N700bn lifeline to power generation: FG told to spread support across board to rescue power sector

The plan by the Federal Government to solve the power supply crisis by pumping N700billion to boost generation may have attracted applause in several quarters but it has been lampooned by energy experts, especially in the oil region, who think the two recent policies could cause crisis and cut the masses out of access to electricity.

Chinedu Amah, CEO of Spark media online and an energy marketing and communications expert, warned that by pumping the entire N700billion to the generation segment when the ability to pick up the power and distribute remains ineffective would spell disaster.

He also said the approval to bulk consumers (especially heavy industries) who pay more to subsidise for the masses would bring huge bills on the poor who cannot pay and thus set in rebellion and destruction of electricity facilities because, according to him, the masses cannot afford to watch the rich enjoy power and remain in darkness for long.

The Port Harcourt-based expert appealed the FG to ensure that any intervention must touch from generation, transmission to distribution.

Quoting statistics from the National Bureau of Statistics (NBS), a total of N438.6billion was spent on light/fuel by Nigerian rural dwellers in 2012. “This captures the total expense on energy with a large percentage of this figure being channelled towards provision of power in the homes.”

He said the cost of producing power by hydro is about N13, while by gas is about N21. “When you add transmission and distribution costs to these numbers the cost per unit of power will come to about N33. Today’s Residential One (R1) customers tariff which covers the poorest Nigerians goes for about N4; this forms about 30 per cent of payments for energy supply paid for by customers.”

The Residential Two (R2) customers who make up the middle class currently pay about N30 per unit, if you take an average of residential/R2 tariff across the DisCos. “This group makes up about 60 per cent of bill payments in the power sector. Since the privatisation of the power sector, gaps have existed because DisCos have been unable to cover the cost of energy.” The meaning is that the masses pay N4 per unit or pay 30 per cent of payments collected while the rich pay N30 or 60 per cent of energy bills recovered.

From time immemorial, collecting money from consumers in Nigeria has been difficult. Amah gave the following reasons: “Regulations which do not allow a Disco to charge actual cost of tariff with mark ups to ensure profitability; Inability of government-owned Transmission Company of Nigeria (TCN) to improve transmission capability; High cost of gas which is driven by the dollar (gas for power generation is charged in dollars while the tariff is in naira, dollar fluctuations mean that generation cost has more than doubled since current tariff was set); and a cross subsidy regime was in place to enable the DisCos charge commercial customers more, this extra was used or is used to subsidise the shortfall based on losses accruable from individual customers.”

The new federal government policy through the Nigerian Electricity Regulation Commission (NERC) which now allows the commercial customers to purchase power directly from the GenCos thus implies that the 10 per cent that pays for the rest of the customers is off. “his means that the cross subsidy regime is in trouble; the DisCos must then charge the actual cost of power to stay in business. Thus, the poor Nigerians may end up without power”.

The plan by the FG to pump in N700billion into generation will be an aberration which will further distort the balance of funds within the sector. “Improving generation when transmission is unable to improve capacity will not solve the problem; taking away the commercial customers from the DisCos will rather worsen the matter. At the heart of this problem is a population that cannot afford to pay for the services they need. Taking away the subsidy and fixing the top of the power chain is a pointer to a planned failure of the entire industry,” he further said.

Rural consumption pattern and energy efficiency

Experts say energy efficiency is a field of power which encourages the use of few resources to produce the same results. An average rural home has about 10 lighting points and a fan; television and refrigerator may not be commonplace. The issue is the propensity to keep appliances running even when they are not in use constitutes waste. Their un-metered state further points to high estimated bills.

Way out

The expert says the FG must look at subsidising energy-saving bulbs, rechargeable fans and other low consumption appliances for the rural dwellers at least. “These can be planned to peg the average rural home consumption at about 200 watts daily or an average of N2000 per month.”

He believes an energy-efficient rural Nigeria will reduce cost of living for the rural dwellers, and the low consumption will free up more power for customers in urban areas that can better afford the actual cost of energy. “In the long run, this will free up more energy for the DisCos to feed more people. Collections will improve with improved supply and more money will be available for the entire sector.”

According to Amah, the problems bedeviling the power sector are not only inherited from of old, but affect the three major segments of the power value chain. It therefore goes that any drastic solution or intervention must also address the gas supply component, the generation matter, transmission and distribution segments at the same time, just like the criminal justice system (policing/arrest, judiciary/prosecution, and prison/reformation segments) which must be reformed at the same time, else, the gains in one segment would be ruined by rot in the next segment.

The most important point is that if the industrial and high earning segments are allowed to go lift power directly from GenCos, the DisCos would have to sell to mere masses who cannot afford high bills but who be serviced, else, there would be chaos.

It is the opinion of experts that increase in generation due to financial intervention must go along with ability of TCN to transmit the power without dropping huge percentages and the DisCos would have to lift the power so generated for it as well as have a tariff regime that can grantee efficient collections if all of this is expected to make meaning.

It is good that the FG has rolled out a new gas policy that would be market driven and would allow the private sector input more in a public private partnership (PPP) system. The sector awaits breakdown of this policy to enable investors interpret the policy for early investment decisions.

The plan by government to intervene in meter production and distribution, if well handled, could also reduce the crisis of confidence in billing and payment collection which is crippling the distribution segment. Surveys have shown that Nigerians are willing to pay for power if justice and confidence are restored so that people pay what they actually consumed, not what is estimated. They need to pay what is fair and real, like in the telecom sector.

Ignatius Chukwu