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Weaning consumers of generator addiction without fixing lingering power issues

By Femi Adekoya and Kingsley Jeremiah
12 April 2020   |   4:11 am
The proposed ban of power generating sets through a legislative framework is not new to Nigerians, just as citizens’ consciousness about legislations has grown over time.


The proposed ban of power generating sets through a legislative framework is not new to Nigerians, just as citizens’ consciousness about legislations has grown over time. Also, issues of electricity access are increasingly becoming major electioneering promises ahead of national elections. Despite a 2015 ban on the importation of two-stroke engines due to government’s concerns over rising air pollution, the value of Nigeria’s generator market is estimated to have risen from more than $51m in 2017 to over $450m today. FEMI ADEKOYA and KINGSLEY JEREMIAH write on why the recent move by the Senate is nothing different from the previous attempts.

With an installed generation capacity of 12, 500 Megawatt (MW), less than 45 percent of the country’s 200 million population has access to power. On average, about 3, 500-5, 000 MW of power is typically available daily, forcing residents and businesses to device alternative means.

Indeed, while the Nigeria Electricity Regulatory Commission (NERC) says that there are only 8, 881, 443 registered active electricity customers in the country, a report by Schneider Electric stated that an estimated 90 percent of Nigerians lack access to safe and efficient electricity, meaning that less than 10 million Nigerians are connected to the national grid, while others rely on off-grid solutions (mainly power generating sets), to power their homes and businesses.

Findings reveal that over 60 million Nigerians own power generating sets, including 26 percent of households, and 86 percent of operating businesses. With the country’s population expected to double to 411 million by 2050, the challenge of lighting up Africa’s largest economy will become a tall order.

With the ability to distribute an average of 3, 781MW in 2019, from a yearly average of 3, 807MW in 2018, the Federal Government plans to spend N9.05b on the purchase, maintenance and fuelling of generators across the Ministries, Departments and Agencies (MDAs) nationwide, this year.

The government also earmarked a separate N75.4m for maintenance and fuelling of generators in some of its foreign missions abroad.

The details are contained in the 2020 budget that was proposed and signed by President Muhammadu Buhari last year.

Usually, the National Assembly performs oversight functions and it is empowered to make laws, including establishing committees of its members to scrutinise bills and government polices. For this obligation to be delivered efficiently, the lawmakers are expected to have a full grasp of the issues they attempt to solve.

But the realities playing out from that critical arm of government in recent times have shown that the priority of our lawmakers is in conflict with intervention required to salvage a critical sector such as power.

In addition to bills seeking to undermine citizens’ freedom of expression and information, the National Assembly recently proposed a 10-year jail term for anyone, who imports or sells power generating sets in the country.

The controversial bill sponsored by Senator Muhammad Enagi Bima, representing Niger South Senatorial District, and titled “A-Bill for An Act To Prohibit/Ban The Importation/Use Of Generating Sets To Curb The Menace Of Environmental (Air) Pollution And To Facilitate The Development Of The Power Sector,” seeks to imprison any person who, imports generating sets, or knowingly sells generating sets for a term not less than 10 years.

According to the draft, the ban shall not apply to the importation or sale of any generating set to be used for essential services listed as medical purposes, particularly hospitals and nursing homes and healthcare facilities, airports, railway stations/services, elevators, escalators, research institutions, and such facilities that require a 24-hour electric power supply.

However, the exempted sectors or services were according to the bill, required to get approval for exclusion from the Minister in charge of Power, who shall brief the Federal Executive Council (FEC) quarterly on approvals granted.

Should the bill become law, all persons would be directed to stop the use of electricity generating sets that run on diesel/petrol, or kerosene of all capacities with immediate effect in the country.

Current State of Power Supply in Nigeria
THE epileptic power supply has remained a critical concern in the country, and instead of improving, the sector has remained despondent.

In 2013, the Federal Government took a bold step of privatising the power sector. The change in ownership was against the backdrop of the dejected nature of the sector, which affected standards of living and crippled economic growth with only 4, 000 megawatts of power shared among a population of about 180 million people.

Indeed, five years after the much-trumpeted privatisation, the sector has been trapped in a dilemma, evidenced by looming bankruptcy, regular blame games, and confusion within government, as well as within the private players.

It is important to state that in the past 20 years, while the system operator puts the National Peak Demand Forecast at 25, 790MW for a country considered the most populous black nation, and the biggest economy on the African continent, the highest peak electricity ever generated is 5,375MW. This occurred in February 2019.

Indeed, the Manufacturers Association of Nigeria (MAN), had to establish its Manufacturers Power Development Company (MPDC), as a vehicle to achieve the gradual transition from dependence on distribution companies for electricity to its Independent Power Projects (IPPs).

Specifically, the operators cited poor electricity and gas supplies, non-reliability of gas supply, scarcity of diesel, and high cost of LPG as an impediment to production in the country.

Banning Generating Sets a Misplaced Priority, Laughable
STAKEHOLDERS while reacting to the bill described it as laughable, and the promoter ignorant and lacking understanding of the nation’s operating environment.

Precisely, the Organised Private Sector in Nigeria (OPSN) stated that while electricity outages average about 10 hours per day, electricity expenses still constitute about 40 percent of the total cost of production and the average cost of self-generated electricity averages N119b in 2019.

The OPSN comprising of the Manufacturers Association of Nigeria (MAN), Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Nigeria Employers Consultative Association (NECA), Nigerian Association of Small and Medium Enterprises and the Nigerian Association of Small-Scale Industries (NASSI), stated that the unfriendly operating environment is responsible for the oscillatory performance of the real sector in the past few years.

An official from MAN stated that the promoter of the bill lacks understanding about the operating environment, adding that even in advanced economies, generators are used as standby.

The official noted that even though cheaper energy from the grid would be preferred and better, banning generating sets would not increase grid supply, but put pressure on the grid.

To the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, the proposition is not a realistic one and does not show that its promoter is in touch with the reality of the power situation.

“Is it the fault of Nigerians that they have to rely on generators for power supply? The heavy dependence on generators is a direct consequence of the failure of the power sector.

“Even with the power sector reform, the failure has persisted. What we expect from the legislators is a proposal on how to urgently fix the power problem in the country. The power issue is perhaps the biggest challenge facing us as a nation. It is taking a huge toll on businesses, as well as on the welfare of the people.

“We should learn to have a causative perspective to problem-solving. The way to provide a sustainable solution is to locate the cause of the problem, not to be grappling with symptoms of the problem. Strangely, the bill passed the first reading,” he added.

The proposed ban, according to NECA, would be inimical to the quality of lives of Nigerians and national development as a whole, notwithstanding the narrow list of exceptions.

The Director-General of NECA, Dr. Timothy Olawale, while urging restraint, maintained that legislation should focus on ensuring improved infrastructural development that will facilitate efficient distribution of power to offices and homes of Nigerians.

He stressed that Nigerians should not be punished for the ineffectiveness and policy inconsistencies of successive governments.

Olawale urged the government to focus on putting in place policies that would help to accelerate the growth of the sector to make the importation and use of generators unattractive, while also promoting and encouraging the use of alternative clean energy sources.

According to him, a more strategic approach to national development will fast-track the industrialisation and development of the nation.

Stressing that there was no gainsaying that the nation is faced with serious energy challenges, which predates the privatisation of the power sector, he affirmed that criminalising the importation and usage of generators is a crude and non-ingenious way to deal with a serious national issue.

Quoting the International Monetary Fund (IMF), he said lack of access to electricity and unreliable power supply are key constraints to doing business in Nigeria, estimating the annual economic loss at about $29 billion.

He maintained that a knee-jack ban on the sale and use of generators without resolving the challenges in the power sector would further compound challenges faced by businesses.

Associate professor of Energy Law at the University of Lagos, Yemi Oke, considers the bill is inappropriate and misplacement of national priority, especially as there are no viable alternatives.

“If the power sector has been properly conceived and becomes a business that is properly managed, and profitable for investors, generators will die gradually. The system allows that when you have an inefficient power sector network in the generation, distribution, and transmission, then businesses must continue and consumers will have to look for alternatives,” he stated.

On his part, the President, Nigeria Consumer Protection Network, Kunle Kola Olubiyo noted that the bill was well-intended, but misguided, adding that the senator or the parliament was misguided and misdirected due to dearth of knowledge and expertise in the area of discourse and focus.

To him, the agitation for banning the importation of generators into Nigeria has been an age-long discussion, which is taken from the point of informed knowledge and expertise would take away the constitutional rights of electricity consumers that allow for the freedom of choice, or rights to alternative sources of power in mixed energy industry.
Olubiyo wondered how senators intend to address issues such as a national blackout due to the endemic challenges facing the national grid infrastructure.

“The National Assembly is simply saying Nigerians cannot switch on their generators and have their peace. This will create artificial scarcity, smuggling and, of course, when generator is taken from the poor, they may not have any mini-grid option,” Olubiyo said.

According to him, debating the bill, instead of stepping it down on the floor of the National Assembly raises dust on the depth of the knowledge that the lawmakers have about the different sectors for which they make interventions.

“The problem of the post-privatised Nigerian Electricity Demand and Supply Industry is the fact that the Federal Government since 2013 has recklessly demonstrated heights of irresponsibility by being deliberately evasive of her obligations to investors in the generation companies.

Government, as stipulated in the condition precedent to privatisation exercise, was expected to provide bankable security, collateralisation in form of partial risks guaranteed (PRG), sovereign guarantees or sovereign bonds, which would have helped indemnify the contracts between the Federal Government and operators involved in the vesting contracts in the Nigerian Electricity Value Chain,” Olubiyo said.

Commenting on why epileptic supply in the country has persisted, he said power generating companies due to zero absence of bankable contracts, were being forced to buy gas at black market rates, or parallel market rates.

Olubiyo said gas-fired power plants account for about 70 percent of the total power generation to the grid, adding that the units of gas being sold at $1.20 to other industrial bulk users of electricity, was equally being sold to power generation companies at $2.50, in addition to the corruption variables, which are embedded in investment in critical gas transportation infrastructure, which amounts to $0.80, and brings the total invoice costs of gas per/mbtu to $3.30.

To him, rather than focusing on frivolous legislations, the National Assembly should re-direct its energy to the amendment of the Nigerian Constitution, making sure that all the aspects that bother on economic-related concerns otherwise classified under exclusive are modified.

Olubiyo believes that the lawmakers should begin with moving Solid Minerals Resources, Inland Water Resources to the concurrent list.

A Good Bill, But Premature
PRICEWATERHOUSECOOPERS Associate Director, Energy, Utilities and Resources, Habeeb Jaiyeola, sees the intention of the bill as commendable, especially as it seeks to improve the power sector and address challenges of pollution.

He, however, noted that the move was premature, especially as it may take away the prevailing option that could fuel the economy and improve the standard of life.

“If there is constant power supply at a reasonable price, then the purchase of power generating sets would generally die. The willing buyer, willing seller policies initiated in some parts of the country or estates are already helping people to move from generators,” he said.

According to him, banning generators at a time when challenges in the power sector have persisted, will affect the country negatively, especially businesses that are driving the Gross Domestic Product (GDP). If we ban generators, GDP will reduce, and the informal sector will significantly be affected. Banning generators will not fix the power sector. So, any drastic effort should be focused on fixing the challenges in the power sector,” Jaiyeola said.

Problematic Pricing Structure
THE structure that governs electricity tariff framework in the country is the Multi-Year Tariff Order (MYTO), which provides cost-reflective tariffs across several years that is fair to generation, transmission, distribution companies, and other industry stakeholders.

However, industry operators often complain that electricity charges to customer do not reflect the cost of generation, transmission and distribution.

Introduced by NERC in 2008, MYTO was the proposed solution to this challenge as it provides a 15-year tariff path for the electricity industry, which is subject to minor reviews twice every year, and a major review once every five years. MYTO has undergone different reviews since 2008.

Essentially, many DISCOs have been unable to collect a significant proportion of the bills that they hand out to their customers, as total revenue collected by all the companies for energy distributed significantly falls short of total billings.

While it is believed that metering customers will reduce liquidity challenges currently hobbling the power sector, meter delivery progress has been slow so far.

According to the Nigerian Electricity Regulatory Commission (NERC), the number of electricity consumers has risen to over 10 million within seven years, with over 52 percent being invoiced on estimated billing.

NERC noted that the significant level of customer dissatisfaction arising from unrealistic estimated bills has also adversely impacted on the market revenues as a consequence of customer apathy and declining willingness to settle invoices in full.

NERC also acknowledged the shortcomings of the Meter Asset Provider (MAP) scheme, stating that changes in fiscal policy and limited availability of long-term funding led to the limited success in the meter roll-out.

Upon hand over of the facilities to the DisCos after privatisation, the performance agreement insisted that they must reduce losses otherwise known as Aggregate Technical Commercial Collection (ATC&C) losses.

The basic means of pruning these losses would be an investment in equipment such as transformers, meters, poles, and cables.

But the achievement has been a far cry from what the agreement expects of the companies. From the words of the Minister of Power, Sale Mamman, at the Federal Executive Council meeting recently, the DisCos can only supply a neighbourhood of 3, 000MW to the consumers.

Metering, which is the tool for counting units of consumption in the electricity market, has not attained its objective since the privatisation of the industry.

For instance, the Credit Advanced Payment Metering Initiative (CAPMI) recorded a dismal 201,756-meter installation by the 11 DisCos out of the 410,796 that the customers bought. The NERC had to jettison the initiative.

Furthermore, the Commission in its 2019 Third Quarter (Q3) Report said commercial viability and financial liquidity performance continued to be a major challenge with a slight improvement in Q2.

During the quarter, “total billing to electricity consumers by the 11 DisCos rose to N186.08b with a total collection of N121.32b…The level of collection efficiency during the period under review indicates that as much as N3.9 out of every N10 worth of energy sold during the second quarter of 2019, remained uncollected as and when due.”

Continuing, the report said during Q2 2019, out of the total invoice of N180.08b issued to the 11 DisCos for energy from the Nigerian Bulk Electricity Trading (NBET), and for service charge by Market Operator (MO), about N55.10b of the total invoice was settled.

This performance of the DisCos, in a nutshell, shows how far they have fared in terms of commercial and collection losses.

NERC had in an order released late February titled: “Order on the capping of estimated bills in the Nigerian Electricity Supply Industry (NESI),” repealed the Estimated Billing Methodology Regulation, stressing that the regulation shall cease to have an effect on unmetered customers in the country.

Chairman of the NERC, Prof. James Momoh, had in January said the new regulation to enforce metering for electricity consumers would favour consumers, as it will stop electricity DisCos from fleecing their customers through the old regime of estimated billing.

The TCN Managing Director, Dr. Usman Gur Mohammed, in a recent chat with The Guardian, reiterated the need for DisCos to recapitalise to match the investment of the TCN in the network.

He said TCN’s efforts are yet to manifest because the DisCos refused to invest in distribution equipment.

Members of the private sector then urged the Federal Government to unveil a more realistic tariff structure that will support the growth of the real sector, which is very critical at the moment, while a review of the privatisation/unbundling of the electricity industry should be revisited, in the best interest of Nigerians.