Wonodi: It’s Impossible to Regulate Power Market Without Transparency

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Rumundaka Wonodi, was the pioneer head of the Nigerian Bulk Electricity Trading Plc. He, however stepped down in 2016, into private advisory practice. In this interview, he stresses the importance of efficiency and transparency in regulating a privatised electricity market like that of Nigeria. He equally highlights some of the mistakes the market had recorded due to the lack of transparency. Chineme Okafor provides the excerpts:

Why has Nigeria’s privatised power market failed to progress as expected?
Today, the bigger problem is not what it was some three or five years ago, but there is a common trend that one could identify in them. When privatisation happened, investors emerged winners and it was very clear that not all of them were qualified fully to take over these assets, especially the distribution companies (Discos). But maybe government was desperate kind of and lowered the bar so that the assets would get across. And having seen that, it was incumbent on government to begin to tighten the rules so that investors who lacked capacity could quickly seek it either technically or financially, to be able to operate the assets as expected.

The government needed to be firmer in its regulation and implementations of the laws and agreements for the sale. We started with an interim rule which was an aberration because it actually kept some people (Discos) from paying more than they should, and then when we finally got to a place we could have (had) a contractual market, government turned around and took away a tariff that it had put in place as a basis.

And, that was in 2015 which was controversial?
I think that the way the tariff was generated was faulty. We had discussions about what level of cross-subsidisation we should have and went to Enugu Disco and found that the (residential customers) R2 and R1 to be subsidised were about 80 per cent – which was unreasonable because Benin and Jos had 40 per cent R2 and R1. So for Enugu to have 80 per cent was rather worrisome. By the time you did the cross subsidy, the few industrial firms that made up the 20 per cent had their tariff shoot to the air.

It was the MAN (Manufacturers Association of Nigeria) that was putting the pressure on having to change that and at the end of the day, NERC responded to the pressure from the federal government which in all honesty wasn’t about the former president (Goodluck Jonathan) and which the former NERC chair (Sam Amadi) had clarified. But, it gave some of the Discos some confidence and to a large extent undergirded the sector.

From that period payments began to decline even though at the Nigerian Bulk Electricity Trading Plc (NBET) we had some of the Discos with Letters of Credits (LCs), the moral of trying to call the LCs of people who had posted while there were people who had not posted became very difficult. The government continued to say it was working on it.

In 2016, we came around again and got a new tariff, signed security packages with the Discos and Gencos, everything was looking good until one of the courts ruled against NERC and the tariff. That unhinged everything and the Discos went to court to say they could not be bound by the LCs and the tariff was not applicable, then we entered a freefall.

At that stage what was it like for the market?
There was poor performance, government now decided to put in some money to incentivise the Gencos and gas companies to continue to work, and the N701 billion came about. What we thought would have happened was that government should have agreed and set through the NERC the prevailing tariff, but it discounted and refused to make any adjustment that were due under the minor reviews.

Government was not clear on the application of the N701 billion, and the Discos started contributing as they liked without any expectations and they also complained. Government in itself hobbled in so many places – things that it should have done rightly, it has not done them rightly, and it is costing the investors. I have not said the investor are upright and capable, the point is that it was up to government to have sanctioned and put them in line, and not to give them the leeway to misbehave because so many of the Discos are being run by investors who do not mean well for the industry.

But why did the government at that point refuse to take these key steps?
Those were the things we talked about – leaving governance gaps, for instance, the NERC commissioners that were exiting, you did not appoint new ones to replace them immediately. These are what I talked about as lack of leadership or consistency. You don’t appoint NERC commissioners on time and even when you do, there are critical agencies that lacked boards – very easy things to do, and therefore they are not very firm in exerting authority.

From a point of optics, it would seem the government was not determined and assertive in trying to get these things done. There was also that the government seemed to be overtly sympathetic to the Discos when they came on board and they (Discos) made a point to the government that the regulator really didn’t care so much for you and were playing politics with the tariff because they didn’t want you to come in and they have made a mess of all of us in the Discos. For good reasons they (government) had to be suspicious of the NERC they met and that took a lot of time, but then the appointment took a long time.

Is it possible that the government mismanaged that transition at the NERC?
When there is a total change of government, you’d expect that to happen and it is not peculiar to this government. Commissioners and a lot of managing directors especially in new firms tend to come from outside and the whole idea of clean sweep is complex – there are so many things and I am trying to point at how to address them with leadership. I don’t know how this government is architected in terms of authority but we are not seeing the best of coordination.

I speak to industry people, and they raise doubts about the independence of the regulator. Do you share similar thoughts?
I think that the minister could be right in showing a frustration by insisting that the Association of Nigerian Electricity Distributors (ANED) for instance should not be part of his meetings, but I also think it is wrong for the NERC to be the one to raise it and say that ANED is banned from insulting the minister and all that – that is not their business.
And they said ANED should have no right to talk about issues in the industry, but if ANED should not have been registered, then the Corporate Affairs Commission shouldn’t have registered it. You cannot say that people shouldn’t comment on the industry because there is freedom of expression.

There are other ways to actually regulate the activities of ANED, you could check to be sure the Discos are not funding them because it would be unauthorised funding if they are funding them. I also think that ANED has distorted the issues but NERC should not be seen to be operating the sector for the ministry even if it is an agency that takes policy directives from it.

If there is a directive not to introduce new tariffs, it is a policy directive from the government but does not mean that you should not acknowledge the cost of production. You have to acknowledge that and advise the ministry appropriately.
NERC in itself need to do some work – they are talented people, but they have to fight very hard on their own to convince the industry that they are really independent because from where it sits now, it is a challenge for them.

People say without further reforms, the sector will continue to be challenged, what is your take on that?
I don’t understand what people mean by further reform. I think that people got it wrong when they thought there was a silver bullet with privatisation. Some saw privatisation as the beginning of a journey while others saw it as an end. The difference between electricity and telecoms privatisation is that there is still a monopoly angle and you have to regulate it (power) tightly – forcing and supporting the Discos to do the right things to get benefits.

The reform I would want to see is that we are in an electricity market and some of us look at it from the boundaries of the market and how we see challenges and within the ambient of the law, take the market to the next step without undermining the laws. Reform is a progressive thing; it is not a matter of reform by shaking the industry but about introducing market restructuring in a way that it is OK.

For instance, I told everyone in the industry including the minister when he came in, that our tariff has no outcome for the consumer. It has for the investor but not the consumer and people take it for granted but the outcome is the price and power all the time. Here we need to have an outcome, people have to know what exactly they are paying for, and that is service level.

You cannot do electricity without transparency. You cannot do regulated market especially with monopoly without transparency that everybody can see and follow up. They take a while but that is really where the reform begins to come, it is that part that leadership is very important. I do not see this sector as a basket case, it is doable because this is a market that everybody has done and there are so many models to adapt.