• Sunday, May 19, 2024
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BusinessDay

Rethinking government’s role in the power sector

Nigeria brightens chances of attracting World Bank’s $750m support on ‘improved’ power sector reforms

An expert surfer usually needs to have both feet planted firmly on his surf board as he glides gracefully and purposefully over the crest of the wave he is riding, his eyes laser focused in the direction of his progress, ignoring everything around him including the thunderous crash of the water behind him. A surfer cannot surf successfully standing with one foot on the surfboard, and his other foot trailing in the water. Both feet should be planted firmly on the board. This same approach applies to the leaders of a country in addressing ailing or moribund infrastructure that must be resuscitated as a matter of urgency to prevent economic demise of the country.

The power sector was unbundled and partially privatised in 2013, with a plan to complete privatisation within the decade. The Federal Government of Nigeria (FGN) however retained 100 percent ownership of the Transmission Company of Nigeria (TCN). In 2012 the FGN signed a management contract with Manitoba Hydro International of Canada to overhaul TCN and improve the network. The contract ran for three years, and was renewed for an additional year, after which management reverted to the FGN. By the end of the contract term, it was concluded that Manitoba Hydro made no appreciable improvement to the network.

It is alleged that their apparent non-performance was attributed to political interference by the FGN into Manitoba Hydro’s work during their contract tenure. It was reported that the Bureau of Public Enterprises (BPE) had earlier suggested that TCN be concessioned to a private operator who would be taxed with injecting the required funding to rehabilitate and upgrade the network and operate it efficiently and profitably. This proposal as well as others for private ownership, investment and operation were ignored, and TCN therefore remains in FGN’s hands with its less than 6,000MW transmission capacity.

Government’s participation in the power sector should be strictly restricted to monitoring compliance to regulatory rules and not participation in the power market.

Seven years after the partial privatisation, not only has the privatisation not progressed further according to plan, we appear to be going back to an era where the sector is primarily government controlled with its attendant inefficiencies. Effectively, the government has one foot in the power sector as the regulator, which they should certainly be, and the other foot in as an “investor”/operator, which they should not be. So like a poor surfer, progress is not being made and the Nigerian Electricity Supply Industry (NESI) is not progressing towards the desired target destination of a deregulated, privately owned, well-funded, efficient infrastructure that supports industrialisation of the country, and as a corollary, organic growth of Nigeria’s economy.

Since privatisation of the power sector on November 1, 2013, the national grid has witnessed 83 total grid collapses, and 25 partial grid collapses. Actual power reaching consumers from the national grid continues to remain below 4,000 MW, and some predictions have it that by 2025, this number will remain less than 10,000MW despite new initiatives, continued fund injection and promises by the FGN.

A large part of the issue with the NESI’s growth has been attributed to the non-cost reflective power tariff charged by Distribution Companies (DisCos), which ultimately affects the rest of the NESI value chain, from gas suppliers and transporters, to the Generating Companies (GenCos) who get paid based on the DisCos’ revenue collection from end customers. This issue has been the bane of the sector’s growth and has been driven primarily by the government and its agencies, especially the electricity regulators, including Nigerian Electricity Regulatory Commission (NERC) and the Nigerian Bulk Electricity Trading Plc (NBET).

In a scenario where private companies run the NESI completely, tariffs would be set by these companies based on their cost of producing and delivering electricity to end users plus a margin to allow for a reasonable profit. It would be the sole prerogative of customers to buy electricity from the private companies at the rate it’s offered or to source their electricity through alternate means, including but not limited to private standby generators. In such a scenario, electricity would be treated purely as a commodity, which it is, rather than a social service that the government owes its citizens.

Unfortunately, tariffs are currently dictated by the regulator rather than the companies that are expected to make the required investments that run into hundreds of millions of dollars to improve the sector. It would be expected that an increase in electricity tariff would be accompanied by a noticeable improvement in service in terms of the number of hours of uninterrupted electricity received by a customer per day. The current tariff increase of September 1, 2020, dubbed “service reflective tariff” compels consumers to pay in most cases, more than 100 percent of their previous rate on the condition that they deliver a minimum of 18 hours of electricity each day.

As expected, there has been a large uproar from the populace because they are paying the higher tariff, but not getting the expected service in many locations. Also as expected, this uproar has resulted in the government reversing the increase on September 28, 2020, barely less than a month after the increase, pending the result of a new committee set up by the FGN to review the rationale for the increase.

For how long are we going to continue flip-flopping on the power sector because of the government’s involvement in its operation? Nothing good comes easy, so it is high time to take the tough decision, complete the privatisation, create meaningful policies to guide the NESI and allow it to grow organically for the good of Nigeria and Nigerians.

Chukwueloka Umeh

Dr. Umeh is the Managing Director/CEO of Century Power Generation Ltd and the Group Chief Operating Officer at Nestoil Group.