Critical interventions in the Nigerian power sector can be said to be a direct result of the partnership and teamwork that have been fostered through the Working Group, according to Ahmad Rufai Zakari, Senior Special Assistant to the President on Power Infrastructure, in this exclusive interview with Osa Victor Obayagbona, News Editor, Businessday. He speaks of his dreams for a Nigeria where all diesel generator sets can be phased out and revert them to back-up supply, saying the administration anticipates facilitating upwards of $4 billion investment in infrastructure for the power distribution sector over the next 24 months. Excerpt:
As the president’s chief adviser on electricity issues, what is business interaction telling you about the state of Nigeria’s power sector?
Thank you for the opportunity to engage. Before we dive in, I would like to explain the ways in which the administration has been working to ensure improved communication and coordination across all stakeholders in the Electricity value chain.
Currently, there are many important interventions being driven, and it was recognised that it was essential for everyone to be on the same page. Mr President in his wisdom created a Power Sector Reform Working Group led by the Vice President and includes the Governor of Kaduna, the Chief of Staff to the President, the Ministers of Power and Finance, Budget and National Planning, the Central Bank governor and I, serving as a member-secretary for that Committee.
Periodically, the Committee meets to review policy direction and coordinate interventions and support for the market. Many of the critical interventions in the sector are as a direct result of the partnership and teamwork that have been fostered through the Working Group. For example, the National Mass Metering Programme (NMMP) was created out of the joint efforts of the Ministry of Power, CBN and NERC because of the collaboration and cooperation fostered in the Working Group.
Essentially, it is called a Working Group as its mandate is not to usurp any of the statutory powers of the Ministry of Power or other agencies; it is simply an issue resolution and process expediting body.
The sub-groups from the Working Group engage with all power sector participants. We have made tremendous progress with the Payment Discipline Sub- Group led by the Central Bank governor in engaging with the main business participants; the DISCOS. As you may have noticed, the DISCOS have submitted to bank account control and payment discipline waterfalls that ensure that market payments are transparently made to GENCOS, TCN, NBET and Gas providers.
In return the DISCOS are accessing financing and loans facilitated by the CBN to accelerate metering and critical investments needed to make the new Service Based Tariff regime a success. In four months, market collections have jumped by almost 50 percent. Payment discipline in terms of payments of DISCOS for their minimum remittances to the market is at 100 percent compliance (ex the subsidy) for the last quarter of 2020.
My assessment from discussions with other business participants is that if they will receive stable, reliable, and quality power, it is much better for them to even pay Band A tariffs than run costly and inefficient diesel gen sets. I dream of a Nigeria where we can phase out all Diesel Gen Sets and revert them to back up supply as we see in most countries across the world that have stable power supply.
How broad based will the recovery you talked about be, and how soon?
Recovery is in multiple facets of the value chain. I like to think about the problems in 3 groups – Regulatory, Fiscal and Infrastructure.
With the improved understanding and partnership with the Labour Centres, I believe we can create a continued environment for our regulatory discipline through NERC to exist, unimpeded. The new chairman of NERC is making strides in enhancing discipline and cooperation across market players in a fair and just manner.
On the Fiscal side, as I explained above, we have made significant progress on payment discipline in the market. It is government policy to continue to use our limited resources to support customers in Bands D and E with subsidised power cost until they receive better quality of service. With improvements in loss levels that will come from enhanced metering and critical infrastructure interventions, we will see the cost of power come down for all bands over time. The tariff reforms, payment discipline and metering gap elimination will continue to support the improved fiscal fortunes of the market and allow the government to phase out subsidies entirely.
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Infrastructure is the cornerstone of this administration and the President’s mandate to the sector is for an enhancement of the infrastructure to allow 25GW of power to be delivered to Nigerians by aligning the Generation Capacity to the Transmission and Distribution Capacity of the Country. We can only do this by heavily investing in Infrastructure.
In that vein, the administration has engaged with Siemens on the Presidential Power Initiative, the discussions with the World Bank and AFDB for the $1.7 billion facility for Distribution Infrastructure are at an advanced stage. And the CBN has facilitated local financing and loans to the DISCOS for critical emergency repairs to bridge infrastructure gaps before the Siemens and WB/AFDB funding disbursement. All in all, the administration anticipates facilitating upwards of $4 billion investment in infrastructure for the distribution sector over the next 24 months.
What policies do you think government should focus on to enable increased growth in the power sector?
The best thing we can do for the sector is to improve policy and regulatory certainty. We need private investment in the sector, and no private investor likes uncertainty.
Additionally, the citizens of the country must feel the sector improvements. Without public sentiment and support, efforts at moving to a stable electricity sector will fail. To gain public support the performance of the DISCOS, TCN, the GENCOS and everyone involved in the sector must improve demonstrably.
For example, the Minister of Power continues to reiterate that he will not rest until we have delivered power to citizens growing at a consistent double-digit level. Mr President has also maintained that all Nigerians must be metered in the next 24 months. We must continue to be ambitious and execute on our promises. If we do that, I am confident we can turn the sector around.
Foreign investors are slowly coming back to the kigerian power sector. ao you think government reform, especially allowing a reflective tariff, a sufficient condition to get them back?
Foreign investors are important, but local investors are the best test for the sector. We can see that we have returned to executing transactions in the sector. Transcorp recently acquired Afam III and Afam Plc plants from the government and we anticipate we will close the Yola transaction with the preferred bidder by the end of the first quarter of 2021.
These deals were at the point of collapsing prior to the reforms on service-based tariff and payment discipline. We’ve also recently had new investment in Abuja DISCO. This deal appetite by local investors is a bellwether for foreign investment. Nigeria will be the fastest growing power market in the world if we continue on this trajectory. We need to stay the course. Mr President wants to see results and everyone in the administration is working around the clock to deliver.
Since the reflective tariff regime started the aipclp should have more funds to play with. till the government make sure the aipclp spend this fund to provide commensurate infrastructure?
Through the banking regulation on electricity payments and the continued leadership of the Central Bank of Nigeria and the Nigerian Electricity Regulatory Commission on payment discipline, we are confident that there will be continued discipline and market payments.
Also, all facilities and loans in view (Siemens, WB/AFDB, CBN Bridge) will have strict requirements on usage and procurement standards. There will not be a return to the days of non-visibility on market payments, collections, and spending.
The aiscos can be rightly said to be underperforming – in terms of having lower valuation (price to book ratio), higher costs, and lower market capitalisation. that are government plans for the sector?
Tariff shortfall liabilities have been accumulating on the balance sheets of the DISCOS, caused by successive years of government policies that allowed consumers pay lower tariff energy than what was cost reflective. For example, in 2018, cost reflective tariff was assessed by the regulator to be =N=51 per kilowatt hour, while DISCOS were allowed to charge =N=31 per kilowatt hour. The shortfalls caused by non-cost reflective tariffs are what have caused the DISCOS to take on huge debts on their books and has hampered new investments.
As part of efforts to get the Discos performing, there are plans to find a viable stakeholder in the electricity sector to take some of these debts off the DISCOS’ books, thereby giving them the opportunity to improve service delivery and make them attractive for investments.
A number of banks took quite a hit from concentrated and dollar denominated lending to the power sector. there is government in this particular matter? What specific steps are government taking to have optimum risk management processes and internal controls of the aiscos and their Boards?
Business has risk, the banks and investors took risks in acquiring the business and lending to the businesses. There is a moral hazard to bailouts of any kind. That being said the reforms will make the businesses better and attract the much needed investment required to enhance their performance and service delivery.
As regards risk management processes and internal control, NERC has stepped up its regulatory oversight of DISCOS to make sure they act in accordance with the law, the aspirations and expectations of the government as well as what Nigerians expect of them. The DISCOS themselves have realised that in order to improve service and make themselves attractive to additional investments, they need to adopt strict corporate governance measures and abide by regulatory guidelines.
Will you say 2021 will be remembered as a turnaround year for kigeria’s power sector, as aipcls profits rise, investors coming in?
Definitely. We project that by the middle of the year we shall begin to see considerable and far greater improvements in the power sector, especially as we slowly transit to the full implementation of Service Based Tariffs, the disbursement of the various intervention funds and service improvements by the DISCOS.
Precisely, what direction do you intend to advise government take to consolidate these new gains in the sector?
I would advise the government to keep steady in its current path. Taking these decisions is by no means easy but they are for the benefit of Nigerians in the long run. The government has done remarkably well by identifying the problems and getting the right people into the agencies in the power sector to lead some of these policy initiatives. I would also advise that the government should keep on placing the right people into the leadership of these agencies so that it can consolidate the gains made in the sector.
As an addition, I would also like to advise Nigerians to understand that electricity isn’t just a social good. It is also a commodity, which must be paid for. Thus, my advice to them is to understand that these tough decisions being taken by the government are for the good of all Nigerians.
Looking at when the privatisation of the power sector was done and where we are now; can you give your unique niche, how soon do you see the sector transforming these huge potential earnings into actual earnings for shareholders?
As I have stated earlier, we hope to fully transition to Service Based Tariffs by the end of this year. Doing so in addition to the various improvements meant to be made once the various intervention funds begin to come in, I would estimate that by the end of the year we should see improving performance by the DISCOS, which should translate to shareholder gain.
That being said, the government’s primary concern is delivery of power to the people and a fair playing ground for investors, we believe if the DISCOS do the right thing for consumers as government creates a better enabling environment, we will all succeed. However, this is not an easy task as all hands must be on deck to see that the various government policies aimed at improving the sector are carried out with utmost diligence.
What are the plan(s) to ensure all kigerians are truly metered?
The government recently launched the National Mass Metering Programme (NMMP), which will be funded by the Central Bank of Nigeria. The government plans to meter all Nigerians to improve accountability and transparency in electricity consumption and billing. This will be achieved by engaging local meter manufacturers to manufacture and distribute these meters. As of last week, the Central Bank of Nigeria confirmed disbursement of N14.35 billion to the DISCOS for purchase of about 263,000 meters under the NMMP.
Part of the government’s plans for engaging local meter manufacturers for the mass metering programme is to create jobs and further enhance expertise in the sector. All meters in the NMMP will be acquired from local manufacturers and we anticipate there will be thousands of installation jobs created.
