Promoting a sustainable energy policy environment in Nigeria

By Akachukwu Okafor 28/04/17

energy-access

Sometimes I wish that Nigeria’s power sector challenges are solved so that I will have less to write on, but this seems not to be happening as issues keep arising in this large and troubled electricity market with its various actors and stakeholders.

After my last publication on the feasibility of the power sector recovery plan, I received several messages from key sector players including from a diplomatic mission commending the article’s insightfulness and asking that I share a copy of the recovery plan if I had it. At the time the last article was published, I did not have the plan and my preliminary analysis was based on the media briefing by the Minister of Power after the approval of the plan. However, I have obtained the plan now and I hope to further analyse the plan based on the specific programmes it hopes to embark on. The feedback I found most interesting was from a former Chairman on the Technical Committee of National Integrated Power Project (NIPP) who was not happy that I did not emphasise how DISCOS, in truth, collect a lot of revenue, but turn around to claim to other market players that they collect little and are operating at a loss. He described DISCOS as the problem of Nigeria’s electricity sector for not remitting revenue and refusing to invest in upgrading their infrastructure.

I promised to be more critical of all players in the sector especially DISCOS as I have always been (and as allowed by word count – it will take not less than a 5,000 word article to analyze how DISCOS are a big problem for Nigeria’s electricity sector). I still do not understand how the government strongly believes that DISCOS operate two accounting books and yet, have not taken appropriate and necessary actions to ensure that they are more transparent and accountable. This lack of transparency and accountability helps in the low revenue base of the power sector which starves it of the finance it critically needs for reforms and recovery programmes. Interestingly, these and other issues including enforcing corporate governance from power sector operators, enforcing market discipline, developing a coherent strategy to resolve militancy and making a definite policy statement on tariff are among sector issues that the World Bank listed as conditions for the release of $1 billion needed to help fund power sector programmes.

Speaking of definite policy statements, according to a World Bank global scorecard for policy makers which compares the national policies and regulatory frameworks for sustainable energy amongst different countries, Regulatory Indicators for Sustainable Energy (RISE), February 2017, Nigeria ranked amongst the worst countries with regard to enabling policy environment for energy access, energy efficiency and renewable energy. Of 111 developing and developed countries studied which represents 96 percent of the world’s population and energy consumption, Nigeria scored very low for the three categories. For energy access, Nigeria ranked 10th worst country ahead of Liberia, Yemen, Mauritania, South Sudan, Sierra Leone, Chad, Haiti, Central African Republic and Somalia in that order. Countries that performed better than Nigeria include – Afghanistan, Congo Republic, Madagascar, Ethiopia, Eritrea, Niger, Togo, Sudan, Honduras, Mozambique. For energy efficiency, Nigeria was ranked 8th worst ahead of Somalia, Mozambique, Chad, Loa People Democratic Republic, Mali, Mauritania, Congo Republic while Niger, Central African Republic, Liberia, Vanuatu, Solomon Islands, Yemen, Burundi, Myanmar, Maldives, Haiti, Zimbabwe, South Sudan were among 12 countries that performed better than Nigeria. On the renewable energy category, Nigeria was ranked 21st ahead of Somalia, Haiti, Sierra Leone, Eritrea, South Sudan, Niger, Mauritania, Bahrain, Liberia, Congo Rep while Uzbekistan, Mozambique, Benin, Burkina Faso, Saudi Arabia, Kuwait, Cambodia, Congo Democratic Republic, Qatar were listed countries that performed better than Nigeria.

Although Nigeria’s renewable energy score improved by over ten places when compared to energy access and energy efficiency it was still 4 points below the indicator score mark for low performing countries. Nigeria’s performance on this scorecard will not come as a surprise to people with a good understanding of the energy sector in Nigeria. Space will not allow me analyse the report in detail. For instance, on the energy access category, Nigeria’s overall score for energy access was 22 and 0, 0, 17, 35, 22, 100, 0, and 0 for existence of plan, scope of plan, grid electrification, minigrids, stand-alone systems, affordability, utility transparency and monitoring, and utility credit worthiness indicators respectively. The most interesting aspect of these indicators is that consumer affordability of electricity scored 100 which is an indication that electricity consumers can afford to pay the cost of electricity.

This situation seems to be well understood by government and key electricity market players which may be what the Nigerian government is exploiting in its continued push for a cost reflective tariff for the market. However, consumer affordability of electricity is clearly different from willingness to pay for electricity which is one of the challenges that the grid sector is facing. The problem of willingness to pay borders on social issues of distrust with public utilities and citizens’ perception of government’s role in providing utilities which is mostly informed by politicians’ election campaign promises. The scores of the other indicators means that government has a lot to do in making the right policies and setting the right regulatory frameworks for an enabling environment that accelerates sustainable energy access.

On energy efficiency, Nigeria’s overall score was 11 out of 100, and this equally doesn’t come as a surprise especially when policy makers are not knowledgeable about their responsibilities to the sector. For instance, the Senate Committee Chairman on Power, Senator Enyinnaya Abaribe while responding to a question on how energy efficiency in Nigeria can be increased said that it is the job of energy efficiency appliance vendors to educate Nigerians on energy efficiency as it is not the job of government to lead energy efficiency programs, or in extension make enabling policies.

Unfortunately, the Nigerian Electricity Regulatory Commission (NERC) which should be helping policy makers better understand the sector which they are to make policies for and also supervise are not doing enough. A check on the capacity building programmes designed for legislators will reveal that most of the capacity building programmes are not specifically designed for policy makers in Nigeria’s difficult regulatory environment. Most capability building programmes are via sponsorship to international conferences that will add little or no knowledge for making the right country-specific power sector policies. The legislative committees, relevant government ministries and departments and agencies on power also lack experts who should help in crafting the right policies asides other capacity, institutional and bureaucratic challenges that trouble the sector.

Renewable energy is performing better than other categories; however, there are a few practices by some project implementing stakeholders especially government energy agencies and projects that are not only unhealthy for the immediate growth of the sector, but which will in the medium term, help destroy the progress being made by other stakeholders. These practices include poor design of projects, wrong costing of projects and lack of transparency in procurement and contract processes which lead the implementation of projects that fail within a short time. This gives a bad name to renewable energy technologies and products. To help promote sustainable energy in Nigeria, government must do what is necessary, not just in formulating enabling policies and regulations for growth but to ensure that these policies are implemented and enforced appropriately in line with best practices. While government and other stakeholders are working towards creating a more enabling sustainable energy policy environment, consumers must realize that they hold the power to wheel the ship of policy in the direction they desire, which can only happen when consumers effectively engage with the policy and regulatory making processes.

 

Okafor Akachukwu is the Energy and Environment Editor, The Initiative for Policy Research and Analysis (InPRA) and a Science Policy Research Unit (SPRU), University of Sussex trained Energy Policy, Innovation and Sustainability Expert. Email: akachukwu_okafor@yahoo.com

 

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The feasibility of the power sector recovery plan

By Akachukwu Okafor 06/04/2017

Trasmission

From a preliminary analysis of the recently developed power sector recovery plan approved by the Federal Government, it is not a feasible recovery plan in the medium and long term. The measures are designed as interventions to stabilize the collapsing power sector rather than help it recover. The plan will not effectively solve the liquidity problems in the sector and the cost reflective tariff only a measure that might further throw the sector into challenges if other measures are not planned for and implemented synchronously.

The power sector recovery plan comprises a wide range of pet policy actions, operational and financial interventions which intends to help improve transparency, service delivery, performance of DISCOS, transmission companies and the entire value chain. In specific terms the plan provides for simplifying and reducing the cash deficits in the sector; how to make the DISCOS viable, accountable, responsive to customers and to ensure stability of the grid and expansion of the grid and transparency and communication within the sector, in addition to how to improve sector governance and the quality of personnel on the board of the DISCOS. Other provisions of the plan include addressing access to renewable energy using mini-grids and stand-alone solutions and implementing solutions that have been developed for 37 federal universities and seven tertiary hospitals as well as stopping the vandalization of gas pipelines which will help stimulate appetite for investment in Nigeria’s power sector. These measures sound brilliant in theory, how they will be effectively operationalized remains to be seen or made public.

Direct financial interventions to solve institutional and organizational incompetence – gap in skill, knowledge, capacity and capabilities and problematic perspective of the system is not an effective way of solving market failure challenges. For instance, the liquidity problem being experienced in the sector is mainly due to DISCOS unwillingness to make the necessary investments to reduce their aggregate technical, commercial and collection (ATC&C) and entire system losses. I was recently informed by a power sub-station duty engineer that he has over 50MW of power sitting on his substation, but the DISCO in the area only accepted to collect 14MW. The result is that the remaining 36MW will waste and because it was generated, and must be paid for somehow. He further said that DISCOS preferred to accept a small fraction of what is allocated to them and leave the rest with Transmission Company of Nigeria (TCN), while they charge the customer the ‘fixed charge’ of being connected on the grid with or without electricity. This practice is said to be more profitable to DISCOS as they don’t need to share their earning with anyone. Liquidity challenges in the sector cannot be solved when key system players are involved in rent seeking practices. It is difficult to see how government plans to simplify and reduce the cash deficits in the sector by approving a Power Assurance Guarantee of N701 billion Naira for Nigeria Bulk Electricity Trading (NBET) to pay GenCos for gas supplies from this year to December 2018 when there is no plan that equally guarantees that the funds will be collected within the market by DISCOS. How subsequent power guarantees to GenCos beyond 2018 will be secured not yet known.

Making DISCOS viable, accountable, responsive to customers is more of what government wishes that DISCOS do but not what they can be in the near term. It is public knowledge in the sector that DISCOS are grossly incompetent in managing their asset, delivering quality service and have consistently refused to do so. Part of their poor attitude has been traced to how the privatization was handled. The Minister of Power in May 2016 during the presentation of a roadmap for solving the power crisis argued that cancellation of contracts and reversing privatization initiatives sends wrong signals to investors and past reversals failed in solving the problems that caused their cancellations and reversal. However, the Minister has failed to point out that these reversals failed because the process of initial engagement, reversals and renegotiations to correct previous problems are flawed by illegitimacies, lack of transparency and ridden with outcomes that satisfied the selfish interests of powerful and influential actors in the sector. I believe that investors would be happy to see reversals and reprivatisations that are transparent and are in accordance with provisions of the law and international best practices.

There are indications that there are other financial interventions asides the N701 billion Naira planned (or budgeted) for the sector which might be in the form of subsidies and introducing a cost reflective tariff that will help reduce the cash deficits. These were positions advocated by the then acting chairman of Nigeria Electricity Regulatory Commission (NERC), Mr Anthony Akah in January this year, and hinted on by the Minister of Power while briefing newsmen after the approval of the power recovery plan. The Senate Committee Chairman on Power, Senator Enyinnaya Abaribe, while answering at a public dialogue before the approval of the recovery plan, advised government to carefully determine if it is power or petrol that it must subsidize and warned that government should not give money to DISCOS. Subsidies have never worked in Nigeria; it has always been a scam. It doesn’t exist. Even when it exists it doesn’t benefit most of the population. It benefits only the rich and vested interests. Subsidies for the power sector will only elongate and complicate Nigeria’s power sector difficulties. Government should rather embark on a sector wide campaign to enlighten electricity consumers on the positive effects of not subsiding power or petroleum products on the economy and provide a plan to help stabilize and manage the short term economic difficulties that will arise. Subsidising power is not part of the solution, rather DISCOS should invest in upgrading its distribution network to reduce ATC&C losses and improve its collection measures to capture more consumers who currently do not pay for electricity consumed. There are suggestions that the business model that the DISCOS currently operate is a model that collects revenues from willing-to-pay-consumers, while unwilling-to-pay-consumers are not targeted to pay for power consumed. The proposed cost reflective tariff which is really an increase in tariff should be put on hold while government and DISCOS develop and implement a plan that ensures that all consumers that use electricity pay fairly for what they consumed. The inefficiencies in the systems especially on the part of DISCOS should not be passed on to consumers who are not protected by the system. This I believe will help solve the cash deficit problems in the sector. Government should not subsidize electricity and should also not increase tariff, unless an increase in tariff is a deliberate measure by government to push people off the grid for renewable energy alternatives – which is a brilliant measure. Unfortunately, this is not what the government plans to achieve. Perhaps a more careful study and understanding of how the market i.e. consumers will respond to the introduction of a cost reflective tariff is what government should be interested in at this moment, so that it doesn’t create more problems for the grid sector. That said, it must be made clear that an increase in tariff may increase energy efficiency (EE) measures, especially by commercial consumers that are more likely to access finance to implement energy efficiency mechanisms. Also, pursuing an energy efficiency plan is a more conscious consumer and policy driven plan which only informed consumers will be willing to take, even though there may be difficulty in change of lifestyle and business process.

Energy efficiency is an energy demand reduction mechanism that is missing in the power recovery plan, at least from the briefing that the Minister of Power gave. This has the capacity to increase the number of consumers that are served by the same quantity of energy that previously didn’t serve a lesser number. An Energy efficiency plan being included as part of the power sector recovery plan is an opportunity to link the recovery plan to Nigeria’s energy efficiency contribution in her Intended Nationally Determined Contribution to the Paris Agreement which is a 30% energy efficiency improvement by 2030, which is a measure that will help attract investments. The structure of the current mini-grids regulation is part of measures that will not effectively assure a quick power sector recovery. These and more I would be analysing in the future.

 

Okafor Akachukwu is the Energy and Environment Editor, The Initiative for Policy Research and Analysis (InPRA) and a Science Policy Research Unit (SPRU), University of Sussex trained Energy Policy, Innovation and Sustainability Expert. Email: akachukwu_okafor@yahoo.com