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

Fixing the broken pieces of Nigeria’s electricity market – 1

By Okafor Akachukwu 13/03/17

electricity-market-2

Nigeria’s power sector is broken, collapsed and needs fixing as many power sector headlines in the past few weeks have suggested. In this year alone, a Punch January 22 caption reads “[Nigeria’s] Power System Collapses Four Times in Five Days”. A THISDAY caption on the same January 22 says “The Perennial Power System Collapse” Two days before January 22, ESI Africa reported that “Nigeria’s Electricity Generation keeps Plunging”. On January 12, Guardian reported, “Power generation drops by 207.1 MW on gas shortage”. The trend of the reportage indicated no improvements which must have necessitated Abuja Electricity Distribution Company (AEDC) to make appeals to their customers over the disrupted power supply. The Ibadan Electricity Distribution Company (IBEDC) had to issue a statement to blame the Transmission Company of Nigeria (TCN) for the power cuts. On January 27, ESI Africa reported that electricity consumers in Onitsha choose to issue the Enugu Distribution Company with a 21-day ultimatum to improve power supply and also install prepaid meters. Then on January 27, ESI Africa reports that the sector regulator – Nigerian Electricity Regulatory Commission (NERC) is seeking government subsidy to rescue the power sector. Very recently on February 7, during a National Assembly workshop on power the President of Senate, Dr Bukola Saraki was quoted to have said that Nigeria power sector was on the “verge of total systemic breakdown” which he attributed to the sale of power Distribution Companies (DISCOs) to individuals and parties who had “no idea about running a proper power distribution business”. The power sector is not on the verge of a total systemic breakdown, it has actually broken down and failing further.

The failing of the power system/electricity market depends on who you ask, when and where. The DISCOs would blame the Transmission Company of Nigeria (TCN) for not allocating them adequate power to serve the customers as well as some of the customers for electricity theft and billions of unpaid electricity bills by both government and private. Government and GENCOS (Generating Companies) blame inadequate gas supplies to thermal plants for low power generation. TCN blame GENCOS for low power generation to transmit to DISCOS and Nigerian Electricity Supply Industry (NESI) for billions it owes it. National Electricity Regulatory Commission on its own thinks that a review of the electricity tariff is due to ensure that tariffs are cost reflective and that the sector is in need of subsidy from government. Some politicians and technocrats think that the privatization of the sector needs to be ‘reviewed’ – whatever that means has to do with the political economy of the sector. Consumers on their part blames President Buhari, the Minister of Power, and DISCOS – who have preferred to be ineffectual in areas they could be very effective. DISCOs have turned themselves into the power sector’s un-cautioned bullies, and NERC has equally failed to prevail them and other actors in the sector to conduct business appropriately. Several deadlines issued by NERC to DISCOS to install prepaid meters for customers (many of whom have paid for these meters) have not been met with February 28, being the latest deadline. Consumers now group themselves in different ways that seem right to them to find solutions.  How else do you know a market that is broken and failing if not by these swarming challenges?

As depressing as the tale of the power sector is especially with continued drop in gas supplies to power plants, the Minister of Power, Mr Fashola has confidence that a policy that leads to more gas plants would be what will fix the system in terms of generation challenges. Asides, challenges with vandalization and liquidity that have adversely affected supply of gas to power plants, there is a looming threat to further development of Nigeria’s gas resources that will guarantee adequate supply of gas to our power plants. Recently, Christopher Akor of Business Day called the nation’s attention to a surreptitious attempt by the National Assembly to amend the Nigeria Liquefied Natural Gas (NLNG) Act that will mandate the company to remit 3% of its annual budget to Niger Delta Development Commission (NDDC). This move is not in the interest of Nigeria’s national energy security. Government has many ways to increase NDDC’s funding base than to further tax NLNG.

It is not surprising to hear about these moves especially when Nigeria’s Energy Commission independently develops Nigeria’s Energy Master Plan, Ministry of Petroleum Resources (MoPR) and Ministry of Power (MoE) are independent ministries and have their different ideas of how the sectors should be ran and for what purpose.

To MoPR, Nigeria’s gas is for export to earn foreign exchange, to MoE, ‘gas would help solve the power problem, maybe we should talk with MoPR to see what can be done’. Then policy makers turn around to say more tax and contributions need to be extracted from the gas sector to fund activities that can be adequately met by other means. What government should be doing at this time is to make development of the gas sector as attractive as possible. For Nigeria’s vast gas reserves to contribute in any significant way that will help solve Nigeria’s power needs especially in the long term, the Department of Gas at MoPR must rise beyond “overseeing” NLNG, West African Gas Pipeline (WAGP) Project, Trans-Sahara Gas Pipeline Projects and other projects it may have entered into and work to ensure that Nigeria’s gas is harnessed for the country’s power needs. The Directorate of Gas and Power at the Nigeria National Petroleum Corporation (NNPC) must also do more than “monitor and support” all LNG and Independent Power Producers (IPP) Projects in Nigeria. Government has to find ways for ministries, departments, directorates, agencies, commissions that work in the energy and power space to work as close knit as possible.

While Nigerians wait for Nigeria’s gas to be turned to power, there has to be new and quick to deploy solutions and alternatives such as renewables – solar, wind, biomass, biofuel, waste, hydro which are solutions and alternatives for today and the future. Government has to recognize and believe that these are feasible and practical solutions and alternatives. The Minister of Power’s view that renewables are not a solution but an alternative is problematic and does not help government in planning and policy development. Renewables on their own are however not “the” solution even when combined with power from gas. Solving other problems around energy efficiency, social, financial, technological, political, organizational, institutional and market services issues are part of the solution for our very complex and complicated electricity market. It is true that the current high forex rate in Nigeria and other factors including high duties, taxes and fuel subsidies adversely affect an accelerated uptake of renewable energy solutions particularly solar. What I see as the most important and key factor that will help fix Nigeria’s electricity market is a successful business model for renewable energy consumer financing. This will disrupt the market in ways that were never thought possible and will force the Nigerian government and other actors in electricity market to get their act together. Renewable energy entrepreneurs must continue to work hard to get this done.

 

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