Minister of Power, Works and Housing, Babatunde Fashola (middle);Managing Director/Chief Executive Officer, Transmission Company of Nigeria, Usman Gur Mohammed(second left); NERC Commissioner in charge of Legal, Licensing and Compliance, Dafe Akpeneye (second right); President, Manufacturers Association of Nigeria, Frank Udemba-Jacobs (right); and President, Nigerian Society of Engineers, Engr. Adekunle Mokuolu (left), during the First Stakeholders Workshop on Off-taking 2000MW Unutilised Power for Eligible Customers, organised by the Ministry of Power, Works and Housing at the Setraco, Cedar Estate, Gwarimpa II, Abuja

Last week, the federal government and stakeholders in Nigeria’s electricity market started a process for the implementation of the eligible consumers’ regulation, which the Nigerian Electricity Regulatory Commission initiated in 2017. Chineme Okafor, who witnessed the early parts of the dialogue, reports

On May 15 last year, power generation companies in Nigeria’s electricity market were given the go-ahead by the industry regulator, Nigerian Electricity Regulatory Commission, to procure new capacities, generate more electricity, and sell them directly to end-users across the country with very minimal interference from the 11 electricity distribution companies. NERC called the new arrangement the eligible customers’ regime. It stated in a statement, then, signed by its head of public affairs, Dr. Usman Arabi, that the Minister of Power, Works and Housing, Mr. Babatunde Fashola, had approved the declaration, and that it was now legally fine for the Gencos to expand their business coverage using the regulation. The Gencos were then free to seek and invite large power users, which are usually found within cluster settings, to competitively procure the electricity they need directly from them if it was cost-effective for them to do so, instead of going to the Discos. Discos had reportedly failed to satisfy this class of consumers.

Categorisation

To make for easy understanding of the arrangement by stakeholders, NERC categorised the consumer classes covered by the regulation. It further clarified that the regulation was legally backed by the provisions of Section 27 of the Electric Power Sector Reform Act 2005. NERC explained that in activating this part of EPSRA, it had pushed forward a major policy drive to grant electricity consumers unhindered rights to buy power directly from Gencos, and that four categories of eligible customers were approved.  

The first category of eligible customers comprised a group of end-users registered with NERC whose consumption was not less than two megawatts and who were connected to a metered 11kV or 33kV delivery point on the distribution network. NERC said this group would be subjected to a distribution use of system agreement for the delivery of power.

The second category of eligible customers were those connected to a metered 132kV or 330kV delivery point on the transmission network under a transmission use of system agreement for connection and delivery of energy.

The third category of customers under the declaration consisted of those with consumption in excess of two megawatts on monthly basis and who were connected directly to a metered 33kV delivery point on the transmission network under a transmission use of system agreement. NERC added that eligible customers in this category must have entered into a bilateral agreement with the distribution licensee licensed to operate in the location, for the construction, installation and operation of a distribution system for connection to the 33kV delivery point.

The fourth category were eligible customers whose minimum consumption was more than two megawatts over a period of one month and who were directly connected to the metering facility of a generation company, and had entered into a bilateral agreement for the construction and operation of a distribution line with the distribution licensee licensed to operate in the location.

 Regulation

NERC said the eligible consumers’ regime was in line with the dictates of EPSRA. It said the initiative was timely considering the increasing volumes of stranded power from the Gencos, which the Discos do not have the capacity to evacuate.

NERC explained that it was looking forward to the new policy quickly helping to put into use new and stranded power generation capacities, which might be contracted between Gencos and eligible customers.  It added that this could introduce some level of healthy competition in the market, in addition to giving the Gencos viable outlets to channel their stranded capacities, which the Discos have been unable to take on account of inadequate distribution infrastructure.

According to NERC, “The declaration further provides that at least 20 per cent of the generation capacity added by the existing or prospective generation licensee to supply an eligible customer must be above the requirement of the eligible customer and is supplied under a contract with a distribution or trading licensee at a price not exceeding the average wholesale price being charged electricity distribution companies by the Nigerian Bulk Electricity Trading Plc.

“The conditions for the declaration of eligible customer are subject to review by the Nigerian Electricity Regulatory Commission from time to time.”

Reactions

 But despite the justifications offered by NERC, the eligible customers’ initiative was greeted with mixed reactions. While the Gencos and manufacturing outfits in clusters across the country welcomed it as a win-win regulation for the electricity industry, the Discos perceived it as an untimely attempt to take away their most viable customer base.

The Discos considered the regulation as harsh and insensitive to their struggles within the market, especially, as it relates to the low revenue collection rates. They also noted that the large power users were consistent with their payments for electricity they used and that taking them away was akin to taking away more than one-third of their revenue sources.

However, in reacting to the new policy, the Gencos, who are among the direct beneficiaries of the regime, did not hide their appreciation of the move. Their trade association – Association of Power Generation Companies – the Gencos said it was a welcome development. They also noted that they had consistently pushed for it, adding that it would eventually become a life-saver to them and the industry.

They called for an effective implementation of the regime to put an end to alleged unhealthy market practices by the 11 Discos, which have been accused of dishonesty in the management of monthly revenues collected by them. These acts are said to have contributed significantly to the market’s financial troubles wherein the Gencos are unable to pay their gas debts to gas suppliers as well as meet other operational obligations.

The Gencos said the declaration was done in good faith. They said it was made after the government had consulted with operators in the sector, adding that the Discos are clearly unable to take as much power as the Gencos would generate in a long time.

APGC’s Executive Secretary, Dr. Joy Ogaji, stated then that with the declaration, bulk electricity consumers, who were willing and had the capacity to procure power directly from the Gencos, could now deal with them without the Discos. 

Ogaji explained that the trading agreements to be adopted in the new provision would be without the usual loopholes, which operators in the sector often capitalised on to shirk their responsibilities. According to her, this would include, “water-tight contractual agreements because this is not going to be about any national cake.”

 

Manufacturers

The electricity market set up a meeting of stakeholders last week in Abuja to facilitate the implementation of the eligible customers’ regime. At the meeting, the Manufacturers Association of Nigeria again highlighted the need for a quick take-off of the regulation. MAN said the amount of electricity required by its members to carry out their respective manufacturing operations every day had risen to 14,882 megawatts, saying most of this is self-generated.

The association said it found it uneconomical that up to 2000MW of the power Gencos could generate was stranded because Discos were unable to evacuate them to points of need. MAN said it looked up to the new eligible customers’ regulation to cut down its expenses on self-generated power.

President of MAN, Dr. Frank Udemba-Jacobs, stated that members of the association were ready to take up the 2000MW of stranded generation capacity using the eligible customers’ regulation. He called on Discos to shelve their opposition to the eligible customers’ regulation and, instead, consider the overall economic interest of Nigeria, adding that poor grid power supply has impeded the growth of the country’s manufacturing sector.

Udemba-Jacobs stated regarding the eligible customers’ regulation, “It is a welcome development. We have been complaining about power as one of the infrastructure that has been impeding our progress as manufacturers, and when we heard about government coming up with the eligible customer guidelines, we thought it was a wonderful idea because at present, we know that 2000 megawatts are stranded and not been utilised because the Discos couldn’t buy them. These are wasting away while we need power.”

He stressed, “This is an opportunity for us to key in and take that 2000 megawatts that are wasting. MAN members alone consume 14,882 megawatts per day, and this we cannot get (from the grid). Most of them are self-generated. We believe that this eligible customer initiative will make it possible for us to get some of those power that are wasted and convert to our own use.”

Further appealing to the Discos, Udemba-Jacobs said, “The opposition we expect may be from the Discos, but we are hoping that they will understand that what we are doing is for the interest of the country and the economy of Nigeria at large.”

Speaking at the meeting also, Fashola said NERC’s declaration of the regulation was in line with EPSRA, and that opposing it was not in the interest of Nigeria and the power sector. He explained that the country needed to channel all the power it was able to generate to major economic points and users to support its industrialisation efforts.

The minister said oppositions to the regulation had been without cogent reasons, adding that the meeting will enable the stakeholders come up with the best ways to implement the regulation.

Fashola disclosed that though the distribution capacity of the Discos has grown to 5000MW, it was still not enough to take the 7000MW that can be generated and transmitted.

According to him, “For too long, the story of our manufacturing and production sector has been characterised by lack of infrastructure, including power supply, and the best we seem to have done is to talk about the problem and imagine the possibilities if the problems were removed.

“Our meeting is important because we gather not to talk about the problem, we gather to solve the problem. As I said at a different forum, we have a new problem; we have more power than we can distribute. In that context, we cannot continue to talk of lack of power; instead, we must talk about how to connect to the available and unsold power, and what it will cost to do so.”

Fashola said, “Nigeria’s power generating companies are now able to produce 7,000MW and the transmission company is able to transport all of it and is expanding its capacity daily. The distribution companies have also increased their load taking capacity to 5,000MW. However, this leaves a gap of 2,000MW of what you, manufacturers, will call unsold inventory. This unsold and increasing inventory is what this meeting offers to manufacturers as your critical raw material to reduce the cost of production.

“This is why we declared the eligible customer policy and NERC made the rules that guide its implementation, such that bulk power consumers purchase power from Gencos directly, while ensuring that the business of Discos is protected.”

Apparently, the preponderance of opinions in the power sector supports the eligible customers’ policy. But the federal government may still need to address the reservations of the Discos to ensure smooth implantation of the policy.