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From despair to wail, Nigeria’s power sector remains in shambles

By Kingsley Jeremiah, Abuja
22 February 2020   |   4:20 am
Call it faulty sale of distribution companies, excessive Federal Government bailout, huge debts that have affected financial outlook of some banks or weekly political pronouncements that create further confusion for the sector...

• Where Is Your Policy Direction, Stakeholders Query Mamman
• Improve Performance Or Step Aside, Experts Tell DisCos

Call it faulty sale of distribution companies, excessive Federal Government bailout, huge debts that have affected financial outlook of some banks or weekly political pronouncements that create further confusion for the sector, the state of the Nigerian Electricity Supply Industry is heading from bad to worse, stakeholders said yesterday
 
While there is currently a committee, chaired by the Governor of Kaduna State, Nasir El-Rufai to review government’s 40 per cent stake in the distribution companies amid speculation on cancellation of licenses or sale of DisCos to Siemens, experts expressed disappointing opinion over the state of the industry.

Indeed, while the role of the minister in a privatised and regulatory infrastructure sector is policy direction, some industry players are worried that the current Minister of Power, Sale Mamman may be adding salt to wound without clear cut policy to deliver the sector.

Though not new, indications emerged from the Federal Executive Council meeting this week about Federal Government’s plan to handover the distribution companies nationwide to investors, who could deliver the objectives of the sector, which was privatized about five years.

Despite privatisation, the federal government has reportedly spent N1.7 trillion on electricity in the last three years, power generation companies (GenCos) in the past five years lost a whopping N1.2 trillion to poor capacity utilisation and the country’s inability to transport over 21,184.62 megawatts of electricity to end users as over N4t financial liquidity pushed the sector to the brink of bankruptcy.

Amidst government’s consideration to borrow additional $3 billion to finance power sector, reports that government was considering handing the distribution section of the market to a German firm, Siemens has continued to provoke criticism thous  Mamman on Thursday said no proposal has been made by the Federal Government to handover the Distribution Companies across the country to the firm.

Romance between President Muhammadu Buhari and top German officials had last year led to an Electricity Road Map agreement between Nigeria and Germany-based company, Siemens to generate 11,000MW by 2023. The distribution segment, which repeated has been described as the weakest link in the power value chain as the nation’s energy sector failed to progress about five years after privatisation, was last year reported to be under consideration for repossession as part of measures to rescue the sector.   

Mamman through his Special Adviser to the minister on Media and Communication, Aaron Artimas confirmed that the disproportion of the value chain and how to align it for optimum distribution of Power remained a priority.Mamman was quoted saying “we have submitted our proposal to the government on the problem of distribution and it is left to them to decide what to do. The other thing I can tell you is that the government only signed a memorandum of understanding with the German company, Siemens, on how to leverage generation with transmission and distribution”

“For instance, if we generate 13,000 megawatts, we should be able to transmit the whole 13,000 and  distribute same, that way, Nigerians will be happy and everyone will have 24/7 of electricity.The minister expressed regret that even when the DisCos receive 3,000 megawatts, they shortchange the system by paying for only 1,000 megawatts, adding that the federal government could no longer continue to subsidise their inefficiency.
Former Chairman, Nigerian Electricity Regulatory Commission (NERC), Dr. Sam Amadi stated that the prevailing situation adds to instability and uncertainty in the sector.

“This is regrettable, he stated, adding that there was need for clarity, especially at a time when the fate of investors and operators in sector is uncertain.With pressing illiquidity and debt overhang, Amadi noted the need for radical solutions, not directly from the many voices but a situation that would allow NERC to think through a regulatory solution that will achieve President Buhari’s strategic policy choice.

“What’s clear is that the DisCos must be forced to move up in performance or step aside. But the best way to achieve that is through regulation and not executive orders or administrative contracts,” he said. Amadi also noted that the industry has not seen clear policy direction from Power Minister, adding, “Perhaps the minister does not yet understand the basis of the complexities of the sector.

Stressing that the absent of ministerial leadership remain glaring, Amadi charged Mamman to learn fast and get the right people around to advise.
He canvassed for a strong regulatory intervention in the manner of forcing the delinquent of owners DisCos to dilute ownership after due process to institutional or other investors with capacity.

According to him, government can also use its 40 per cent to engineer corporate takeover of delinquent disCos based on regulated performance indicator, noting that the regulator should base action on clear industry reviewed benchmarks. Executive Secretary of the Association of Power Generation Companies (APGC), Dr. Joy Ogaji, also insisted that there was need for clear policy direction from the Power Minister, stressing pronouncement without strategy solutions would not save the sector.

According to her, without proffering viable solutions, political actors are using the situation of the sector to score political and media point, stressing the need for the media and public to question the personalities. Ogaji disclosed that NERC has capped generation capacity to about 4,000 megawatt thereby discouraging incentive for improvement, noting there was need to allocate the risk in the sector to all the players.

Pioneer Managing Director NBET Rumundaka Wonodi noted that the industry situations is not only getting worse but exacerbated by unguarded comments from senior government officials. With established move to review the sector, Wonodi considered it helpful for folks from the government to be guided on their comments. He said there was need for regulations from NERC to help the market, stressing that policy is not really the biggest challenge facing the market.

“Government has to provide stable regulatory climate and bridge funding in terms of shareholder loans at fair rates, if the investors are not able to turnaround the fortunes of the companies, they should be diluted and lose operatorship. As hard as it may sound, this encompass collaborative negotiations and government will do well with the support of professional transaction advisers,” Wonodi stated.Former President of Nigerian Association for Energy Economics (NAEE), Prof. Wunmi Iledare said the distribution market structure was not properly understood. 

Since an apolitical regulator is like a referee on a soccer field protecting the interests of the spectators and the opposing teams, Iledare said without such regulation, the power sectro would not be as attractive as the telecom industry.“A faulty market structure cannot deliver. The DisCos of today is only but a metamorphic NEPA. Government must invoke the provision in the electricity act to review the Act going forward. “Government has the right to review an Act at any time, examine the contract provisions and terminate contract if terms of the contract have not been properly executed. At worse, it become a judicial matter,” he stated.