• Sunday, May 26, 2024
businessday logo

BusinessDay

Amplified on request: This tariff hike is reckless!

The Nigerian Electricity Regulatory Commission (NERC) produced a new tariff for Nigeria, and the Federal Government (FGN, approved it for implementation. NERC began implementing it but started with only Band A customers. For those customers across the country, the new tariff would apply on April 4, 2024.

Who are these Band A customers? They are the select group of consumers of electricity who, at the time of negotiation, were willing to pay the price at which the Disco was willing to sell one kWh of electric energy whose statutory characteristics were stated by the Disco for a daily availability of 20 to 24 hours.

Some will argue, as in here, that the financial problems of NESI have been reduced to the quantum of Disco’s monthly revenue streams, and that apparently, because they could not deal with the engineering and commercial issues that limited it, they decided to increase electricity prices for Band A customers for a start. This is overtly discriminatory, unjust, unfeeling, punitive, and insidious because the targeted customers are those in any country who make or mar economies, including the electric power industry. Without them, there would be no NESI. All of Nigeria would have kept to primordial oil lamps, and the overly rich would have had their own private generators.

Q: “This is a very serious engineering and commercial engineering problem affecting the entire country. It’s late for the increase, but it’s not late for the eventual solution. Hand it over to the appropriate engineering experts. The Chartered Institute of Power Engineers of Nigeria, CIPEN, can help.”

This Himalayan increase, along with the straight line metre tariff, will result in a serious reduction in the amount of kWh Discos can sell.

The government did signal its intention to tackle this lingering problem head-on, but no one thought that ad hoc chats with engineers, public hearings by NERC on its behalf, and NASS undertaking public hearings were anywhere near enough to resolve decades-old problems. This is a very serious engineering and commercial engineering problem affecting the entire country. It’s late for the increase, but it’s not late for the eventual solution. Hand it over to the appropriate engineering experts. The Chartered Institute of Power Engineers of Nigeria, CIPEN, can help.

Some Nigerians have argued that the problem is that there’s too little power generated in the country. That is true only if it is limited to the grid. Note, however, that the grid should only generate for the available load. So, that argument discounts the private generation by many industries across the country. Nigeria’s grid load is currently stuck at about 5000 MW, in total fidelity to the residential and medium-sized commercial electric loads that the country has at this time.

Read also: Adelabu predicts Band A tariff will reduce when exchange rate falls below N1,000/$

Remember that serious manufacturing industries across the country serve themselves. In normal situations, residential and commercial uses would be barely elastic. Even the thought that Nigeria may have become the poverty capital of the world should convince us that the electric load on our grid will hardly grow at this time without industries.

Sadly, this is all a continuation of the systemic mismanagement of NESI for several decades. Every government contributed to it. Everyone of them would surround themselves with friends and sympathisers, including pseudo-experts, and begin chasing after shadows.

A low quantum of monthly revenue stream is a symptom of a crippling disease that no publicly owned electric utility has ever survived, even in the United States of America. The standard solution has always been financial transfusion or subsidy, followed by aggressive commercial engineering if the utility has the knowledge. Unfortunately, Nigeria has not got it, and it needs it.

There are investor-owned electric utilities, of course. In the United States, utilities such as American Electric Power do not expect subsidies, so they stick to electric utility marketing, which they have perfected. Those investor-owned electric utilities survive, flourish, or sink according to their marketing capabilities.

The government has to understand that there can be no development unless there is an abundant supply of electrical energy. Unfortunately, this has been made more difficult by the pathways dreamed up by NERC in the areas of regulatory practices and electric rate design. The regulator’s bad choices have suffered a backlash. The mediaeval and decrepit networks have no investments to show while they strangle growth and development, multiplying the decades-long social anguish of Nigerians.

Performance-based regulation, or PBR, is an ultramodern mode of electric utility regulation that is still to be accepted in all the states of the United States of America. It limits electric rate cases, which dominate American utility courts. It’s thought to be more business-friendly than the other mode of regulation, the Cost of Service Regulation, or COSR. Its weakness is said to be the abundance of data required, while COSR is simple, requiring no more than the data usually available.

Note that NESI has never been in court for tariff issues in over seven decades. Under PBR, Nigeria operates a coarse and harsh tariff. You don’t dare talk about Jara, and you listen to those talking about friendliness? How? They want to modernise how Nigeria regulates electricity before the country modernises its business practices, dominated by the informal economy! Should carts always come before horses in Nigeria? We say no.

Nigeria is blessed with several primary sources of energy, such as geothermal, wind, solar, biomass, coal, and hydropower. They are distributed generously across the country. Unfortunately, while the military built no power plant throughout its thirty years in power, civilians after them have chosen to limit themselves to costly gas for power. Nigeria’s survival and economic development need a discreet energy mix for power generation as well as the most economical choice of primary energy for base-load power generation over the next decades.

No one who understands electric rate-making and rate structuring would choose a straight-line metre tariff structure as NERC has done without flinching since 2013. Every culture in Nigeria has its own Jara concept. Electric rate-making has its own block tariff. What they do is incentivize consumption. A straight-line metre tariff does nothing of the sort. It is coarse and harsh. It is anti-industrialization. Yet NERC and Discos want consumers to use more electric energy in their homes, though its monthly cost now doubles the monthly expenditure on food and beverage for two. That’s like mounting food high on an altar and asking the lame and famished to reach for it.

Electric utilities serve every customer. Traditionally, it divides them into three main customer groups: residential, commercial, and industrial. Each has its own demand characteristics, some of which may be described as inelastic, elastic, or very elastic, depending on whether they are residential, commercial, or industrial. The same utility serves the group except in Nigeria, where industries broke with NESI in the upper 1980s because it could not provide electricity as prescribed by the statute.

Quite noticeably, Dunlop and Michelin, both international motor tyre manufacturers, left Nigeria at that time. Industries that wanted to remain built their individual power plants, creating parallel utilities from which NESI has not recovered because of the deleterious effects the exodus had on the overall economy and its earnings.

Elsewhere, especially in the United States, electric utilities prompt or entice industries to their areas of franchise because they are the principal drivers of successful electric utilities. In Nigeria, industries die all the time because they cannot compete with those of other countries in the local market. Governments intervene many times, but smugglers always have their way.

Often, the key reason is that industries have passed onto their products horrendous manufacturing costs due to huge spending on in-house power. How distressing to look back at anaemic NESI, watching industries as they died. Now on its deathbed, it has no industry to pay its hospital bills. Its problem was and remains that it has not learned commercial engineering. In six decades? That is ludicrous! Yet it has to be corrected, or electric utility practice in Nigeria will remain the joke that it is.

In their book, Development of the Nigerian Electric Power System (1973–1990), Nigeria’s late and beloved Engr Lawrence Abiodun Amu, F.A.Eng., and Engr Foluseke Abidemi Somolu, F.A.Eng., described Nigeria’s distribution networks as ‘the untidy “last mile” in the electricity supply chain.’

The networks were and are still mediaeval in design. When they described it, it had gone decrepit with age and lack of maintenance. Since then, they have been rehashed repeatedly across Nigeria. Now in the 2020s, they should be expected to be totally incapable of supporting industrial health and development, forty years or more after industries quit them. Best practices have found that networks of poles, insulators, and conductors have a useful life of forty years. In Nigeria, we seem to believe that they live forever, and we are paying dearly for that belief.

Nigeria should re-engineer and rebuild these networks to solve the sector’s lingering financial problems. Indeed, mediaeval design networks, with their lack of flexibility, have been Nigeria’s Achilles heel for decades. Definitely, the government is serious this time; otherwise, it would not have countenanced the murderous rates it imposed on Band A customers. Can it, with that seriousness, solve the network problems now? In outline, what we need to do, probably phased, is to strip the networks of all secondary distribution lines, that is, end distribution at utilisation voltage and replace it with distribution at primary distribution voltage, which was first recommended to Nigeria in a paper published in The Nigerian Engineer in 1969, but typically Nigerian acceptance and implementation came three decades after the introduction.

A sprinkling of distribution at primary voltage exists side by side with the other, and since it will remain a radial system, nothing is really new except that we would clear the networks of its debris or surplus wires. In place of huge distribution transformers on many streets, we will need a large number of smaller ones whose sizes will be decided as part of the re-engineering process.

The Himalayan rise in Band A rate will exacerbate suffering and deepen poverty in the land, but it will achieve little else. By approving the tariff that NERC made, the government shot itself in the foot. It should have been known that the problem is not just about the quantum of Naira but about a system destroyed by incompetence—the proverbial square pegs in round holes at all levels over the years.

Nigeria has supplied power to residential and commercial customers with hardly any industrial consumption since the late 1980s. It had to have been at colossal cost because the mix of customers was wrong and load factors were low while we hoped in futility for growth. Industries were on their own, serving themselves with power at crippling costs. Their businesses declined, but they didn’t stop hoping that relief would come. It was an awful combination of problems that harmed Nigeria, its people, and its economy. The situation remains dire, and Nigeria needs to get out of it quickly.

It is hard to quarrel with the idea that NESI needs more money from its business. But at the same time, it’s easy to understand that the government making people pay to cure a symptom and accepting a return to shoddy services after is ridiculous and unworthy of rational governance. Why should Nigeria suffer and pay more while the problems remain? There were engineers appointed by the government who paid taxpayers money to prevent this. This is why the government should hold itself bound to subsidise NESI until the problems are resolved within five years of its decision to act.

In economies across the world, the only way to bring electric rates down for residential use is to ensure higher industrial productivity, which makes load factors climb higher. Electric utilities do this through symbiotic marketing by their commercial engineering departments. Unfortunately, NESI had Commercial Engineering Departments from 1951 to 2013, but never practised Commercial Engineering until about 1963, after the colonial-era appointee Chief Commercial Engineer returned to the UK. For all those years, governance allowed NESI to get away with that.

As it is, to solve Nigeria’s lingering power supply problem, the government should ensure that public networks, wherever they are in Nigeria, supply electricity with characteristics exactly as defined by the statute and that all industries are connected to the public networks. That is the solution to the problematic nightmare of NESI—a problem like a needle in a haystack. Let’s end the long and self-sustaining decadence.

This is not to suggest that there are no problems with generation and transmission. Those problems are mostly typical of power systems, and they are known to the engineers who operate them. They are not beyond their capabilities to solve problems whenever government policies are right, and clear, and funds are available.

The quickest way forward is to start the process of re-engineering and rebuilding the networks now with improved technology, as previously described. There should be adequate controls provided for operational flexibility. That should very drastically reduce voltage and energy losses and ensure much higher economies of scale, without which the power supply in Nigeria will remain a mirage. Higher economies of scale achieved should redound to Nigeria’s ability to serve its people electricity at the lowest possible cost without recourse to overt discrimination as overzealously and blatantly dished out by NERC.

Several stories have been told of where the problems of NESI began. That’s history. What’s important at this point is to solve the problem. It is submitted and affirmed here that the preceding paragraphs of this post are the recommended engineering solutions. The government is assured that it has taken the right and appropriate steps to solve a problem that has been intractable since the 1980s. However, TCN and Gencos should have a close look at their links in the power supply chain for uncompleted projects.

An urgent problem made urgent by the signing into law of the 2023 Electricity Act is the provision of adequate 330-kV service to every state capital. Places such as Lagos and Abuja should have a minimum of six injections from different directions to avoid weather disruptions. No state capital should have less than three 330-kV injections.

In the rehabilitated and revamped situation envisaged, a good guess of the peak load will be higher than 20,000 mW and growing.

Nigeria should prepare for a massive retraining of engineers in every area. Every engineer must learn planning economics. NAPTIN and technological universities should be equipped with the right manpower to teach various specialities.

NERC works with people from other disciplines, but the fact that it is an engineering organisation can hardly be denied. It’s led and should always be led by an engineer, who should be competent and experienced for the task. Engineering is at the heart of the NESI mess. There’s no doubt that tariffs are a crying shame. Everyone and everything has a tariff. Ridiculous in the extreme. How and who bills these if we aren’t using prepayment metres? Yet most village customers can’t use enough energy to pay for the monthly amortisation of the cost of a prepayment metre. There are two options for addressing this. Concerned Disco should deploy credit metres, or there should be a resort to a flat rate tariff. For each of the options, commercial engineers specialising in rate-making are needed.

The electric utility concept of providing mass electric service to customers, as proposed by Thomas Alva Edison and Samuel Insull, remains true. And let’s be clear: creating a plethora of cost centres to extort money from hapless customers is a disservice to humankind. In Lagos, Nigeria, Maryland Crescent, Shonibare Estate, Cappa Estate, and GRA Ikeja are separated by walls and a road, Bank Anthony Way, but residential customers in those places pay different electric rates, though fed by the same primary feeder! Across walls? This is Nigeria.

Has NERC allowed true electric rates to fall where they may? What population of cities and places did NERC use for its computation? There’s no reason for Ikeja to pay the same electric rate as Epe. Why should Kaduna pay the same electric rate as Zaria? Does Nigeria have an appetite for egalitarian tariffs? Has NERC used the true unit cost per kilowatt for every town and location? These are fair questions to which experts will need answers, which will help them free Nigeria from electric power supply inadequacies. Engineering intends thorough application because human life depends upon it.

Engr S O Uwaifo (FAEng).