate Letters on appointment by the President with targets that should be the basis of their performance evaluation.

The responsibilities spelt out for them in the Act and explicitly in their Mandate Letters shall act as the bulwark for regulatory independence. They will thereby be incentivized to resist any attempt from any quarters to erode their mandates as failure in their performance could mean removal from office.

Furthermore, the Presidency should fix their remuneration to be better than what obtains at the highest levels of the private sector of the power sector. Good performance should be rewarded with reappointment in the future and for continuity and encouragement, some experienced staff at Director Levels serving or retired could be appointed to Commissioner Levels. These are other amendment to the Act that could also be carried out in the near term.
In the near term too, we see the need to focus on strengthening policy making in the power sector to reflect unfolding realities.

The power policy that was drafted in 2001, which kick-started the reform process, should be updated by government to make sure it reflects present day realities and future challenges. The government should as a matter of policy bring fuel-to-power within the sphere of influence of NERC in order to control electricity costs where possible.

In the middle term of about three years it is possible to achieve a set of other objectives in our proposed road map. Outstanding generation, transmission and distribution projects should be taken in hand and completed. Utility Operators should be able to minimize cost structures through efficient operations, reducing drastically non-technical losses (e.g. energy theft) and minimizing technical losses (e.g. network resistance losses).

This can be achieved through thorough customer enumeration exercise, proper tariff classifications, a roll out of smart metering and the rehabilitation or upgrading of our networks. These projects should be as approved by NERC and captured as part of the revenue requirements of the operators. This is to ensure that consumers are protected and obtain good value for their money.

Within the middle term also, the existing legislation on Local Content for the oil and gas sector should be expanded by the National Assembly to include the power sector. The Nigerian Society of Engineers to which I belong already has a well-articulated position paper on Local Content, which should be considered. The EPSR Act should be amended to incentivise local content.

Within the long term of five years and beyond, in the forward integration process, there should be deliberate efforts to build industries ring-fenced by adequate supply power pools utilizing available energy sources located in the ring-fenced area.

Four such areas are proposed layered one on top of the other corresponding to the country’s four natural energy belts: solar/wind, hydro, solid fossil, and oil/gas. This should be driven by Development Commissions (such as Niger Delta Development Commission (NDDC) cutting across several states as established by National Assembly.

The power pools shall be interconnected to the main grid. There are ways of technically linking them up: synchronously, asynchronously, using the smart grid technology or leapfrogging to the digital grid concept.

Meanwhile, the industries should reflect local economic comparative advantages. What that means is that for a particular area, let us say the far north, where you have a lot of solar energy you can locate a cluster of industries that will produce those things that have comparative advantage within that area, such as food processing. And then you attract investors to invest their money into those things.

You have to make sure there is power supply. Investors also come in to provide the power supply for these clusters in a dedicated power pool. The local content for the fuel-to-power in-feed in terms of solar cell manufacture could also take place in this cluster or say in the oil/gas belt where there is abundant glass sand. A similar pattern is replicated in the other three clusters: the hydro belt, the coal belt and the oil/gas belt.