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Fixing market, infrastructure, regulation are ways to restore Nigeria’s power sector – experts

BusinessDay virtual energy conference ended yesterday and three top recommendations by experts to mend Nigeria’s power sector challenges are fixing the inefficient market, repair and replace broken infrastructure and enact smarter regulations.

Nigeria’s electricity market does not guarantee commercial returns because power is priced below the cost of production. So, power generation companies (GenCos), gas suppliers, the transmission company, and power distribution companies (DisCos) get less than 35 percent of their market invoices.

The Federal Government pays the difference. Since 2015, it has spent over N1.75 trillion to defray this shortfall. Crude oil sales, which pay for this subsidy, is no longer as viable as it once was. Prices have fallen and now producers are forced to lower their output.

This is why the electricity tariff was reviewed, according to the minister of power whose representative, Abba Aliyu, made a presentation. He also said that 60 percent of those enjoying power subsidy are among the wealthy who can pay. Over 80 million Nigerians do not even have access to grid-connected power.

The Federal Government spends an average N12 billion monthly on electricity subsidy, the minister said.

However, on Tuesday night, NERC issued an order suspending the electricity tariff hike from September 28 to October 11, 2020, after the government and labour unions agreed on a two-week truce to avert a strike action that would shut the economy.

Dafe Akpeneye, NERC commissioner, legal, licensing and compliance, said the suspension was done to allow for further engagement on the novel tariff methodology, but indicated that the government’s subsidy would continue for the two-week period.

“For every decision that we make as a government for customers not to pay a cost-reflective, it creates a liability and it has to be settled by someone. The practice for the past five years is that the government has written the check for the liability,” Akpeneye said.

Onyeche Tifase, CEO of Siemens Nigeria, outlined the plans by the company to support Nigeria in fixing its electricity infrastructure leveraging the company’s experience in Egypt.

President Muhammadu Buhari had on July 22 signed a power agreement with Siemens, which would double Nigeria’s electricity generation and raise distribution capacity three-fold to 11,000MW by 2023.

In Nigeria, Siemens would carry out a comprehensive upgrade of Nigeria’s weak electricity grid capable of wheeling less than 5,000MW and reduce technical and non-technical losses. It would also aggregate all DisCos’ investments in their network including cables, switches, transformers, and substations to raise the distribution above the current 4,000MW.

In his presentation titled “Moving the market to viability” at the conference, Mohammed Wakil, World Bank’s energy specialist, said policy and regulatory stability through consistent and predictable implementation of tariff regulation by avoiding delays and tariff reversals were some of the best ways to improve efficiency in the sector.

“There is a need to conduct integrated resources planning, which will ensure alignment of capacity across generation, transmission and distribution while also ensuring investments are directed into most important areas,” Wakil said.

Concerning realigning and enforcing market contracts, Wakil recommended that contracts should not be top-down but bottom up, which implies Discos should be specific on their demand and reflect it in the vesting contracts.

“Revised contracts must align Genco and Disco risks, interests, and priorities by enabling contract enforcement and also encouraging Gencos to invest in Discos to improve output,” Wakil said.

“Discos have submitted Performance Improvement Plans (PIPs) with over $2 billion of investment needs over the next five years; how will Discos fund their investment?”
He urged the government to provide seed funding while other funding could be obtained through PPI, such as the Siemens deal and the Nigerian Distribution Sector Recovery Programme through the World Bank and African Development Bank Group.

Analysts at the conference commended the increased focused attention various governments and private sector players were giving the renewable energy.

In the recent Nigeria Economic Sustainability Plan, the government set a target to deliver 5 million solar home systems (SHS) across the country by local manufacturers and assemblers.
Ahmad Salihijo, MD/CEO, REA, said the agency wanted new private players to come in, in line with the executive order on local content. “This is a space that private sector developers should look out for as we roll out the renewable energy fund,” he said.

To sustain the renewable energy projects in rural communities, Salihijo said the agency established renewable electricity users’ cooperative society, in every community. It is a structured mechanism where community members play a key role in securing the deployment of systems, enlightening community members, and ensuring payment of light bills. The agency is working with DisCos too and gathering data to help with innovation.

State governments were urged to take up an active role in the sector as Nigeria’s constitution has empowered them to generate, transmit, and distribute power.

Habeeb Alebiosu, a non-executive director at Viathan Engineering Limited, said one of the states’ role in setting up Independent Power Plants is revenue assurance. The other is contractual off-take, with the state as an anchor tenant. Other areas include licensing, Environmental Impact Analysis certificate, and identifying load centres.

“For instance in Ogun State, the government has metered all government parastatals and agencies to ensure they are adequately billed. Lagos has guaranteed contractural off-take,” Alebiosu said.

In Kano, 10MW solar project has been built on a 24-hectare parcel of land provided by the state government. This is a project that is happening as a result of the collaboration between the Nigeria Sovereign Investment Authority (NSIA) and the Kano state government.

“COVID-19 has slowed down the progress of the project. However, we are getting all the necessary licenses, working on the engineering, procurement, and construction (EPC) contracts and by the fourth quarter of 2021, the solar project would be fully operational,” Aisha Abba Kyari, vice president, Renewables, NSIA, said.

The NSIA has an ambitious target of 500MW of renewable energy capacity but achieved incrementally. In addition to the enabling conditions investors expect from states as listed earlier, Kano solar project shows additional conditions such as the provision of land, resolution of land ownership disputes and compensations.

“States need to commit and be excited. They need to provide access to industrial clusters, this will in turn boost economic activity,” Abba Kyari said.

Joel Abrams, executive director Konexa, an integrated power company says there is a real case for an integrated distribution network, thanks to the growing liberalisation of the power sector.
Abrams also said that a booming diesel-fired generation in Nigeria shows there is a latent large market of underserved and unserved customers. Diesel generation is many times costlier than on-grid electric power, yet the largest supplier of energy for Nigerians.

Koxena started operations in Kaduna in because of the state’s large industrial base and mass non-industrial customers. Both Kaduna and Kano have a large peri-urban population, which Koxena has a robust business case for.

The BusinessDay Future of Energy conference is a yearly event that convenes thought leaders, policymakers operators, and the public to discuss prevailing challenges and chart a course for harnessing the opportunities in the sector.

 

ISAAC ANYAOGU, STEPHEN ONYEKWELU & DIPO OLADEHINDE

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