How Nigeria can successfully solve her power sector puzzle

Like a patient that has undergone numerous surgeries and rehabilitative procedures under the supervision of surgeons and medical consultants for years, yet with no recovery in sight but a rather deteriorating condition laced with permanent bodily scars as evidence, the Nigerian power sector has always been under the knife – a history of serial diagnosis, proffered solutions and futile actions undertaken by successive administrations and governments, nevertheless, healing, and recovery remains elusive with a continuum expected should the norm be repeated.

The power sector conundrum has defied the greatest of policy and strategy expertise, technocratic consultancy, and political intervention all through the administrations of Olusegun Obasanjo (1999-2007), Umaru Musa Yar’adua (2007-2010), Goodluck Jonathan (2010-2015), and Muhammadu Buhari (2015 – present). In 2020, accusing fingers were pointed by the legislative arm of government – in particular the Senate who alleged that “the Federal Government has invested an N2.74 trillion in Nigeria’s power sector over the last 16 years (1999 to date)” with no tangible result recorded as Nigerians still grapple with an epileptic power supply that has posed a threat to the living, sustainability, and production.

The imminence of the 2023 general elections offers a chance for retrospection and a detour from the entrenched tradition of blame games among the political heavyweights in a bid to deliver a stable, affordable, and uninterrupted power supply to Nigerians which undoubtedly remains critical for wealth creation, foreign direct investment, local industry revitalization, and is central to the goals of economic growth and development.

A divergent view of the challenges and problems bedeviling a moribund power sector that has been touted as the key to the actualization of the Nigerian dream has accounted for the sustained failure to deliver on electoral promises over time.

On assumption of office in 1999, the Obasanjo administration isolated the provision of sufficient power supply as key to the delivery of her goals and the sustenance of democracy. The government initially encapsulated her power sector strategy in a National Electric Power Policy (NEPP) of 2001, and in the second half of the tenure – the Nigerian Electricity Regulatory Commission (NERC) was birthed and empowered by the National Electric Power Sector Reform Act of 2005 to regulate the technical, operational and commercial performance of the Nigerian Electricity Supply Industry. The administration also reformed the regulatory body in the power sector – the erstwhile and now-defunct National Electricity Power Authority (NEPA) into the Power Holding Company of Nigeria (PHCN).

According to former Senior Special Adviser to President Jonathan on Media and Publicity, Reuben Abati, “By the time President Obasanjo left office in 2007, power generation in the country had increased from about 1, 200 MW in 1999 to 4, 000 MW in 2007. For a country of Nigeria’s size and population, this was not enough to transform the country.”

Read also: Sluggish electricity metering program creates path to extort, frustrate Nigerians

In a bid to fast-track and reduce the propensity and key risk for technical failures while generating power for Nigerians, the late Musa Ya’Adua made some strategic partnerships and signed MOUs with energy experts – General Electric (GE) and Siemens amongst others just before his demise in 2010.

On the 26th August 2010, shortly after taking over the reins of power from his former Boss, Yar’Adua, former President Jonathan, in company with industry leaders including the then Governor of Lagos State, but now Minister of Works and Housing, Babatunde Raji Fashola launched the power sector roadmap to fully withdraw the government from power generation and distribution activities with the private sector to drive same.

Thus, the government disintegrated the earlier established Power Holding Company of Nigeria (PHCN) into 18 companies – 6 Generation Companies (GENCOS), a Transmission Company of Nigeria (TCN) fully owned by the Nigerian government, and 11 Distribution Companies (DISCOs). These companies were later sold in November 2013 to private new owners through a bidding process coordinated by the Bureau of Public Enterprise in what was termed the privatization of power generation and distribution companies. Other prioritized projects of the administration included the Nigerian integrated Power Projects under which several projects were undertaken including the revamp of the Egbin power turbines and the build of new power and gas substations.

Following inauguration in 2015, the Buhari administration immediately instituted a probe of power sector expenditure by the previous administration. In particular, it queried the Obasanjo administration on the wild goose spending of $16bn on power sector projects on white elephant projects with nothing to show for it.

“Before we came in, the power sector had been privatized by the previous administration, but the people they sold them to are incompetent. When we assumed power, we met the mess.” The current Minister of information and culture Lai Mohammed informed the press in September 2020.

Recently, in an exclusive interview with Channels television, President Buhari reiterated this argument stating that the Distribution Companies (DISCOs) were brought in based on geo-political zones rather than merit. “The people that own them, who are they? They are not electrical engineers, they don’t have money, it is just a political favor.

“To remove a system and reintroduce one is no joke. Luckily we have the TCN and that is the transmission. If we can get our technology right, we will cut the cost on transmission and the likelihood of sabotaging the lines and so on.” He asserted.

The institute for energy research says that “Distribution is essentially the retail end of the electricity business. It is the final stage of electricity delivery. Distribution is the most familiar portion of electricity supply—we see the power lines that run along streets and reach our homes, we pay electricity bills to distribution companies. After electricity is generated and moved along the high-voltage transmission system, it comes off the transmission grid at local distribution substations where the voltage is reduced or “stepped down” by special equipment called transformers.”

Fact checks conducted by BusinessDay indicate that the collection efficiency of the distribution sector and its companies (DISCOs) is at an all-time low.

According to second-quarter 2021 data sourced from the Nigerian Electricity Regulatory Commission (NERC), “The total billing to and collection from electricity consumers by all the eleven (11) DisCos stood at ₦268.97billion and ₦185.29 billion respectively during the quarter (second quarter) under review, implying a collection efficiency of 68.89%.”

However, performance in respect of remittance by the DISCOs to Nigerian Bulk Electricity Trading Plc (“NBET”) and Market Operator (MO) within the same period has been poorer with 50.11% achieved within the quarter. Of a total invoice of ₦259.70billion issued to the eleven (11) DisCos for energy received and service charges, only a total sum of ₦130.11billion was paid. This sums up to an outstanding N129billion to be remitted by the DISCOs.

Also according to NERC, it has been noted that for the nine months ended 30th September 2021, the cumulative indebtedness of DISCOs to the NBET and MO in the power sector was precisely N325.9bn

Analysts at the NERC posit that “The level of collection efficiency indicates that as much as ₦3.11 out of every ₦10 worth of energy sold during the second quarter of 2021 remained uncollected from consumers. Thus, only a marginal improvement in the collection efficiency is noticeable over the 68.55% recorded in first quarter 2021.”

Eko DISCOs leads the remittance chart with a performance of 63.69% remittance to NBET and 99.88% to MO. Yola posted a 28.76% and 10.51% to NBET and MO respectively. Ikeja recorded zero remittance to MO in the months of May and June 2021 due to unresolved Service Level Agreement challenges.

While remittances remain a key challenge in the distribution sector, the overall performances of the DISCOs have been esoteric with the southern DISCOs seeming to have a better performance than the Northern-based DISCOs. “Apart from Eko Disco, none of the other DisCos met their expected minimum remittance thresholds (“MRTs”) to NBET in the quarter under review. Overall, the total Disco remittance to NBET was 76% of the expected total for the quarter.” The report from the NERC clarifies.

In appraising individual collection performances in quarter 2 of 2021. It was noted that “Ikeja, Eko and Abuja DisCos had the highest collection efficiency of 84.49%, 84.13%, and 81.82% respectively while Kaduna DisCo had the lowest collection efficiency of 33.27%”

In the comparison of 2021/Q2 to 2021/Q1, Abuja, Enugu, Jos, Kaduna and Yola recorded a decrease in collection efficiency by 0.60%, 22.04%, 1.73%, 3.33%, and 0.08% respectively”

Also “Eko and Ikeja Discos made significant improvement in reducing its Aggregate Technical, commercial and collection (ATC&C) losses relative to 2021/Q1, while Jos, Kaduna, and Yola recorded the least loss reduction performance.”

For distribution, tariff-based issues, lack of transformers, cables, and poles, and the ineffective metering process by the DISCOs have been foremost challenges.

There still remains a huge metering gap in the power sector and the distribution sector in particular. The NERC report of Q2 succinctly captures the disservice of metering thus: “of the 11,058,939 registered energy customers as at 30 June 2021, only 4,404,013, (39.80%) have been metered. That means, out of every ten registered electricity customers, six are still on estimated billing which has contributed to customer apathy towards payment for electricity bills”

Nevertheless, the count of additional meters delivered to end-users and electricity customers improved in the quarter by 317,717. “This is significantly more than the 190,244 meters installed during quarter 1 in 2021.”

Customer satisfaction remains far-fetched with an average of 2,653 complaints recorded per day across the DISCOs with a burgeoning trend noticeable. “DisCos received 241,476 complaints from consumers, indicating 1.91% more complaints than those received in the first quarter of 2021”

Metering, billing, and service interruption are prevalent sources of customer complaints. These accounted for 58.07% of the total complaints in the second quarter of 2021 alone.

Non-settlement of energy bills by Ministries, Departments, and Agencies (MDAs) across the three tiers of government (i.e., Federal, State, and Local Government) together with military and para-military debts in excess of N90billion has been stated as a challenge by DISCOs. As expected, this will limit the ability of Discos to settle their remittances promptly and increase the utilization of idle power in excess of 2200MW presently.

A huge gap will be continually present in the sector should the DISCOs not be financially buoyant to undertake their responsibilities.

It has been argued that competition is one of the most powerful forces that propels an economy to higher levels of achievement. Until the privatization of the power sector, the electricity industry operated solely as a state-owned monopoly with attendant inefficiencies in service delivery and management.

It was hoped that the privatization will bring with it an increased efficiency in the use of resources and protect consumers against exploitation. It is important that any leftover private monopoly among the discos is broken. Where they exist, it will be counterproductive for the electricity sector.

The right and enabling environment will also require that electricity consumers be given the ability to choose their preferred distribution and switch as required should a disservice be noticeable. This will aid healthy competition in the industry as it will be subjected to true competitive market forces of demand and supply with price stabilization accruable. The regulator must also ensure that a level playing ground is provided to the DISCOs.

Overall, the Nigerian power sector currently has a capacity to generate 13000 megawatts of power supply with only 4000 megawatts available on the national grid. Continuous vandalism of obsolete pipelines is one of the greatest challenges facing effective power delivery in the country. Only a third of the power generated is successfully transmitted to gas stations for distribution. The operation of the fully owned Transmission Company of Nigeria (TCN) is thus necessary to be bolstered.

Other communities in Nigeria can also take advantage of the Premium Power Purchase Agreement, in line with the Federal Government policy similar to that signed by highbrow areas in Lagos. Communities currently in such agreement include Magodo, Victoria Island, Banana Island amongst others.

In 2019, Ikoyi, Victoria Island and Banana Island residential associations came into a deal with the Eko Distribution Company (EKDC). This has seen the power supply soar to 20 – 22 hours per day. The Ikeja Distribution Company (IKDC) is also in agreement with the Magodo Residential Association to supply power not available on the grid at an extra cost. Today, Magodo is reported to enjoy 23 to 24 hours’ power supply as benefit from the premium power plan.

The Premium Power initiative is a power purchase agreement that entails a commitment to specific service level standards while the customer agrees to pay a tariff that is above the current MYTO tariff. The Discos get to find their way around the existing regulatory and pricing (tariff) challenges using this arrangement.

“By this agreement, IE will provide Magodo residents with electricity supply beyond the existing standards with guaranteed performance levels. In addition to the improved supply of electricity to the Estate, there will also be access to dedicated Customer Care and Technical teams for prompt resolution of queries and/or technical issues within the Estate.” A statement released by Ikeja Electric noted

Also, the Chief Operating Officer of Ikeja Electric, Mrs. Folake Soetan, noted that such agreement was in line with the Federal Government’s “willing seller, willing buyer” policy.

“We are confident that this agreement will serve as a model for other power agreements in the power sector because, while it is in line with the Federal Government policy, it also reflects our unwavering commitment to our customers. This has also been made possible by the Nigerian Electricity Regulatory Commission’s directive to DisCos to provide an enabling environment with exceptional service delivery,” she said.

While power generation capacity looks stable at the moment, the government should consider other sources aside from natural gas and hydropower.

Coal, biomass, wind, geothermal, and solar power are available to be used to benefit power generation.

Human resource expertise in the sector is also a key issue. A newly appointed Minister of Power by President Buhari – Abubakar Aliyu, was quoted to have said. “I am not an electrical engineer or had anything to do with power in the past, but I am an engineer and I know when something is going wrong I will detect it.”

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