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Tesla and disruption of Nigerian energy space

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Since BusinessDay broke the news of United States electric carmaker’s plan to introduce batteries that can power homes and businesses on a large scale, there have been apprehensions and noticeable anxiety by mostly the distribution companies (DisCos) in Nigeria over what their fate could be especially considering their dangerous financial situation bordering on insolvency.

A key concern is the ambiguity over whether the DisCos have exclusivity over their franchise areas.

Last year, two power DisCos [the Enugu Electricity Distribution Company (EEDC) and the Eko Electricity Distribution Company (EEDC)] took up arms against what they deemed violation of their territorial rights. This followed the sector regulator’s (the Nigerian Electric Power Regulatory Commission, NERC,) granting of licenses to operate off grid and independent power plants in Ariaria market, Aba, Sabon Gari Market in Kano, Somolu Printing Community and Sura Shopping Complex, Lagos.

While the DisCos maintain they have exclusivity over their areas of operation, the minister of power, works and housing, Babatunde Fashola and NERC have maintained that they do not have exclusivity over their franchise areas, a situation that creates room for competition in the sector. Of course, the DisCos, precisely, Enugu DisCo has headed to court to seek interpretation over the matter.

The main concern of the DisCos is that once their monopoly over their service areas are broken, Tesla and other competitors can easily lure away their choice customers, especially as Tesla, with its superior product offerings, seeks to focus on industrial and high end customers who pay higher electricity bills. The company is said to be mulling providing batteries with a capacity of between 1Kilowatt hour to 1MW, capable of powering an industrial complex or an industrial estate, or between 10,000 to 100,000 homes.

Most or all of the eleven DisCos have been performing very badly financially and are on the verge of bankruptcy. Between October and December last year, for instance, the 11 DisCos collected from consumers only 65 percent of the value of electricity sold but remitted back to other operators only 33 percent of what they collected, according to the third quarter report released by NERC.

We need to restate that the original intention of government in privatising the sector and selling the 11 Discos to core investors is on the understanding that the investors will invest in grid and network expansion and renewal. When the distribution companies took over the assets, they made commitments regarding grid expansion, number of new connections and capex to be spent on meters.

However, the Discos have violated the agreement reached with the government. They have failed to deliver on all accounts. According to the BPE, DisCos have only succeeded in metering 10 percent of electricity customers. It emerged they all do not have the capital requirements to invest in the grid and network expansion. All they are concerned about is recouping their investments and making profits – and the supposed exclusivity clause is key to their remaining in business. Their failure has created a vacuum both the government and businesses are now desperate to fill.

The fault though is not all that of the DisCos. The government that is adjudging them to have failed has also curiously prevented them from selling electricity to the public at market prices. Without this, the DisCos are unable to secure financing to invest and improve the grid.

Power is a critical and indispensable enabler in the modern world. Citizens must find power one way or the other. Provision of power is a basic obligation of government.

While we commend the government for breaking the monopoly of DisCos and inviting other willing investors into the sector, we also call on government, as a matter of fairness, to remove the restrictions placed on DisCos from pricing power at market prices. The goal is to ensure competition in the space and ultimately power to Nigerians.

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