Power sector: FG sinks more funds despite low performance
• FEC approves multi-billion naira contracts for electricity supply
• NERC speaking for DisCos, a misplaced priority – Stakeholders
• Repeated grid collapse pushes FG to revive $2.3b power deal
• Experts seek involvement of states in DisCos, GenCos
• ‘Banks will take over all DisCos, just a matter of time’
To boost electricity supply, the Federal Executive Council (FEC), presided over by President Muhammadu Buhari, again approved multi-billion naira contracts for the power sector yesterday.
Minister of Power, Abubakar Aliyu, while briefing State House correspondents, said all three memos presented by his ministry scaled through, adding that the approvals were for the purchase of major electricity transmission equipment.
According to him, the cost of the projects, which includes procurement of power transformers and construction of 260km transmission line in Kebbi State, will cost N21.7 billion.
He also disclosed that the Council approved a contract of N853.25 million to engage consultants that will prepare the concessioning of Ajaokuta Steel Plant and National Iron Ore Complex, Itakpe, in Kogi State to prospective bidders.
The Minister of Science and Technology, Ogbonnaya Onu, on his part said FEC approved Nigeria’s Revised Energy Policy (2022). He explained that the revision of the policy became imperative to enable Nigeria take optimum advantage of all the available sources of energy in the country.
He noted that Nigeria has abundance of crude oil, fossil fuels, and variants of renewal energy (solar, hydro, wind, geothermal and biomass), in commercial quantities, and a good mix of all these will greatly improve energy supply in the country.
This is coming two weeks after the Council approved N1.4 billion for purchase of additional equipment for the Transmission Company of Nigeria (TCN), as part of efforts to improve power supply in the country.
Further, the much-awaited actual take-off of the Siemens power deal is expected to experience a major leap in September, when electricity equipment like transformers and mobile power substations begin to arrive from Germany.
NOTWITHSTANDING the investment in the sector amid incessant collapse of the power grid, stakeholders are currently at loggerheads over poor performance of the 11 distribution companies (DisCos) operating in the country and the defence of the Nigerian Electricity Regulatory Commission (NERC).
With electricity generation wobbling despite the introduction of Service Based Tariff pegged on improved service, NERC had decried that rising insecurity, inflation and harsh operating environment were bedevilling the performance of DisCos.
Described as one of the weakest links in the power sector, which has been struggling eight years after privatisation, the DisCos are on the verge of bankruptcy, while being unable to perform major obligations, especially repayment of loans and replacement of infrastructure, including transformers, poles and wires.
Coming at a time when lenders are already taking over some of the DisCos, the Nigerian Bulk Electricity Trading Company had stated that the DisCos failed to meet up with practically all the market rules, but NERC last week linked the poor performance of the utility companies to the prevailing challenges in the country, adding that the companies are unable to recover revenue due to prevailing challenges in the country.
Chairman of NERC, Sanusi Garba said the inability to fix adequate tariff led to challenges for the DisCos, adding that the development affected the financial viability of the distribution firms.
“A lot of things happened relating to the financial viability of the DisCos, because if tariffs were static and they have inflation and FX issues then distribution companies will have under recovery of revenue.”
The worries for some of the stakeholders is that while consumers are equally facing similar challenges that DisCos are confronted with, they are currently coping with tariff increases as the burden of the sector is being passed on to them, despite barely enjoying electricity supply.
They equally see the defence by NERC as an indictment on the weakness of the regulator, insisting that consumers have had to also invest in meeting the capital expenditures expected of the DisCos.
They expressed worry over the lack of competition in the sector, while questioning the efficiency of the segment as well as whether or not the problems require an overhaul of the regulations in the sector.
While some experts insisted that the franchise areas occupied by the DisCos were too large and needed to be broken into sub-segment, bringing more investors into the market, others believe that the market was not ripe for such move, including the call for government to cancel the licences of the companies and pay them off.
This is coming as indications emerged yesterday that the Minister of Power, Aliyu, was forced to travel to German over inability of the $2.3 billion Siemens power deal to move forward three years after.
Aimed at growing Nigeria’s power delivery to 25,000 megawatts and said to be revived in the first quarter of 2021 after delay by COVID-19 pandemic, the visit of Aliyu has led to the expected delivery of 10 Mobile Transformers and 10 Mobile Substations from Germany.
The project under the first phase of the Presidential Power Initiative had led to FEC approval of $1.9 million and €62.9 million in 2021.
The prevailing situation, according to him, has totally defeated privatisation exercise under which arrangement government sold the assets to bring in investors with access to foreign direct investment and technical partners that could overhaul the system.
Former Chairman of NERC, Dr. Sam Amadi, told The Guardian that there were more that the DisCos could do, adding that the utility companies have no justification for poor service delivery.
He insisted that justifying the situation of the market remained an indictment on the part of the regulator, adding that if the DisCos cannot confront the challenges that impair them, then the regulator must find a way to incentivise the market.
“There are a lot that the DisCos and NERC can do in terms of outage reduction, improvement in revenue collection, changes in management approaches and reduction in theft and vandalism among others,” he said.
A lawyer and President, Nigeria Consumer Protection Network, Kunle Kola Olubiyo, said DisCos are sitting on gold mines of opportunities that they must open up and stop being monopolistic.
“They were supposed to mobilise fund and invest while recouping their investment over a long time but reverse is the situation, as most of the investors only collect revenue and can barely finance replacement of transformers. There’s no justification for performance of the DisCos. Government should review the sector and create room for buy over of the shares of the non-performing DisCos.”
Should the sector continue to function at its current rate, Olubiyo said the consumers would continue to pay for inefficiencies of the sector, adding that while the investors have their book allegedly impaired, consumers pay unjustifiable tariff and finance the replacement of wire, transformers, poles and other infrastructure that the DisCos should be concerned about.
A former manager at NBET, Rumundaka Wonodi, noted that the lack of competition in the power sector, especially in the downstream, could be a challenge, adding that while consumers could port between banks or telecommunication companies, the situation in the downstream segment of the power sector differs.
According to him, the idea of NERC stepping back and letting the market develop will not cut it and will not just happen yet, adding that breaking the monopoly at this time is challenging and should not be the focus, but rather regulations that could lead to efficiency until the sector has infrastructure, capacity and network for such envisaged ‘competition’.
Public-private partnership consultant, who participated in privatisation process of the power sector, Joseph Tsavsar, admitted that the DisCos are in a tight corner, stressing that while they entered into a contract with government, all the terms have been abandoned.
He said even if government was to pay back the investors, it has no such resources, stressing that it’s a case of survival.
“There is no way they can perform as expected because government has not performed on one of their obligations. The mistake I always point out is believing that government will perform on its obligations. That was what convinced the banks to lend them the 70 per cent of the cost in the first place. The banks are going to takeover all the DisCos one by one, it is just a matter of time.
“Blame government for the failure of the privatisation not the investors. No investor will put his money where there is high risk.”
Energy expert, Prof. Yemi Oke, noted that another round of re-acquisition and refinancing remained a key option otherwise the sector would collapse. He described the current situation as holding on to the head of a goat when restructuring could afford the head of an elephant in terms of abundance.
He stated that banks have already caved in under the weight of power sector lending, adding that the entire sector is in a mess as more banks may be down due to challenges in the power sector.
“NERC is unconstitutional. It should only exist for grid-based generations, transmission and distribution. States should get involved more aggressively and begin to license for off-grid generations, transmission and distribution, including setting-up of state regulators like Edo State Electricity Regulatory Commission, Ogun State Electricity Regulatory Commission, etc,” the professor said.
Another stakeholder, Adegbemle Adetayo insisted that NERC has no reason to be speaking or giving excuses on behalf of the DisCos, stressing that it shows a deep-rooted error in the mindset of the regulators, who were supposed to be neutral.
“It also shows that NERC, as composed, is bereft of ideas of what they’re doing. Yes, it is your job to understand what the challenges of the sector participants are, it is also your job to find a solution to the problems,” he stated. He added that it remained said that the regulator did not see a reason to speak against the challenges of consumers, especially business owners, who are suffering from the inefficiencies of the DisCos.