Political interference must stop to allow growth of power sector
Emeka Okpukpara heads Abuja-based Nextier Power, a division of Nextier Advisory Limited. Okpukpara discussed challenges in the sector with KINGSLEY JEREMIAH.
Five years into power sector privatisation. How, in your opinion, has the journey been so far?
The journey has been quite challenging, with a handful of unforeseen circumstances and lacklustre achievements. You will agree that the lofty expectations of Nigerians on the privatisation have drastically been eroded. In summary, the anticipations were laced with roses, but the methodology and accuracy of data employed in the process set the stage for inconsistencies with tariff, capital investment and market design.
In fact, it was after investors took over the assets that they realised not only the infrastructural decay, but also the lack of effective and efficient practices of the legacy operators. Unfortunately, due diligence was not adhered to in the process of privatisation, which led to assumptions by misinformed investors, for instance, the Aggregate Technical Commercial Collection losses. Pre-privatisation, these loses were thought to be manageable, but in actuality these numbers are prohibitive in running a utility effectively.
Privatisation of the sector has catalysed quantum leap of productivity, especially in the generation and transmission sub sectors. The privatised electricity market, albeit still infant, has birthed the renewable energy sub-sector, which has been the frontier for rural electrification and compliance instrument for Paris Climate Agreement.
Generation and transmission capacities have greatly improved, but the average electricity consumer in Nigeria is yet to enjoy seamless supply of electricity.
Nigerians expected that privatisation would end the nation’s epileptic power supply. What challenges are responsible for slowing down the sector, and how can they be overcome?
Truthfully, the expectations of the privatisation process could have been better managed strategically. On a broader scope, the major challenges to deal with are on market cooperation, metering, liquidity and market governance.
The distribution companies who are the links to the consumers do not have adequate asset to meter not only consumers, but also in provision of transformers. Due to aforementioned lack of assets, consumers are billed arbitrarily under the context of estimated billing, which has eventually eroded consumer confidence in the sector. High incidences of energy theft coupled with consumer apathy in electricity bill payment, the sector has got stuck with eye-popping market shortfalls of nearly N2t ($5b).
The power sector currently lacks effective contract management, compliance to industry regulations and governance codes, which is within the overall coordination of an independent regulator–NERC. The distribution companies are withholding customers’ remittance beyond the MYTO allocations; entities are not bound to sound contractual agreements in order to ensure efficiency and competition.
So, the regulator must find the courage to lead the sector away from undue political interference and rouse all market operators and participants towards transparency and competition to attain efficient delivery of electricity to all Nigerians. Fines and sanctions must be handed to any participant who deviates from extant regulations, guidelines or contractual agreements.
Fundamentally, we need to decide whether the sector is part and parcel of the government, or if it a stand-alone business. Until, we can properly answer that question, the sector will continue be in disarray.
The bill, which seeks to amend the Electric Power Reform Act, prohibits and criminalises estimated billing of consumers is making progress at the National Assembly. Knowing very well that metering remains a critical challenge for the sector, do you think the bill if passed will end the challenge?
The bill has all the elements of sensationalism; it is not implementable at the current state of the market where barely 50 per cent of customers do not have meters in most distribution companies, according to NERC.
Globally, it is not advised to install more than 10, 000 meters monthly, so it is impractical to suggest that we will install meters in the remaining five million households even if we receive meters overnight.
Instead of the bill, a regulation to punish DisCos on their percentage of unmetered customers after a given period (to allow for implementation of MAP or other metering schemes) would suffice in ensuring aggressive metering exercise in Nigeria.
The bill is highly isolated from the realities of the sector and seeks to serve some interests beyond comprehension; almost feels like an activity-based exercise rather than one that can create sustainable impact.
The Meter Asset Provider Regulation is almost in full swing and should be allowed to fully develop rather than suffer some of the flaws suffered by (CAPMI), the previous metering programme. Coincidently, the February edition of Nextier Power Dialogue with the theme: “MAP Regulations: Industry Outlook,” showcased the expectations, modalities and established framework to ensure the success of the programme with focus on financial recovery, area of coverage, technical quality of the meters and agreed timelines of installations.
What do you think is hindering the progress of the MAP policy?
The Meter Asset Provider (MAP) policy was meant to fast-track bridging of the gap that has remained elusive. The process should have started before now, but several hitches and postponements have ensured that it remains at this state 10 months after its pronouncement. I am aware that there are a couple of issues for NERC to resolve between the DisCos and MAPs to ensure utmost transparency and compliance with the Regulation.
Government has refused to let go of its 40 per cent share in DisCos, while leaving the BPE on the boards of the distribution companies. How are these developments impacting the performance of the distribution companies?
When the privatisation exercise was envisaged, the current market conditions were not foreseen. The plan was to get these companies to become financially viable in order to allow private investors to acquire shares of these firms. Given the present market fiasco, the probability of an investor coming to buy shares today for any utilities is improbable.
We all know the issues with the DisCos, we need to access exorbitant funds to acquire the technology and physical assets to eliminate commercial and collection losses, which is a Herculean burden on the entire sector. Without these investments, we may never find a way out of this debacle.
How can the liquidity crisis in the sector be addressed?
Like I said earlier, metering and technology will quickly put an end to this situation. Some sector experts believe that the tariff must be reviewed upwardly, to allow for cost recovery to fund more capital projects but that does not resolve the situation holistically as the leakages have not been addressed.
The sooner we get the MAPs to meter every electricity consumer and employ relevant technology to showcase all sector financial transactions in real time; the better for all of us.
The processes in the sector must be transparent and financially prudent. The system operator can do better by embarking on a least cost procurement plan for electricity coming onto the grid. That way, we are incentivising the generation companies towards efficiency and more productivity and improve the sector cost recovery indices.
While players in the power sector are calling for the right tariff, most consumers are against such plan citing unstable electricity supply and estimated billing. What do you think is the way forward?
It is simple enough, what is the aggregate DisCo collection rate today? There should be a logical reason why people are not paying. Then imagine, an increase in tariff, which will force more current customers to go “off-grid’ whether their technology of choice is a standard fossil fuel generator, or renewable energy. Due to the increase in tariffs, there will be a greater incentive to steal energy from the Distribution companies. These two scenarios will in turn reduce the amount of funds that are available in the market place, which could be the fatal blow to an already ailing sector.
Market participants must devise operational innovations to cut costs, reduce losses and make their margins on investments. As soon as the system becomes transparent with standard service delivery, customers will be willing to pay more for electricity. You may wish to know that the January Nextier Power Dialogue conducted a survey on this topic amongst the participants and we recorded an outstanding 92 per cent vote in favour of improved service delivery, rather than tariff increase.
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