Guardian Nigeria
• Olam, Sunflag, Weewood, Nigelec among affected companies
• New policy favours DisCos over GenCos, stakeholders insist
• MAN drags NERC as massive disconnection hits manufacturers
• 700MW stranded power raises fear over job losses
The energy crisis, which has been fueling the collapse and exit of manufacturing companies in Nigeria and the cost of goods and services, may in the coming week assume a worst-case scenario as the Nigerian Electricity Regulatory Commission (NERC) implements a new policy that will throw majorly small and medium companies into deeper crisis.
The decision under the Eligible Customer Policy, if implemented, may throw over 15 medium-sized manufacturing companies, who were granted approval to bypass Nigerian Bulk Electricity Trading PIc (NBET) and the distribution companies (DisCos) and the struggling power plants, into crisis at a time Nigeria is seeking to reduce excessive monopoly and transition the Nigerian Electricity Supply Industry (NESI) towards a bilateral market.
The lower band of the pro-DisCos’ eligibility has been raised far above the capacity level of the small companies who need it just as many of the large manufacturers that may meet the new threshold rely on self-built, dedicated power plants.
This comes at a time when DisCos have begun mass disconnection of members of the Manufacturers Association of Nigeria (MAN), especially those in the South-South region, following ongoing loggerheads between MAN and NERC over the reversal of the over 300 per cent electricity tariff increase implemented earlier this year.
The Eligible Customer regulation, introduced in 2017, permits electricity generation companies (GenCos) and the Independent Power Producers (IPPs) to bypass the Nigerian Bulk Electricity Trading PIc (NBET) and DisCos to sell electricity directly to classified consumers.
The then minister of power, Raji Fashola, had approved the policy to enable selected customers to take at least 2MW of electricity due to the lack of infrastructure by the DisCos and to dispatch the stranded electricity from the generation companies.
While most companies under the scheme have been offtaking about 2MW to 6MW, NERC, in a new order pegged the offtake between 10MW and 20MW, a development which may create more room for DisCos as the threshold is far above the reach of small-to-medium-sized enterprises.
Commissioner and Vice Chairman of NERC, Musiliu Oseni, told journalists that the move followed a series of consultations, which called for the review of the policy.
The Guardian gathered that most of the off-takers, mainly small to medium manufacturers, which have only been able to consistently take between 2MW to 6MW have invested in transmission and distribution infrastructure to create a dedicated line for their energy needs before NERC announced its move.
A document seen by The Guardian showed that Datco, Sunflag, Premium Steel, Star Pile, Weewood, Kam Shagamu, Nigelec, Olam, and Inner Galaxy among others may be cut off under the new arrangement.
With aging and dilapidated equipment from repeated ramping as well as GenCos being owed over N1.3 trillion amidst an increase in gas prices, the revised policy may also worsen the already low capacity. This will affect the ability to maintain power plants and boost generation capacity from the current 13,000 megawatts installed capacity.
While some of the customers are fighting to guarantee supply, the Director General of MAN, Segun Ajayi-Kadir, has contested the need for NERC to reverse or suspend the implementation of electricity tariffs.
Chairman of the Rivers/Bayelsa States Chapter of the Manufacturers Association of Nigeria (MAN), Vincent Okuku told The Guardian that most of the manufacturers within the states have been unable to meet the new tariff and are being disconnected despite appeal the appeal being made for dialogue with the Port-Harcourt DisCo.
In the face of the rising cost of diesel, MAN said the sector already invested nearly N1 trillion in alternative energy sources over the past seven years, with expenditures reaching N129 billion in 2016, N117.38 billion in 2017, N93.11 billion in 2018, N61.38 billion in 2019, N81.91 billion in 2020, N71.22 billion in 2021 and N144.3 billion in 2022.
With the fear that the new NERC policy may push up the country’s unemployment rate, MAN said about 95 manufacturing companies have shut down each year. GlaxoSmithKline Plc is just one of the major recent casualties of the harsh operating environment. The incessant company failure in the manufacturing sector alone is said to have cost over 4,451 job losses yearly.
Factory output declined to N2.68 trillion in the second half of 2022 from N3.73 trillion recorded in the corresponding half of 2021.
The generation capacity on the national grid peaked between 4,374MW as of 16th April and 4,579MW as of 23rd April.
However, the load taken by the distribution companies has consistently been around 3,681MW. This leaves the stranded capacity of the generation companies at about 700MW.
While most GenCos, which are mostly owned by the government, suffer low remittances by DisCos, creating critical challenges and sustainability for electricity plants across the country, stakeholders said the new policy also compounds the crisis faced by the GenCos.
DisCos had during the Fashola regime, openly fought the Eligible Customer Policy to protect their franchise areas. Some stakeholders alleged that the DisCos must have gotten their way through the regulator seeing that most companies like Dangote and BUA with a capacity for 10MW consumption regenerate and utilise their electricity.
Convener and Executive Director of PowerUp Nigeria, a Power Consumer Advocacy Group, Adetayo Adegbemle said the new NERC appeared to be sympathetic to DisCos, stressing that there is a need to reverse the review of the Eligible Customers Policy.
Adegbemle said the essence of the policy is being defeated under the new arrangement, adding that if implemented, it would affect the manufacturers and the generation companies.
Electricity Market Consultant, Adetunji Adeyeye said the revised regulation would frustrate most of the customers that policy was initially intended to reach thereby making it impossible for anybody to benefit under the policy.
“They will bring us back to square one and create unemployment because the users will have to go back to the DisCos who do not supply quality power to them. The cost of products will also go up because they cannot buy at a cheaper rate on the eligible customers’ rate or bilateral market. Hijacking this capacity will kill industries in Nigeria,” he said.
Adeyeye said NERC must consider lowering the minimum energy requirement to 2MW across all categories of entities, adding that aligning with such a minimum requirement would ensure the efficient and productive operationalization of the regulations.
Electricity market analyst, Lanre Elatuyi, although has no evidence to back his claims, believes that the outcome of the new policy tends to protect the distribution companies.
Under the prevailing regulations, Elatuyi said NERC should have rather reduced the offtake from 2MW to reflect the reality of the capacity of existing off-takers instead of moving it above the reach of the beneficiaries.
“If you are talking about 10 to 20 megawatts, it is only DisCos that can offtake that. Even at 2MW, some eligible customers could not meet up. How do you expect them to take 10MW,” he said.
Elatuyi blamed the GenCos for not speaking out enough when NERC called for a review of the policy.
Partner at Kreston Pedabo, Olufemi Idowu said there is a need to eliminate energy waste, which distribution companies (DisCos) have been unable to utilise.
Idowu said: “I am of the view that enabling large organizations, particularly the manufacturing companies, to purchase electricity directly from the power generation companies will help to reduce energy costs and certainly boost competitiveness,”
He also noted that the DisCos may continue to frustrate the policy considering that it can affect their revenue.
