Geregu Independent Power Project
The worsening power generation and distribution nationwide has stifled socio-economic and political life forcing productive activities to a halt. In this report, Joseph Ushigiale calls for immediate dialogue between the federal government and stakeholders to fashion out a rescue package that will permanently mitigate the current nationwide outages
Since the inception of the present administration headed by President Muhammadu Buhari, apart from the few weeks following his inauguration when his famed ‘body language’ guaranteed steady supply of electricity to most homes across the country, what followed after that flash in the pan period was that power supply virtually relapsed from worse to worst with most households subjected to the excruciating pains of darkness daily and are still expected to pay estimated bills even when no service has been rendered.It has not been this worse.
For a government that promised Nigerians that it will ensure the “generation, transmission and distribution of at least 20,000 MW of electricity within four years and increasing to 50,000 MW with a view to achieving 24/7 uninterrupted power supply within 10 years,” an Eldorado of a sort once it took office, the current experience of perpetual nationwide darkness underscores the fact that Nigerians are experiencing something worse than hell. How did we get to this sorry state?
The present power sector predicament did not start today. Indeed, every successive administration beginning from former President Olusegun Obasanjo had budgeted huge sums of monies all with the aim of increasing generation and transmission capacities to power the national grid. The Obasanjo regime reportedly sunk about $16 billion in this effort which ended up with the building of several power plants under the National Independent Power (NIPP) project. Unfortunately, the power plants were conceived and built without provision for gas.
Acknowledging that this was part of the current power problems bedeviling the country, Minister of Power, Housing and Works, Babatunde Fashola, admitted in a recent interview that “We already have power plants in place but there are no gas pipes there. We are constructing gas pipelines now; but what was the planning that went into conceiving a power plant without a corresponding gas pipelines to it?”
It was under these sad realities coupled with the World Bank’s advice that the former President Goodluck Jonathan regime decided to adopt a full privatization option to unbundle and sell off the Power Holding Company of Nigeria (PHCN). After a highly competitive bidding process involving both local and foreign investors, the winners were announced and Jonathan handed to each one of them, their respective certificates for the power plants they won to begin the business of transforming the power sector value chain.
Angst and Calls for Repudiation
However, the feelings across the nation over worsening power situation since the past three years that the private sector took over the generation and distribution of electricity in the country have been that of anger and outright frustration. From Port Harcourt to Kebbi, Kano to Oshogbo, Sapele to Umuahia, Lagos to Sokoto and Akure to Abakiliki, the story is the same: No power while consumers pay for darkness.
For instance, Nigeria has installed power output of 11,165mw, of which the 12 plants have a combined capacity of 2,035mw The growing feeling is that the privatization of the assets of PHCN was nothing but a fraud to the detriment of consumers. And the feeling is justifiable. Three years after the privatisation, Nigerians have not seen the promised benefits of the private sector’s take-over of the distribution and generation of power.
To compound the situation, mind-boggling funds have been sunk into the sector with nothing to show for it. Amid the appalling power supply, many consumers are disturbed by inadequate meters and the crazy billing system in the name of estimated bills. In fact, the billing system and poor metering by the DISCOs have forced many consumers to doubt the wisdom behind the privatisation of the power sector.
Today, the general feeling is that the defunct Power Holding Company of Nigeria, PHCN, performed better than the electricity Distribution Companies, DISCOs, and Generation Companies, GENCO. Meanwhile, many concerned individuals and groups are calling for a review of the privatisation of the assets of the PHCN with a view to returning the sector to public control.
Following the inauguration of the present administration, calls have inundated the presidency seeking the cancellation of the sale of power plants on grounds of alleged widespread and gross irregularities and cronyism in the process by the Jonathan regime.
But Fashola dismissed suggestions on the possible cancellation of the privatisation contract in the power sector. He said he was against such move arguing that the country would by such cancellation be sending negative signals to foreign investors that she has no respect for agreements.
Pointing out that the action would only take the nation backward, the minister, who noted that the programme was just three years old and needed time to mature, added, “We should think on what to do to make it work better instead of cancelling it”.
Dwelling further into why he is averse to the cancellation, he said “Many investors don’t like that kind of behavior. In the event, we haven’t solved the problem by cancellation. I can cite one example, in 2005, Nigeria signed concession contract for its refineries to private individuals in this country. We complained, government canceled the concession and this is 10 years after, we are still importing fuel. One of those private individuals is now building his own refinery here in Lagos. Just imagine the time we lost and how much we have spent on importing fuel.”
Barely three years down the line, there is evident chaos in the power sector with the situation reported to be so bad that an operator, Mr. Tony Elumelu, voiced his fears pointing out that “We are all living in a borrowed time; it is a matter of time before something drastic is done.”
Citing multiple factors ranging from gas pipeline vandalism which has made the evacuation of gas from the fields to the power plants impossible, Elumelu pointed also at mounting debts owed the power companies by the federal government and the inability of the power companies to procure foreign exchange for maintenance of power equipment and expansion. He also said payment delays and debts to Gencos, poor gas supplies and certain unhealthy governance issues were major contributors to the sector’s challenges.
Low Tariff, Huge Debt Overhang
Investors in the power sector had hoped, as part of their business model, to seek what they consider appropriate pricing for electricity supply to consumer. Relief came their way in February 2016, when the government, through the National Electricity Regulatory Commission, NERC, launched the multiyear tariff system, which pegged tariff at a minimum of N20.26/KW and a maximum of N28.05/KW.
Yet, owing to a multiplicity of factors, the electricity distribution companies, or DISCOs, have continued to push and campaigned for an increase in tariff that would make their businesses sustainable. In July 2016, the NERC raised the maximum charges to N50/KW. But its decision was overruled by the senate which ordered it to revert to the status quo. The upward review also earned the angst of consumers who challenged the new tariff regime in court.
In the end, the government retained the original prices. Right now, the respective power companies have resorted to charging different tariffs to stay afloat. For instance, in Kaduna, where the tariff is adjudged the highest, the rates are between N27.36 and N28.05. In Lagos, the country’s economic capital, which is served by Ikeja DISCO and Eko DISCO, the rates are N21.30 and N21.80 for Ikeja, and N24.00 and 25.79 for Eko.
But the DISCOs say it is an enormous struggle to do business with the current rates, which are “not defined by market realities”.
An operator in a northern Nigerian DISCO says by forcing the DISCOs to bill a fixed amount, irrespective of demand and cost of distribution and maintenance is causing a loss to operators.
According to him, the development “has created a tremendous shortfall in the system; it’s up to N500billion naira. If the regulators don’t do something urgently about the situation, they may cause a reversal of the progress made so far,” he said.
Others in other regions also agree with him and attempt to situate the huge problems on ground. In Lagos, some DISCO officials explain how this current system may not work in the long term: “For constant power supply to be achieved, certain investments are being made,” said one. “For instance, there were serious challenges with metering and equipment before the DISCOs were brought in. That’s one. Two, electricity consumers expect an improvement in the services now that we say the sector has been privatised. DISCOs want to make sure they do the best in the areas where they operate but you can’t do your best if you’re barely surviving.”
Elumelu said his power company alone is owed several billions of naira. “We are owed a lot of money, Transcorp Power is owed almost N50 billion, by the time we put in the invoice for this month, it will be almost N55 billion. How do you survive in this type of situation?
“The truth is Transcorp Power as a key operator in the sector is struggling and if we are struggling, you can imagine what other operators are going through. There is a lot of debt being owed to us. Liquidity is an issue and there is gas vandalism, of course you will not blame government so much because there is a lot of vandalism going on.
The Nigerian Electricity Supply Industry operational (NESI), on January 3, disclosed that over N534 billion of revenue was lost by the power sector in 2016. Among the reasons for the loss are shortages in gas supply, frequency and line limitations and water levels management constraints that led to several cases of electricity outage in the country.
NESI, which put the average daily revenue loss at N1.5 billion, said gas constraint remained one of the major challenges facing the electricity sector.
It explained that the N534 billion amounts to the value of electricity lost on account of the challenges, part of which could have been used to bridge the liquidity gap in the power sector, estimated at N1trillion. Already, the sector is finding it difficult to access more loans from Nigerian banks due to their inability to meet the payment obligations for previous debts. “The situation will also affect the capacity of the power firms to improve on electricity supply to consumers for domestic and industrial uses,” it stated.
NESI said in its daily statistics on energy losses that the industry lost N1.525 billion on December 24, 2016 alone. It also disclosed that about 12 power stations could not produce electricity during off-peak period under the review. Statistics from the National Control Centre, Osogbo showed that Afam IV-V, Geregu Gas, Alaoji National Integrated Power Project, Olorunsogo Gas, Odukpani NIPP, Okpai, Ibom Power, ASCO, AES, Omoku, Rivers NIPP and Gbarain power plants could not produce a single megawatt on December 25, 2016.
Discos Get Creative
The challenges in the power sector have forced operators and regulators into finger pointing mode. Getting an alternative generating source is said to be a decision only the Federal Government can take, as representatives of both organisations avoided commenting on their relationship with the generating companies (GENCOs), except on how it affects their services.
Power generation companies are responsible for generating power and sending to DISCOs through the transmitting company; but the capacity drop in power supply, according to the DISCOs, suggests failure of the GENCOs. The GENCOs also pointed at vandals as the culprit.
However, undaunted by the challenges, in Lagos, DISCOs are creatively collaborating, partnering and investing in direct partnerships with private GENCOs (electricity generation companies) to have more power to supply to their coverage areas. It is an additional cost, they say, and it is all meant to make life, business and homes function better in the communities they serve.
The Way Forward
Given the worsening power supply situation which has plunged the country into perpetual darkness as a result of the drop in power generation and supply from 3000 MW to 1600MW, there is a need for both government and stakeholders to stop the finger pointing and blame game and collectively evolve creative ways to solve the perennial outages.
Specifically, the operators need to withdraw any subsisting matter pending before the courts to clear the way for such dialogue to kick in. On the part of government, it is imperative that another round of dialogue should be explored to review all outstanding agreements reached with the operators with a view to helping chart the way forward and ending the current spate of blackout across the country.
There are already visible signs that the federal government is beginning to listen to the various complaints about the problems bedeviling the sector. At the end of the Monetary Policy Meeting (MPC), Central Bank Governor, Godwin Emefiele, hinted that the inability of operators to access scarce forex will be addressed by their inclusion to benefit from the percentage of forex set aside with the commercial banks for disbursement to manufacturers.
According to him, “The 60 per cent that has been set aside for all FX that is available to all the banks to manufacturers, we did that for a purpose because we felt that there is a need to support manufacturing sector.
“There is a need to ensure that the FX is made available to those that will provide jobs and get manufacturing and industrial output to look positive. And I am happy that the recent data released by the National Bureau of Statistics has started to show that the Purchasing Manager’s Index (PMI) is looking upwards.
“The 60 per cent that is set aside for the manufacturers, I dare say that those in the power sector also qualify for that because they are importing plants and equipment or components for their transformers and generators.
“However, I don’t mean generators that people will put in their houses and generate electricity for themselves. So we will appeal to the banks to look in their direction increasingly,” Emefiele explained.
In addition, there are strong indications that the federal government is considering granting further tax holiday to investors in the power sector in its bid to help stimulate investment in the sector.
A top government source told THISDAY that the Minister of Finance, Mrs. Kemi Adeosun, recently set up a committee to look into the matter. The outcome of the committee meetings would guide the federal government in decision-making, the source added.
It will be recalled that after the 2013 divestiture of the federal government from the Power Holding Company of Nigeria (PHCN), the successor companies – distribution companies (Discos) and Generation Companies (Gencos), were granted pioneer status, which is likely to expire this year.
However, the way forward seemed to be in both parties getting round the table to discuss the lingering issues raised by the Association of Nigerian Electricity Distributors, ANED, which says it may be compelled to declare force majeure to protect members’ investments and called on government to put into force the various agreements signed with its members as the way forward.
ANED Executive Director, Research and Advocacy, Sunday Oduntan, in a recent interview explained that it was agreed with government that “with base loss studies completed, there should be cost reflective tariffs from day one as specified under the performance agreement.
“However, this never happened as R2 customer class was politically frozen and collection losses removed, in 2015. Consequently, sculpting or under-recovery of cost will result in N164 billion revenue shortfall, for the period of 2016 through 2018, just as delay in reflecting costs means a growing increase in deficits. ANED listed tariffs reflecting reality as another government commitment to investors. However, it explained that there has been unrealistic generation projections as inflation increased from assumption of nine percent to the current 17.9 percent,” he stated.
The government was said to have agreed to a credit worthiness support of power purchase agreements by the Nigerian Bulk Electricity Trading, Plc. (NBET). In the case of the GENCOs, they are owed in excess of N184 billion. Apart from that, increased access to gas supply was agreed upon, but the nation has witnessed little or no improvement in gas supply as there has been pipeline vandalism, resulting in an average of 50 percent reduction in generation, for the period of May, June and July 2016 alone.
ANED further explained that “government had reneged on its agreement to increase generation levels from 2014 to 2016 to between 5,000MW and 7,500MW, whereas the present generation level stands at about 2,000MW to 3,000MW, due to gas pipeline vandalism and transmission wheeling constraints. It pointed out that whereas government committed to a subsidy support of N100 billion for the power investors, the promise has not been met under the multi-year-tariff order, MYTO, 2.”
According to ANED, power investors have little or no access to finance as the banking sector has been over exposed to oil, gas and telecommunication sectors by over N3 trillion debts. The DISCOs are asking the government to solve the problem with the shortfall. “If you’re manufacturing a product at a certain cost and the government compels you to sell at a price that doesn’t guarantee profit, the government should find a way to help you bridge the gap,” a power investor in the north was reported to have said.
The operator suggested that “the government should create a financial instrument that will help remove the discrepancy in the market,”
The Minister of Power, Works and Housing raised hope for the sector when he recently outline his ministry’s broad outline for the sector. He hinted that “along with other agencies of the Federal Government, like Ministry of Finance and the World Bank, we have put together a policy framework that would help establish stronger and better institutional framework needed to tackle the challenges in the Power Sector.”
According to the minister, such policies would help realise a deepening of metering, sanctions for energy theft and better contract performance from Operators in the Power Sector as well as help achieve the financial strengthening of the Nigerian Bulk Energy Trading Plc (NBET).
He further assured that “Clearly these policies constitute the way forward and ensures that everybody in the system gets paid. If we have that, at least, we can be sure that those who are supplying gas will not be shutting down because their creditors are pulling them. Then we go to the other sides that are angry to see what we can do because gas problem is exacerbated on both sides”.
Fashola, accused the DISCOs of undermining the efficient and effective regulation of the electricity sector by the NERC. According to the minister, when NERC wanted to activate their contractual obligations as contained in the Transitional Electricity Market, TEM, the DISCOs dragged the regulatory agency to court and frustrated its efforts. He also accused the Discos of being mostly responsible for the delay in the settlement of debts owed them by the Ministries, Departments and Agencies. Fashola emphasised that the DISCOs had, irrespective of their excuses, failed to inform Nigerians that, in the last three years, they have refused to submit their audited financial reports to NERC.
Explaining why government intervention is imperative, Elumelu blamed the government for the present lack of capacity in the power sector pointing out that the agency of government that has the responsibility of making sure that this sector truly delivers on its potential is not doing well enough.”
Elumelu proffered part of the solution to the present problems, suggesting that “where we are located, there are some idle gas fields there, if government could allow us produce gas from the gas field we are seating on, we will have our own regular supply of gas and then we can do more because we have capacity to do over 700 megawatts of electricity.”
Elumelu also said of his personal assessment of operators in the sector: “I believe the Gencos have demonstrated capabilities, some of the Discos in my viewpoint, I do not see seriousness and so government should engage more with these Discos and see how a marshal plan can be put in place.
“It is unfortunate, may be the wrong people bought some of these Discos. People who have capacity should own the Discos. The generating companies are reeling and suffering, there is a limit to how far we can subsidise the system because that to me is what is happening today.”
Fashola also echoed Elumelu’s observation with a caveat that “those Discos who cannot run the business must be honest with themselves and begin to look for options either to raise capitals, to get more strategic partners in or to do whatever they consider appropriate within the framework of their contract in order to get on with this job.”
