• Sunday, June 23, 2024
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Do we really want power?

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Electricity generation commenced in Nigeria in 1896, exactly 120 years ago. Nigeria Electricity Supply Company (NESCO) started as an electric utility in 1926, ninety years ago with a hydroelectric power station near Jos. Electricity Corporation of Nigeria (ECN) was established in 1951 and the first 132KV line linking Ijora Power Station with Ibadan was constructed in 1962. Niger Dams Authority (NDA) was also established in 1962 to develop hydropower resources. In 1972, NDA and ECN were merged to form the National Electric Power Authority (NEPA) which Nigerians came to describe as “Never Expect Power Always”.

In effect Nigerians have waited for over a century as government-owned power utilities (ECN, NEPA, PHCN) pre and post-independence failed to provide them power. They grumbled, complained, laughed at themselves and grumbled again, but did nothing as their government provided only 4,000 MW or less after XX years of abysmal power delivery. Now when I hear people complain bitterly about the new private owners who took over the generating and distribution segments of the industry less than three years ago, I wonder whether our people really understand what it takes to achieve development and are willing to pay the price for it!

The path to private sector dominance of the sector has been nothing short of tortuous. I wrote on this page many years ago about how the Bureau of Private Enterprises (BPE) wrote a Power Policy around 2000, but an alliance of bureaucrats, legislators and political office holders prevented the policy from becoming law, the Electric Power Sector Reform Act (EPSRA) until 2005! Even as EPSRA was passed, the Obasanjo government, through Liyel Imoke, then went on a detour of establishing the National Integrated Power Projects (NIPP) which sufficiently distracted that regime until its tenure was almost over. When Yar’adua took over from Obasanjo in 2007, he discarded the power sector reforms in favour of continuing with a government-controlled sector. The only problem was that government lacked the huge resources required to invest in electricity generation, transmission and distribution in order to remedy the embarrassing and crippling deficit in the sector. The result was stagnation. It took President Jonathan’s accidental transition to power and the appointment of Barth Nnaji before the Power Sector Roadmap was drawn up which ended in the unbundling and privatization of the Nigerian power sector which was concluded in 2015.

All the policy and legal instruments guiding the sector-EPSRA, the initial Power Policy and Jonathan’s Roadmap all recognized that for the creation of a sustainable power sector to happen, the industry needed cost-reflected tariffs leading to the incorporation of a Multi-Year Tariff Adjustment and Order in EPSRA-if investors in power could not institute tariffs that enabled them to recover their costs and make a modest profit, there would never be a private sector control power sector in Nigeria. The law in recognition of the socio-economic and political difficulties in making a one-time price adjustment in power tariffs provided for tariff adjustment in a “multi-year” basis over a five year period. Unfortunately since 2005 when EPSRA was passed the MYTA was continually deferred due to absence of political will, thus effectively postponing inception of a competitive electricity market and concomitant investment in the sector. On February 1, 2016 a new cost-reflective tariff system finally came into effect based on the approval of NERC and the Minister of Power, Babatunde Raji Fashola. So the reality was that any prospect of sustainable progress in Nigeria’s electricity sector only became feasible from February 1, 2016.

On July 13, 2016 a Federal High Court in Lagos presided over by Justice Muhammed Idris annulled the recent increase in electricity tariff announced by NERC and implemented by the power distribution companies (discos) in a suit filed by a “human rights lawyer” one Toluwani Adebiyi. Even though one has not had the opportunity of seeing the full reasoning behind the ruling, the judge reportedly declared the new tariff as ultra vires, irrational, irregular and illegal! In its reaction, the Nigerian Electricity Regulatory Commission (NERC) has stated, correctly in my view that the judgment is a “setback to the progress made so far in the electricity supply sector” in seeking to create a viable and sustainable electricity sector in Nigeria. NERC warned that the judgment “represented a reversal of the commercial foundation on which contracts for gas, hydro, coal, and solar feedstock for the production of electricity have been predicated” and impinges on the ultimate destination of the power sector as a commercialized electricity market which is designed to “achieve stability and adequacy in the supply of electricity to satisfy the yearning of Nigerians for adequate, safe and reliable electricity supply”. Court processes which have been advertised in the newspapers confirm that NERC is also asking for a stay of execution of the contentious (and in my view, unfortunate) judgment based on several cogent matters of law and fact.

I agree with NERC and support their decision to appeal the judgment. Nigeria’s tortuous journey to create a private sector-controlled viable and sustainable power sector in which investors can provide the billions of dollars required to build the infrastructure and services required to remedy the massive power generation, transmission and distribution deficit afflicting the nation, will suffer mortal damage if the judgment is not reversed on appeal. Even now, the judgment has set efforts to assure investors that finally Nigeria has an electricity market in which private capital may be deployed, back a significant deal. It should be noted that even though electricity tariffs are collected from consumers by the distribution companies, they do so on behalf of the entire electricity value chain, and only retain 24 percent of collections, with 57 percent going to the generating companies, and 11 percent to the transmission entity, according to industry information. The regulatory institutions (NERC, NBET etc.) share 4 percent while the Central Bank of Nigeria (CBN) receives 4 percent of collections. The point is the tariff judgment will undermine not just the distribution companies, but the entire industry!

Today while Nigeria with a reported population of over 170 million struggles to generate 4,000MW of power, our regional rival South Africa generates over 40,000MW with less than a third of our population. Comparatives with other nations like Brazil, India, UK, China or Singapore is pointless! We Nigerians have to make up our minds whether we want power or not? If we do, we will understand that the first step in the process would be to ensure that investors in the electricity power industry can expect to at the very least, recover their costs.

 

 Opeyemi Agbaje