A maze of confusion
One hot topic that aroused great concern last week and is likely to remain hot going forward is the planned tariff increase by energy distribution companies, otherwise known as DisCos. A notice issued by some DisCos advised consumers to prepare for another increase beginning July 1.
How did we get here? In 2013, the Federal Government headed by Goodluck Jonathan unbundled former state owned Power Holding Company of Nigeria (PHCN) into 11 distribution and six electricity generation companies (DisCos and GenCos.) The entities were sold to private owners in a transaction that fetched $2.5 billion for the Federal Government. Were the assets properly valued before sale and transfer of ownership? We hope this government will show courage and venture into the details.
The idea was that government had no business running public utilities. Previous governments invested in power, aviation, shipping, steel and agriculture, among others, to provide employment and generate revenue. Apart from employment and revenue, those utilities were part of government’s social contract with citizens, offering services that were subsidised and affordable to low income earners and the unemployed.
Overtime, the utilities became badly governed, inefficient and corrupted despite repeated government funding. They were not profitable and were unable to regenerate taxpayers’ investment. Like other state owned investment, the PHCN, the offshoot of National Electric Power Authority (NEPA,) degenerated into an authority in corruption and nepotism. In those days, the first places to be visited by international anti-corruption trackers were NEPA and the Police. Managers of those outfits and people in government contributed a great deal to diminish their fortunes. So, privatisation and commercialisation were marketed to Nigeria as options to rescue ownership of failing utilities from government control. It made sense to put behind the era of losses and blackouts and transition to a regime of efficiency and profitability.
It is the drive by DisCos and GenCos to make profit that has afflicted consumers with tariff fever across the country. In the documents the new owners of power utilities signed with government at the time of purchase, they are to periodically increase tariff depending on prevailing cost of doing business. In adjusting the tariff, they are to calculate the rate of inflation, foreign exchange (Forex), price of gas in the international as well as other inputs. A percentage of the profit belongs to government because some shares of the legacy company were retained by the seller.
There is the Nigerian Electricity Regulation Commission (NERC), which manages the entire value chain on behalf of government and stake owners, from generation to distribution, minus transmission. On paper, everything appears tidy, such that consumers and owners should feel relaxed as partners in the power chain.
However, what obtains out there is another opaque system like what obtained with petrol subsidy. Some consumers think they were better served in the old regime when government owned and managed the power sector. This is so because there is no sense of ownership of the process and the treatment consumers get from new operators is not different from what they were served in the hands of cruel and notorious NEPA workers of yore.
There are serious concerns with efficiency of the new system. Owners have performed very poorly since 2013, such that when they legitimately have reason to review tariff in the face of prevailing market realities, consumers don’t have reason to trust them.
First, the owners have no facial recognition beyond company names and their rude and unfriendly employees. There is no cordial business relationship between service providers and customers, making DisCos look as exploiters and crude profiteers. Sometimes, consumers see these entities, the DisCos mainly, as not too far from being shell companies, because they are without active business operations or significant assets beyond carrying ladders to disconnect or negotiate deals.
They are very efficient in picking bills but absent from downstream investment. Communities are still paying for assets – poles transformers and cables. Consumers pay for the so-called Pre-paid Meters with a promise of refund in energy token. That refund if it is ever paid is shrouded in backend secrecy and consumers have no technical knowledge of what operates in the dark alleys of DisCos. Consumers pay for meter installation, which is carried out by a third party company.
Activities of DisCos in some rural communities are bizarre and maybe criminal in nature because they do not operate with the NERC rulebook. Instead of metering consumers per individual household, entire communities are put on what they refer to as bulk metering, a fictitious process that allocates bulk sums to each transformer. Consumers under such units are charged a particular sum per house, not minding sizes and number of occupants in each household.
At the end of the day, when there is need to increase tariff as being envisaged, the DisCos go ahead to jerk up what they allocate to each transformer, without any accountable measurement scale. They also do not engage consumers in any professional civic engagement. DisCos will go ahead to appoint community leaders to help them collect payments, a process that is flawed in every marketing sense. Those who are given this task see this as their own contribution to the process. They may not pay for the energy they consume. Sometimes, they are unable to remit what is paid to them because they unavoidably divert part of it to pay for their children’s school fees or fund some burial ceremonies. So, overtime, communities are unable to meet up with what is allotted to transformers within their jurisdiction.
Benin Electricity Distribution Company (BEDC) is notorious for this dubious business arrangement. They have afflicted communities in Edo North and Ondo State with bogus debt burden, the sort that rural dwellers may not offset in this generation. We are talking of debts in the region of N35, 000, 000 (Thirty-five million naira) and N170, 000, 000 (One hundred and seventy million naira) per transformer, for communities that are agrarian and far removed from any meaningful presence of government.
Some riverine communities in Lagos suffer this malady as well, in the hands of Eko Electricity Distribution Company (EEDC). The affliction must be cured this time around.
That has been the situation since the time the All Progressives Congress (APC) campaigned to govern in 2015. They promised to revisit the allotment of power utility companies to individuals for better efficiency and service. They promised to generate 40,000 megawatts of electricity. One of them, former governor of Lagos State, who was also Power Minister under former President Muhammadu Buhari, Babatunde Raji Fashola (BRF), promised they would fix power problem in a matter of months.
Fashola was handed the Ministry to make real that campaign promise, but the demons in the sector obfuscated his vision and harassed him. He got reassigned to a less problematic ministry but same demons caused him to lose speed, reason he could not commission the Lagos-Ibadan expressway. The chaos at the Lagos end has not ended. The demons in Abuja don’t respect regional superstars. Even the great Cicero of blessed memory, Chief Bola Ige was not spared some anguish in that Ministry. Tinubu must not toy with them!
At the end of eight years of APC administration, there was still no substantial progress in generating more megawatts as promised. Homes and industry continue to ration a mere 4,000 megawatts (MW), sometimes far less, even though there are claims of marginally improved generation. What’s the use generating what you cannot wheel into homes and industry? Challenges of poor metering, debt burden, corruption and distress in transmission lines continue to hobble the sector.
The transparency touch Nigerians expected from President Buhari did not happen as DisCos continue to operate the way they like. Banks had to move in to displace managers of some distribution companies, whose governance templates did not showcase financial discipline to enable prompt refund of facilities obtained to purchase licenses in 2013. In one of his last interviews, Buhari wringed his hands in despair and continued to blame the Jonathan administration for selling the power sector to friends and cronies.
Buhari said: “The people that own them, who are they? They are not electrical engineers, they don’t have money; it is just political favour. To remove a system and reintroduce a new one is no joke.”
But the Federal Government continued to pump money into the sector, to assist in metering and improve transmission. We were told that over $7.5 billion was spent on transmission, yet the national grid collapsed 98 times under Buhari; various sums were doled out by the Central Bank to GenCos and DisCos to address liquidity challenges; as well as sums from development partners. There is not much to show for all the interventions, as generation capacity is still too low and wheeling strength of the grid unhealthy. The sector is still in a big mess.
Unfortunately for electricity consumers, the extremely pro-market government of President Bola Ahmed Tinubu may not offer immediate hope because the electricity market has only reacted to his reform policies. Private owners of power companies have only adjusted tariff to accommodate new exchange rate – N750/$1.
Labour is threatening faceoff with electricity companies. I don’t know what for. They were there when the new government floated the local currency and they witnessed the naira drop in significant value. Even the new prices announced for PMS may not be the real thing. When the new Forex regime bares its full fangs, maybe Tinubu will be forced to return some of the subsidies he so whimsically edits, in the hurried bid to garner offshore applause.
To renew hope, I recommend immediate probe and reform of the power sector to achieve transparency, accountability and efficiency.