Cost-reflective tariff key to solving Nigeria’s power sector woes – Stakeholders

Stakeholders in the Nigeria Electricity Supply Industry (NESI) have advocated a cost-reflective tariff to drive the needed growth.

This is as Nigerians decried the poor performance of the sector after ten years of being privatized. The privatization of the NESI, which took place in 2013, marked a new beginning in Nigeria’s energy sector, transitioning it from the era of the Power Holding Company of Nigeria (PHCN) to a system of private investor ownership and participation.

However, the progress in NESI, post-privatization has not fully met the lofty expectations outlined in the National Electricity Power Policy, 2001 (NEPP), the Electric Power Sector Reform Act, 2005 (EPSRA) now Electricity Act 2023, and the Road Map for Power Sector Reform, 2010.

Speaking at the ongoing 2023 NESI market participants and stakeholders roundtable in Abuja, Sani Bello, chairman and board of directors of Maingtream Energy Solutions Limited, stated that the absence of a cost-reflective tariff has represented a major challenge that must be addressed to provide sustainable liquidity for the entire value chain.

He explained that the ever-present liquidity challenge exacerbated by inflation and a dearth of foreign currency has continued to affect the industry’s operations.

“While we acknowledge the effort of the current administration in trying to resolve and improve the foreign exchange environment, we look forward to a way out that will midwife an enabling environment for existing and prospective investors to thrive within the NESI.

“What we continue to tackle today is the lack of cost ‘reflective tariff that will provide sustainable liquidity for the entire value chain, strengthened laws and enforcement of these laws that will criminalize and deter energy theft as well as non-payment of electricity bills,” he said.

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He noted that after a decade of the privatization of NESI, the industry has evolved and made positive strides and impact on the Nigerian economic landscape through investments in capacity recovery and expansion, thereby increasing the installed industry generation capacity.

“A classic example in the Hydro Power space was when Mainstream Energy Solutions Limited (MESL) took over the Kainji and Jebba Hydro Power Plants; with Kainji not in production and Jebba at 460Mega Watts, we have rehabilitated both plants and currently having an available combined capacity of 1002Megawatts at both plants. A fellow Hydro company North South Power (NSP) has also achieved great strides in the rehabilitation of its plant. Hydropower currently accounts for about 30 percent of the power to the national grid.

He noted that despite the achievements in the sector, energy transmission and distribution still pose a severe challenge to a functional NESI due to the state of the infrastructure and require significant capital to finance its rehabilitation and expansion.

Currently, the total generation installed capacity of about 13,000 Mega Watts is more than the transmission capacity of 8,000 Mega Watts, with the distribution sub-sector taking up less than 5,000 Mega Watts. This, according to him, indicates the need for increased and enhanced investments in these sub-sectors to boost energy supply to end users further.

“We also implore that all arms of government and government agencies also pay all their invoices to the NESI. This will serve as the leading example to the populace to sustain and support the sector. Additionally, multiple taxation levies on the value chain have hindered the growth of this industry and prevented the inflow of investments to the sector,” he said.

In his remarks, Sodiq Wanka, Adviser on energy and infrastructure, Office of the Vice President noted that as of Q2 2023, for every kWh of electricity sent to the grid, only 60 percent of it was paid for.

He said that there was a need to have a clear plan to rebase tariffs and to recognize the real costs and loss levels of the entire value chain while allowing for adequate cost recovery for investments.

“But as we know, even the tariff paid for that unit of electricity is far from being cost-reflective, especially in light of the recent devaluation of the naira.

“The sector has suffered from chronic underinvestment, especially in transmission and distribution. Many of the successor utilities of the PHCN have failed to meet their performance improvement targets due to technical and financial capacity issues.

“We are in a vicious cycle of under-performance and under-investment, and everyone has a different view of which value chain player should be blamed for continued sector malaise,” he said.

Wanka who represented President Bola Ahmed Tinubu said that in the short term, there was a need to intensify efforts to address commercial issues and improve the investment attractiveness of the sector.

He noted that only around 45 percent of NESI customers are metered today, with wide variations across all Distribution Companies. For him, the scale of investment needed to meter current and new customers and replace obsolete meters is not trivial.

“The Government is committed to supporting the metering drive through the World Bank DISREP programme which should add at least 1.25 million meters, while activating the Meter Acquisition Fund to procure another 4 million meters. But we must also realize that long-term sustainable metering should be within the remit of DISCOS and their partners.”

In his remarks, Adelabu Adebayo, minister of Power said that the privatization deal was a wrong step and not the best for Nigeria as a developing country.

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According to him, it is wrong for the government to leave a sector as critical as the power sector to the control of the private sector. “Government cannot leave everything in the power sector to the private sector.

“The journey to privatisation of the country’s power sector is not an easy one which has a legal backing with the enactment of the Electric Power Sector Reform Act of 2003. However, privatisation had been done and the power subsector of Generation and Distribution had been handed over to the private sector to operate and manage by bringing innovations through the injection of private capital to transform the subsector.

” Now, the question in the public domain is, after ten years of taking over the assets have core investor transformed the sector by adhering to the terms and conditions of their licences? These are some of the questions that need an urgent answer from the roundtable discussion.

“The present administration of President Bola Ahmed Tinubu, with the Renewed Hope Agenda has identified energy availability directly leads to economic growth. The government is doing everything possible to increase the availability, reliability and affordability of Power. To achieve this, we are putting structure to balance our energy mix. This effort will eventually produce an economy on the right trajectory for growth. To this end Government will look at the existing policies in the power industry and improve on them for better service delivery to Nigerians,” he said.

Speaking further, the minister said that privatized companies that have not lived up to expectations may not be granted licence renewal, as renewals were not automatic.

He said, “Ten years down the line, the licences are expiring and it is now the time for renewals. Renewals are not automatic. Any of the privatised company that has not lived up to expectations will not have their licence renewed.

“We have to consider whether you have complied with the terms and conditions of the licence you were given. We will look at the technical capacity of the GenCos and DisCos. We will look at the financial credibility of the DisCos. How much investment have you made since you got these licences? How much improvement have you made to the infrastructure? How much of the Aggregate Technical, Commercial, and Collection (ATC&C) Losses have you reduced based on the agreement when you were given those licences?

“These are the very serious conversations we need to have with the private sector operators at the distribution and generation company level.

“The question to ask is whether we have achieved the objectives of the power privatisation. On the scale 0 to 100 what is our score? I will say no. This is why it is pertinent for all the industry players and all the stakeholders to come to a roundtable and discuss. What are the reasons responsible for this, and what are the things we need to do to achieve the objectives of privatisation?

For Alex Okoh, directed tor the general of the Bureau of Public Enterprises, the process which culminated in the privatisation of the successor electricity generation and distribution companies of the defunct Power Holding Company of Nigeria 10 years ago, actually commenced much earlier in the early 2000s, by first conceptualising, and subsequently embarking on a broad range of strategic reform initiatives.

These initiatives, according to him, delivered on the leg and regulatory framework for the power sector reform, including the enactment of the Nigeria Electric Power Sector Reform Act 2005 and the transfer of the functions, assets and liabilities of the Nigeria Electric Power Authority to the Power Holding Company of Nigeria.

Other achievements include incorporating the relevant agencies, including the sector regulator, Nigerian Electricity Regulation Commission, and the Nigerian Electricity Liability Management Company; the subsequent vertical and horizontal unbundling of the Power Holding Company of Nigeria; and the privatization of the Generation and Distribution utility companies.

“The objective of the reforms was to address the persistent challenges that had plagued our electricity industry for decades, and it was grounded in the vision of fostering a more reliable, efficient, and sustainable power sector by bringing in private sector expertise, efficiency and capital.

“Integrity demands that we admit that we are not where we ought to be, with regards to the original intendment and vision of the reforms, and some may even go further to say that we are far from where we set out to be.

“Please bear in mind that post-privatisation, there were years of mutual non-performance by both the private sector and public entities, huge market and tariff shortfalls, creating a huge liquidity problem and an imposing debt profile in the market, and other issues such as severe lack of investments, invariably creating a complex web of challenges which now face the sector,” he said.