Bureaucracy and Distortions in Nigeria’s Electricity Market

05 Feb 2013

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Sam Amadi, Chairman, NERC

Chineme Okafor observes that the Federal Government’s unrepentant interference in the Nigerian electricity market could affect the development of the power sector at its transitional stage
Deep misalignment and disregard for extant market rules on settlement of financial claims amongst market players alleged to be tolerated by the Federal Government have been discovered as part of challenges mitigating against Nigeria’s transitional electricity market.

Investigations by THISDAY into the operational activities of key operators in the Nigerian Electricity Supply Industry (NESI), especially the successor distribution companies of the Power Holding Company of Nigeria (PHCN), showed that the Federal Government still dictates proceedings in the sector, much to the detriment of a sector that is on the verge of been handed over to private persons.

While these developments systematically persist at a fairly mature stage in the power sector reform programme, THISDAY understands from sources within the sector in Abuja, the government has through its various oversight agencies in the power sector manipulated the electricity market with utmost disregard for standard rules that are meant to guide every operator in the electricity market.
Electricity Market Rules
In a recent discussion on the salient practices that portend serious danger to the success of the electricity sector reforms, one of the sources in the presidency who shed light on the management of government approved electricity subsidy for the sector as well as the financial settlement framework in the sector which is legally administered by the Market Operations Department of the Transmission Company of Nigeria (TCN), explained that the Federal Government’s interference was preventing the market from taking its full course in this transitional stage.

The source said: “Apart from NERC which is authorised by the EPSR Act to regulate and monitor the power sector, the government has mostly through the Ministry of Power continued to distort operations in the electricity market.

“The sector is still seen by the government and as one run as an industry instead of a market as provided in the EPSR Act. Take for instance the management of electricity subsidy recommended by NERC and approved by the government, the government does not pay the subsidy on time and when they do, the distribution is always without regard to extant rules; that is not how to run an electricity market.

“Paying for gas supplied to PHCN Gencos is always a major concern but the way it is paid is equally another issue and as far as NERC has said, payment of subsidy under the MYTO-2 framework is predicated on performance, but government does not apply this and has failed to heed to the directive from the sector regulator.

“This stage is designed to deal with impurities in the sector, preparatory to private sector take-over of the market. It is such that would highlight what is expected of the market; adherence to market rules, grid codes and focus on clarity but the sector is lacking focus on rules governing the market.”

He added that the Yola Distribution Company, for instance, returns nothing to the value-chain and for the past two years now Yola has been on a bailout, for which there seems to be no end in sight. The government bureaucracy in the market, he observed, is morally hazardous and has been one of government’s skewed decisions in the sector.

“There is a deep misalignment in the sector, rules of the market are not used in the settlement of financial claims and there are issues around the framework and process of payments which we ought to sort out now to allow the market work,” the presidency official said.

“At this stage, the government should be seen to be spending less in the sector but if it is not, then something is wrong. We have to start observing market rules now before the private people come in otherwise, the market will enter turbulence when the private people get in, the source further,” stated.
Regulatory Capacity
While reflecting on the regulatory capacity of NERC) the source affirmed recent claims by the Chairman of NERC, Dr. Sam Amadi, that the commission would be able to effectively regulate the market as the reform exercise progresses to completion.

Amadi had recently spoken on NERC’s regulatory capacity saying: “Regulation is problem solving and not policing. We are at a threshold of convincing preferred bidders to put in billions of dollars in the sector, we don’t need to cause panic in the sector.

“The capacity of NERC to regulate the sector is not in doubt and even when we are witnessing partial compliance due to the transitional stage of the market, we are on guard to get evidence that the sector is not working but as you know, regulatory processes are participatory.”

Also, Vice President Namadi Sambo had recently set up a committee comprising of the Minister of State for Power, Hajia Zainab Kuchi, Amadi, Director of Budget Office, Bright Okogu, the Transmission Company of Nigeria (TCN), Chairman of the Presidential Task Force on Power (PTFP), Beks Dagogo-Jack, and the Market Operations of TCN, to address the widening gap in energy delivery across Nigeria as well as payment for electricity consumption.

Accordingly, the committee would have to work out measures to address the delays or non-payment for the electricity supplied by various PHCN distribution companies. Sambo also directed the committee through the Market Operator to release funds to address issues of salaries, metering, gas payments and other infrastructure needs to boost power supply and difficulties in payment of salaries of staff at the Yola Distribution Company.

On all this, the source disclosed that the Ministry of Power could be considered the major stumbling block to NERC’s regulation of the sector. He added that the ministry has been at loggerheads with the commission on issues relating to existing market rules.

“Well, it is expected that the ministry would want to question the regulatory roles of NERC in its bid to continue to seem relevant in the scheme of things but the truth remains that unless it sees itself as transiting more to a policy formulation and implementation organ of government in the sector, the ministry will still strive to usurp the powers of NERC.

“It is unfortunate that ministries where you have politicians as their heads are always involved in such power play, but this sector does not need such political power tussle; it is a market and a delicate one for that matter, any misstep could upset the market and it beats my imagination that the government, for example, would set up committees to deliberate on how funds meant for the market will be distributed when there is an existing framework to handle that. For the good of the market, adherence to rules should be emphasised as I don’t see any reason why the Yola Disco should be placed on continuous a bailout and they still expect to pay the same salaries that apply in the sector.

“That is what we are talking about, uniform salary scale even for unproductive companies like Yola. In every economic sense, the disco should be made to undertake cost-reduction measures in such case, but what we see is the unending bailout with funds meant for the market, which certainly isn’t how the market will evolve.”
Poor Energy Conservation
Without prejudice to the reform exercise in the sector, Governor of Lagos State, Mr. Babatunde Fashola, last week warned that poor conservation of power utilities amongst Nigerians may become a huge challenge to the country’s power sector agenda. This is notwithstanding other obvious challenges such as political interference, which is already glaring.

Fashola said in his presentation at the monthly “distinguished visitor” lecture of NERC that his conviction of the potency of such threat to a reliable power supply in the country was predicated on the country’s past experience in the management of public utilities as well as indications that the country was yet to realise how big a danger the development is to the growth of the electricity market.

He explained that government’s neglect of such critical aspects while evolving programmes and measures to ensure stable power supply across the country was unthinkable and that the job of NERC as a regulator in the sector would be incomplete if it fails to emphasis to Nigerians the need for a value system built on conserving and preserving electricity utilities.

He said: “We are all aware of the progress that is being reported (even if debatable) in the pursuit of these lofty goals. However, my purpose today is to bring our attention to the avoidable threats to our dream of a reliable power supply system – the threat is conservation and preservation; and our conduct today does not suggest to me that we realise how big a danger it is.

“I believe that in our drive towards service improvement in the provision of utilities, we have missed that critical aspect - the need for a value system built on conserving and preserving our utilities, which is in my view, a key component of our well-being and sustainable future. We all have a role to play in the efficient use of energy resources and the preservation of our energy infrastructure to save costs.
“I would therefore like to suggest to you, that your work as regulators cannot be complete, unless you adopt a strong and effective policy of educating Nigerians about how they must conserve and preserve our utilities.”

Tags: Business, Nigeria, Featured, Bureaucracy and Distortions, Nigeria’s Electricity Market

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