Three years after privatisation, the power sector is still bedeviled by sundry problems that have hindered Nigerian households and businesses from enjoying stable electricity, writes Chineme Okafor
On November 1, 2013, Nigeria formally handed over the running of her public electricity generation and distribution to private investors in a reform exercise that ended with the privatisation of companies cut out from old Power Holding Company of Nigeria (PHCN).
While the signing of transaction and industry agreements, which advanced the privatisation exercise was regarded as a huge remarkable development in the country’s power sector, it however opened a new phase that was planned to lay the right framework for substantial investments inflow into electricity supply in Nigeria.
As it was contained in the government’s policy document for the sector, the private financiers and operators in reformed power sector were requested to with their financial and human capacities, increase the country electricity generation capacity, as well as expand the distribution networks which cut across 11 distribution zones.
Indeed, the success of the power privatisation was dependent on very many but defined conditions, which both the government and private players were expected to fulfil.
On the part of the private investors, they were expected to meet and fulfil certain demands from the sector’s regulator – the Nigerian Electric Regulatory Commission (NERC). These demands include their acceptance of the major commercial and legal issues that exists in the industry agreements they signed; presentation and fulfilment of the business plans they developed to pursue steady growth of the sector; and compliance with extant regulatory structures like the market rules, customer regulations, Key Performance Indicators (KPI) regulations.
They were also requested to engage with the NERC to develop baseline data for loss calculations and planning of their investments, review electricity tariff, optimally utilise available and untapped generation resources for power production, increase generation capacity and steady power supply, develop renewable energy sources and comply with the provisions of embedded power generation regulation.
Additionally, the operators were also asked to make palpable and constant efforts to provide adequate and safe electricity to their consumers, massively issue meters to their consumers to cut collection loses and irregular billing methods, as well as ensure efficiency in electricity supply to customers to reduce technical loses which was reportedly very high when they took over.
What has changed?
Three years after the sector was privatised, its entire value chain has reported various forms of operational difficulties.
From very poor gas supplies to gas thermal generation plants and thus shortage in generation capacities, to inadequate or weak transmission system leading to either stranded capacities or complete loss of capacities on transmission, and then poor revenue collection and remittance levels, which put the sector in great financial mess. In fact the entire sector narrative is one of a bloated promise.
On the generation segment, power generated so far has never crossed the generation marks often quoted in the tariff framework. While target generation figures on which the tariff is built around have often been around 6000 and 7000 megawatts (MW), actual generation has so far never crossed the 5,074MW which was momentarily achieved in February 2016.
Instances of poor gas supply, low water levels, revenue shortages and other unwholesome business conditions have ensured that outputs from the generation companies are affected and their productivity hampered.
Usually, there are also reports of stranded generation capacities owing to either poor gas supplies or transmission constraints.
The protracted practice of poor revenue remittance by the distribution companies has equally ensured that the generation companies do not gain back their sent energies and unable to pay for ancillary services for their operation or undertake speedy expansion plan.
A scenario of the operational difficulties the generation companies go through was recently painted by the Managing Director of the Niger Delta Power Holding Company (NDPHC) Ltd, Chiedu Ugbo in Abuja.
Ugbo whose NDPHC currently owns the largest power generation assets in the country said it alone was owed up to N105.235 billion by the market as unpaid cost of energy supplied.
“The Market Operator settlement process shows we are owed N105.235 billion as at today. Just to take us back to history, in 2011, we invoiced N8.2 billion; in 2012, we invoiced N21.9 billion; 2013 – N46.9 billion; 2014 – N51.3 billion; 2015 – N62.4 billion and 2016 – N44.6 billion, and that is the total of N235.4 billion.
“Of these invoices, in 2011 we got 39 per cent, 2012 we got 26 per cent, 2013 we got 62 per cent, 2014 we got 72 per cent of the invoice, 2015 we got 62 and 38 per cents in 2016. It keeps going down in 2016, and for the June invoice, we got about 18.5 per cent and 19 per cent in July.
“When you compare this to our operational expenses, you will see that we are already in trouble. From the collections, our gas bill in January and February N3.8 billion, March was N3.4 billion. There is no month we have a gas bill less than N2.4 billion. The total we owe for gas now is about N42.207 billion,” he said.
For the transmission company, its inability to attract investments to expand its capacity even after its contract management under Canadian power form, Manitoba Hydro International (MHI), means that its operational challenges are quite unique.
As contained in the schedule of MHI’s management contract of it, the transmission company was expected to after three years show very palpable signs of service efficiency, it is however lagging behind in this, and has after three years of MHI’s management seemed to have started from ground zero in terms of corporate governance and efficiency.
Like every other segments of the market, the transmission company has also linked its inability to come good on the level of disregard for market rules by operators, and its subsequent impacts on its operations, especially on availability of funds to undertake some of it network maintenance and upgrade tasks.
The acting Managing Director of the Transmission Company of Nigeria (TCN), Dr. Atiku Abubakar, who was represented by the acting Managing Director Transmission Service Provider (TSP), Tom Uwah at a recent power sector meeting, made reference to this when he said the plans and activities of the TSP were been impacted by the poor financial remittance and compliance levels of the Discos.
He explained that plans to grow the transmission capacity of the country from its current 5500 megawatts (MW) to 6000MW by December 2016, and then 20,000MW by 2022 would be determined by the market’s respect for existing rules in the TEM.
“The most critical impact of the non-compliance is that of financial liquidity as it affects service providers who are not covered by any payment guarantee in the market.
In particular, payments to TSP have been so low that it cannot carry out its network maintenance, reinforcement and expansion of the grid. You are all aware of the transmission bottlenecks currently affecting power evacuation that are requiring urgent attention. This becomes critical and a sort of mismatch in view of the steady growth of generation capacity in the industry,” said Abubakar.
For the distribution segment, their reported disregard for the market rules and poor revenue remittance levels have contributed greatly to the market’s current financial shortage which is put at N809 billion.
As the interface between the market and consumers, the 11 Discos in the industry have been accused of illicit financial behaviours, which impacts negatively on the books of the market.
It is reported that their inability to provide electricity meters to their consumers to enable honest and stress-free revenue collection has remained the single biggest challenge of the market.
The Discos in defence of their reported revenue collection efficiency have often pushed the blame back to the Regulator and government who have allegedly refused to allow for cost reflective tariff system in the market. They cited instances of poor regulatory decisions like the tariff freeze in 2015 for certain cadres of consumers, abrogation of collection losses, and huge debts owed by the government for energies consumed by its agencies, as parts of the reasons for their failure.
Through their network, the Association of Electricity Distributors of Nigeria (ANED), the Discos said their monthly revenue shortfalls have continued to grow on the accounts of these and that while it now averages about N38 billion per month, the government’s debt to it as at June 2016 was well over N58 billion.
Other very unhealthy issues
Beyond these, the electricity market has also experienced other unhealthy operational issues, chief of which is operators disregard for market rules as provided for in the Transitional Electricity Market regime.
By refusing to play by the rules of TEM, the Acting Executive Director of the Market Operations Department of TCN, Moshood Saleeman said the industry will continue to struggle because agreed contracts will not be activated by operators.
Saleeman who disclosed at a recent operators’ workshop in Abuja that the monthly revenue remittances of the 11 Discos to the market has dropped further to 30 per cent from about 58 per cent that it was in the early parts of the year, linked this development to such disregard for market rules.
He explained that such constant disregard for market rules was not exclusive to the Discos alone but the entire segments of the industry, and that it was holding back the market from full take-off.
“The Transitional Electricity Market (TEM) has been declared and we stand by it, and it is supposed to be based on contracts. People should comply with their contract terms and that is why we are here.
“We have the enforcement that can come into play, but because we are still on a journey and don’t want a situation where some of these companies will go under, we try to be careful so that we don’t enforce it totally but the signal we are giving now is that we will enforce the penalties which is to enforce the security deposits and even escrow the accounts of Discos concerned,” he said.
A performance verdict and a response
It was based on some of these operational failures of the market that the President of Dangote Group, Alhaji Aliko Dangote recently adjudged the power privatisation a failure three years into its running.
Specifically based on the reported inability of the operators to make the needed investments in capacity expansions, Dangote had said the privatisation process was flawed and asked the government to reverse it entirely.
But the Bureau of Public Enterprises (BPE), which conducted the process described Dangote’s call as too early and not reflective of the true status of the sector’s operations and challenges.
BPE’s acting Director General, Dr. Vincent Akpotaire said in response to Dangote’s call for a reversal of the privatisation exercise that it was unnecessary, and that the agreement signed with the investors upon their acquisition of the power assets allows that they take at least five years to invest in and stabilise their networks.
He also explained that based on that, Dangote’s claim of the exercise’s failure was not factual, adding that the next two years afford the operators a huge opportunity to build on the lessons they learnt in the last three years to improve the efficiency of their assets and services.