Momoh: Huge MDAs’ Debts Hampering Power Sector Growth

James Momoh
Chairman of NERC, Prof. James Momoh

Professor James Momoh is the Chairman of the Nigerian Electricity Regulatory Commission (NERC). In this interactive session on the state of the power sector in the country, he speaks about challenges besetting the industry and what can be done to improve power supply in the country. Emmanuel Addeh presents the excerpts

What’s the status of the power sector today?

Nigeria’s population we are told is over 200 million. But 55 per cent of us do not have access to power. That means over 50 per cent of the country is in darkness on a given day. That means that a country with 200 million cannot do work. Power or energy is the ability to do work. And what that implies is that most of our population is not engaged in any work based on electricity for that period. The World Bank says 41 per cent of businesses in Nigeria runs their own power. If you are making shoes, you have your own generator. If you go to some hotels they all have their own power supply. Can you imagine? So, our country is really in trouble. We are behind. The GDP of the country is as low as N410 billion from the World Bank statistics. And again, Nigeria is only able to generate only 126 kilowatts per capita. That makes it terrible. Every time I show this to people, they say don’t compare us with the rest of the world. That we have our own problems. But I tell them, we have our problems, but we need to solve them. You hear about 5,000mw when you take a snapshot of our Discos in a given hour. But the base load is less than the capital load that is being taken on a given day.

How are these challenges affecting the sector?

There are many other people generating power off-grid, so there’s a lot of money being wasted. People are doing their own thing just to have light. As I said before, there are lots of challenges in the interface between gas, transmission, generation and distribution. There’s a mismatch and that has caused a lot of problems for the Nigerian power sector. The transfer of power from supplier to the customer is hindered by the interface challenges as simple as bad transformers or that trees that are close to power lines are not cut etc. Lack of innovation is another one, then lack of investment is another. If you don’t maintain your system, how can you have a secure and reliable network? You can’t.

In comparison to other African countries, how is Nigeria doing?

A country like Nigeria with over 200 million people generates 6,800mw. A country like South Africa has 60 million in population and generates 50,000mw. Egypt is 100 million people, half of Nigeria, but they generate over 180,000mw. Ghana next door, 30 million people generates almost 2,500mw. If you leave them, they will outpace us. There’s a big misalignment. If you ask me how many problems we have in Nigeria, they are two: technical challenge in the value chain and this is a serious problem the country is faced with. All the innovation, all the efforts is to solve this problem. We have stranded generation due to gas. We don’t have solid gas. Sometimes, we have wet gas. So, the available gas to power the store generators that we have in the stations, we can’t power the generators. And the generation on a given day is 5,000mw, for 200 million people. Then we have to transfer that to transmission of about 7,000 megawatts. It could be 20, it could be 50 tomorrow. Then we have a distribution network that’s weak and fragile. It cannot even take what transmission makes available. So, we now have problems to face. Inadequate infrastructure faces Nigeria and there’s no investment. Where it exists, it is put in the wrong thing. Obsolete equipment also. They have been there in 20, 30 years and nobody is maintaining or repairing them. So, at the end of the day, there’s a big mismatch in the value chain. This causes a lot of trouble in terms of commercial losses or technical losses.

I have put together a group of five staff I call the strategic unit and I caused them to find a way to make the discos and TCN to work together to see what they can do, to fix the transformers in their stations and that Discos will take power when it is given to them. So, all these are part of the work I am doing.

How are the recent interventions from various institutions helping out in solving these challenges?

The reason Siemens is coming is so that they can provide solutions for Nigeria to solve the interface problem. The reason the World Bank is giving money is to solve the value chain problem. The demand for distribution is 8,000, but what we have currently is 5,000. But hopefully, in 2025, there will be more. Transmission/Disco demand is 9,000mw, but available is 7,000 in 2020 and that was what we forecast. Everybody is doing studies and collecting money so that we can solve these problems. In 2020, Q4, we have put in place a Performance Improvement Plan (PIP) for everybody to tell us how they want to make sure these issues are sorted. For example, how meters, etc are working. We are monitoring this and following up.
We must have a new paradigm shift in rates design in Nigeria. There’s a tariff shortfall, where you are not allowed to charge what is due to be paid. For an invoice of N157 billion, there’s a tariff shortfall of N63 billion and who’s paying for that? Government! Only 51 per cent is allowed for recovery from customers. That means we are dependent on government to recover. Now, government has a problem because it’s saying our schools are not functional, roads are bad, water is borehole. Everything is hogwash. So, government said do your rates design because we can no longer subsidise this. This is what has consumed my energy in the last one year.
The Discos came to us and said they needed more money from customers and if don’t give them, they can’t operate well. According to our market rules, we went round the country together. And customers said they were not averse to an increase, but there must be quality supply.

It was there that the service based tariff was arrived at where what customers pay is reflected in the service they get. But vulnerable customers won’t be affected. We have to protect them.

What about the new tariff structure, can you explain that?

The new tariff structure is based on this MYTO that includes exchange rate, inflation rate, GDP, foreign exchange and all those things and we have people in the office who calculate those things and that was what gave us the five bands which represents customers and the quality and reliability of service. For band D, tariff will not change for them, so, but frozen. Band E are the very poor people takes very small power, poor communities in rural areas. We make sure they don’t pay more than N4. Band A, B, C already have infrastructure. So, for example we can assume that there’s power in Asokoro every day. The people in the unions came and sometimes we were here till 7 in the morning.

Definitely government cannot pay for A, B, C and that will mean that subsidy will come back and we don’t have that money. So, we said that band A should be discounted by 10 per cent and the relief in band B will be 10.5 per cent and because there are many people in band C, a lot of them are given relief. Above 12 hours will get relief, band B with more than 16 hours will get 10.5 per cent of discount and that will come from VAT.
It’s split in the sector among A, B, C. The order will be released because I just signed the order. We went to work on Saturday and we have done all the signing. It will be released tomorrow.

We can now work and look forward to December and January to see what kind of review we have to do. It won’t remain the same forever. No, there’s another review and it will come with a complete answer. But if the president says don’t do it, we won’t do it. But we know what to do if given a free hand to do the work.

There are leakages and losses in the sector. What’s happening about that?

You will hear aggregate technical and commercial losses, it means that you are not able to charge the actual price in Nigeria, so Discos are not able to maintain or improve their facilities because of low tariff. So, government keeps putting money to make sure that subsidies, N213 billion since President Buhari came in 2015, another N701 billion and recently another N600 billion. That’s a total of over N1.3 trillion has been put into making sure that discos continue to run and Gencos continue to run. We took a loan recently of $750 million from the World Bank. This country is running the power sector on subsidies and loans from different places and we still haven’t got it right and that’s because of low tariff and poor management and lack of investment from outside. People are still stealing power, energy theft we have to minimise that. There are communities that say we have oil in our neighborhood, we have oil and water in our neighborhood, so we are not going to pay. That’s host community that could stop Discos from collecting.

Is government not also complicit in non-payment of electricity bills?

There is also the problem with the MDAs, they use electricity, but they don’t pay. So, we are working on how to overcome this and reduce MDA debts, minimising energy theft, changing tariffs and convincing host communities to please pay for electricity use. If you look at the MDAs, in Kaduna Disco alone N460 million; Abuja – N356 million, overall it’s billions of dollars that is out there. We are asking the government to take the money upfront from the MDAs and pay directly to the Discos. That’s coming soon. We are working on it.

Even state governments, local governments they are not paying, they are all owing and they expect miracles to happen.

How about the metering deficit in the industry?

Another area of challenge is metering. Only 41 per cent is metered. What happens to the rest? They do estimate and bogus billing which nobody really likes. If you look at the Discos, all Discos combined is 41 per cent. It’s terrible. A country that’s selling power and doesn’t have meters for its people. Collections losses are high. The new initiative is to provide meters so that people can pay for what they use and optimise or save energy they don’t want to pay for. On metering, we want to close the gap of six million meters. We have done enumeration and we introduced the meter asset providers, an independent investor who provides the money.

But we ran into a roadblock because as we were doing it, customs duty was imposed on the MAP providers. So, they couldn’t sell for the price agreed and it slowed things down.
The president and the presidential initiative have now removed that customs duty. That led to a new initiative which is the production of meters, so I say to people if you want to do business go into the manufacturing of meters. The Discos must also reduce ATC&C losses. Local content is a must. Human capital is very important. We set up the NERC academy. The Siemens project is ready to go. That proposal I contributed in reviewing and I was in the villa so many times.

Can you break down the lack of coordination and sometimes overlapping functions in the sector?

We need a clear policy for growth because if we are not there, we will still be going from Gencos to NBET etc. We need a situation where people know how much power they use because it’s a contract. There has to be compliance. There are two kinds of shortfall, market shortfall and Disco shortfall. We have to clean up the books of the Discos. There must be minimum amount they can pay when invoice comes. They can’t just say they have no money. We will take it directly from the central bank. All these initiatives are important, but as a systems person, there’s no coordination, no planning of what comes first if one function overlaps. There’s a lot of litigations.

Why is strict enforcement a problem?

If subsidy goes up, national goals of government will be seriously challenged. So, what do we do? What we went through in the last month, because of remittances if Discos are not improved and enforcement is stricter, the sector will face liquidity crisis. How do you force them to pay back? Local and foreign investment will dry up if returns on investment is poor, perception will deteriorate. Long transmission lines are causing loss of money. My recommendation is a redistributing of the network. Take for example, Azura in Benin. There’s no business there and there’s a contract of take or pay whether we like it or not. So, if there’s no network connecting to Lagos or Oshogbo, then it’s not useful. Can’t we redesign the network? I have put that together but the discussion is not today. Olorunshogo or those people in Ikeja can create business and market power around the area. In terms of resource allocation, there’s many projects going but no priority, coordination or Pareto usage.

Are you collaborating with Nigerians in the engineering field?

I proposed a need for a research institute. We have started consultation and collaboration with nine Nigerian universities to promote growth. They have written papers. People underestimate our Nigerian universities, but I don’t because I have worked with them in the past. Ahmadu Bello, Uniben, FUT Minna, Unilag etc. I reached out to them and they were happy that for the first time industry reached out to them to find a way to solve Nigeria’s problems. I am very confident.

What are you doing to resolve the load rejection issue?

The question is do Discos take power from TCN. That’s where the blame game came from. It’s either the argument is they are putting it in the wrong place or where some are saying they cannot make money. But we are resolving that. The Discos and Gencos have signed a service level agreement so there are penalties. In the past, there was nothing in place. The day is coming soon when Discos will be able to buy power directly from Gencos, but now we still need to go to NBET and TCN.