Again, Putting Discos under Pressure to Perform

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The federal government has read the riot act to electricity distribution companies (Discos), which are the operators of its power network, to shape up or ship out. Essentially, the government has impressed it upon the Discos to improve their operations and services, or relinquish them perhaps, to resourceful operators. Chineme Okafor reports

Citing sections of the country’s electricity law, the Electric Power Sector Reform Act 2005 (EPSRA), Nigeria’s federal government last Monday asked the 11 electricity distribution companies (Discos) operating in its electricity market to buckle down or leave the business of power distribution to people who are willing to compete and uphold their obligations in the sector.

The government through the Minister of Power, Works and Housing, Mr. Babatunde Fashola, suggested the Discos have failed to live up to expectations in the industry. It said the authority  would not sit back and allow them to hold Nigeria hostage with their poor performance.

Putting its words into action, Fashola asked the Nigerian Electricity Regulatory Commission (NERC) to immediately step up its enforcement of the contracts of service of the Discos with regards to supply of meters, upgrade of their distribution networks and promotion of competitive market efficiency.

Fashola, who cannot be said to have a rosy relationship with the Discos, as both have had instances of disagreements on operational principles though, told journalists at a briefing in Abuja, that the government was keen on getting the Discos to do their jobs of distributing electricity with minimal troubles and complaints to Nigerians.

He complained that the government had conceded a lot of grounds for the Discos, but the Discos have not reciprocated. Even though the Discos frequently complain about their use of non-economical tariffs in service of their customers, Fashola, stated that they hardly paid back equitable amount for the power sold to them by the Nigerian Bulk Electricity Trading Plc (NBET).

Fashola, also stated that the financial remittances of the Discos have been very poor, adding that at the moment, they owed the NBET a whooping N500 billion as debt for electricity sold to them by the NBET.

“It must be obvious to the ordinary person that the supply of power is now a private business in the hands of private operators and in the final end, in the hands of the Discos.

“But because of the critical and sensitive nature of power supply, government has not left the supply solely. Government at federal, state and local government, as well as former employees of PHCN hold 40 per cent of the shares in the Discos.

“In addition, government is responsible for regulating the behaviour and compliance through the NERC which is like what the Central Bank is to the banking sector,” said Fashola.

 Directive

Suggesting the government wanted the Discos to realise and take up their jobs or better still declare their inability to do so, Fashola, noted the Discos’ previous complaints of inadequate electricity to distribute was no longer the case. Rather, he pointed out, it was their inability to distribute around 2000 megawatts (MW) that have remained shut in and not produced by the generation companies (Gencos) mostly on account of poor distribution facilities.

According to him: “The law does not make it mandatory for any Nigerian to receive power from the Disco or to use only public power; that is why it is not an offence for Nigerians to buy generators, inverters or solar systems, which are of course more expensive than the power, which NBET buys from the Gencos to vest to the Discos to distribute to customers.

“It is the Discos who are service providers that you should turn to when you have questions about transformer collapse and metering.

“As it is now obvious, from 2016 when the Discos complained about lack of power to distribute, the problem today is that the Discos cannot distribute all of the power that is available, leaving the sector with an unused capacity of 2000 megawatts approximately.”

Although, he acknowledged the Discos alone could not be blamed for the failure of the sector, he however suggested theirs were pretty obvious and most impactful.

“This is not a time to trade blame because there is enough blame to go round, for me, it is a time to reiterate everybody’s responsibilities and urge us to brace up to do what we are obliged to do, which is to serve the people.

“In the face of this picture, where we have power to sell, with more to come, the number of complaints coming to government for meters, which the Discos should supply, and for estimated billings, and mass disconnections when not everybody is owing cannot continue.

“Government must act and will do so. The Discos bought these assets with their eyes opened, and they must compete to deliver or exit,” Fashola insisted.

 Distribution Licence

Because the Discos have been unable to reportedly get electricity even to connected customers in their networks, and would not allow new investors come in to do this, Fashola, claimed the government had not granted the Discos exclusive distribution rights in the networks they cover.

Claiming that small businesses need power, but cannot get enough because of the Discos’ failure, just as the investment of Gencos were threatened because the Discos cannot utilise the capacity they have installed, Fashola stated that none of the Discos had an exclusive distribution licence and as such could not stop NERC from issuing new licences in their network areas.

In this regards, he said the NERC could take regulatory decision on issuance of fresh distribution licences, especially within areas that are underserved by the Discos.

He said: “Clearly, unless the Discos have a licence that is endorsed as exclusive, it is clear that no Disco has exclusivity over its franchise area.

“It is obvious that the law did not intend to replace government monopoly of PHCN in the power sector, with a private monopoly of businessmen.

“Whenever there is poor service, government, as a matter of policy and public interest is able and entitled to act and invite new players to fill the gap.”

The minister further noted that it was not the intention of government to take over the business of Discos, as  it wanted them to grow.

He however added that, “In the period when they are not yet ready, willing, or able, life must go on and we must find solutions and substitutes as we have seen in other sectors.”

Regulatory Standards

To get the Discos to improve on their operations, Fashola, noted that in line with the provisions of Section 33 of the Electric Power Sector Reform Act (EPSRA) 2005, and Section 32 (2) (a)-(g) of the same Act, which specifies the functions of NERC, he was directing the NERC to step up its regulation of the businesses of the Discos.

The government, he noted, wanted the NERC to enforce the respective contracts of service the Discos signed when they bought shares of the networks, as well as take regulatory measures against operators that fail to live by the terms of their contracts.

He said in this regards: “It is clear that a combined reading of these provisions show that it is necessary to direct NERC to step in to: Ensure that Discos improve on their distribution equipment and capacity to take up the available 2,000MW in order to optimise the use of the electrical resource produced by the Gencos, and I direct NERC to immediately act in this regard.

“Enforce the contract of Discos to supply meters and act to ensure the urgent speedy supply and installation of meters with a view to eliminating estimated billing and promote efficient industry and market structures.

“Stop Discos from threatening private entrepreneurs from entering the market to supply consumers whom the Discos cannot supply and to license such persons subject to terms and conditions in order to ‘promote competition and private sector participation’ and avoid a private monopoly of power.”

“Section 71(6) dealing with Terms and Conditions of licenses clearly shows that no exclusivity or monopoly was intended for a licence holder such as Gencos or Discos. To the best of my knowledge, the commission has not issued any exclusive license,” he added.

Fashola further stated that, “If we take into consideration that after five years of privatisation, there are still people and businesses, which do not have power or enough power, common sense and public interest demands that we must not resist ordinary people, small businesses like shops and markets from seeking alternative sources of energy. For now, our developmental needs cannot wait for businessmen who are not yet ready to serve.

“National interest, public good, the need to support small business, provide access to power for ordinary people and increase productivity inform the policy statements that I have made and I expect NERC to act with dispatch.”

Experts

THISDAY sought the opinions of  industry experts on the recent development, though they spoke on the condition of anonymity. They told THISDAY that the government had made a huge call on the NERC, pointing out that  regulators’ approach to executing the order could determine its efficiency or otherwise.

“The minister issued three directives to NERC affecting distribution capacity, metering and franchise area exclusivity in that press conference. At this time, it is difficult to see how NERC can incentivise additional investment in distribution capacity and metering beyond what has already been done without allowing for improved cost recovery for the services Discos provide,” said one of the experts.

The expert further explained: “As of today, the Discos are not paid in full for the services they provide. If they can be paid in full either through a tariff increase or through the payment of a subsidy from the ministry of power, then they will be encouraged to further invest in distribution capacity and metering.”

“On the issue of exclusivity, the minister’s directive may trigger serious litigation, if acted upon by NERC. The Discos will go to court to protect their investment and nobody knows how long it would take to resolve.

“I personally hope a more conciliatory solution can be found such that third parties can work with Discos to invest in underserved areas, in what should be a win-win-win relationship for everybody involved,” he added.