Five Years After Privatisation Blame Game Still Rocks Power Sector
The nation’s power sector is still in crisis with operators trading blame, more than five years after privatisation.
When the Federal Government handed over the nation’s electricity generation and distribution companies to private investors in November 2013, it was widely expected that the power sector would turn the corner in a few years.
If Dr Femi Egbesola was told then that he would still need four generators to run his hospitality business in 2019, he would have shrugged off such statement.
But that is the reality he is contending with currently as power supply from the national grid remains unreliable, hovering sometimes around pre-privatisation levels.
Power generation plunged to 2,390.20 megawatts as of 6.00 am on October 29, 2018, as the number of idle power plants rose from seven to 15. It dropped to 3,456MW on February 24 this year as 1,108MW was lost in seven days.
Egbesola is one among millions of business owners in the country who are forced to depend on generators to power their businesses.
Irked by the poor supply from the grid and the “crazy bills” from the distribution company covering his area, he decided to rely solely on diesel-powered generators.
Egbesola, whose hotel is located in a border town between Lagos and Ogun states, said the huge sum of money being spent on diesel to power the generators every day could have been used to expand the business.
“I spend about N250,000 on diesel every day. You can imagine what that would translate into if I can keep it and use it for other ventures; I would be able to employ more people and this will also help the economy,” he told our correspondent in an interview.
“I run a 500KVA generator virtually 24 hours, and you can imagine how a 500KVA generator gulps fuel. If I have a full house, I run an 800KVA generator. The days that we have very few guests, we run a 350KVA generator. I have four generators; does that not sound crazy to you?”
Egbesola, who is the national president of the Association of Small Business Owners of Nigeria, lamented that not much had been achieved after the privatisation, saying businesses had continue to spend so much on power generation over the years.
In late September 2013, just a little over a month before the handover of the Gencos and Discos to the private investors, the then Chairman, Technical Committee of the National Council on Privatisation, Mr Atedo Peterside, gave some insights into the purpose of the privatisation at a forum organised by the Bankers’ Committee in Abuja.
“The purpose of privatising the Discos and Gencos was not just to transfer ownership of the assets. The primary purpose was to bring into play new owners with ‘deep pockets’ who could finance and/or access financing for the rapid restoration of lost capacity and/or add significant new capacity to make up for decades of government neglect and mismanagement,” he said.
But the financial viability of the Nigerian electricity supply industry remains the most significant challenge threatening the sustainability of the power sector, according to the Nigerian Electricity Regulatory Commission.
It said, “The liquidity challenge is partly attributed to the non-implementation of cost-reflective tariffs, high technical and commercial losses exacerbated by energy theft, and consumers’ apathy to payments under the widely prevailing practice of estimated billing.”
Total available electricity generation in the country stood at 4,708.3 megawatts as of 6.00 am on March 20, 2019.
The Nigerian Electricity System Operator put the nation’s installed generation capacity at 12,910.40MW; available capacity at 7,652.60MW; transmission wheeling capacity at 8,100MW; and the peak generation ever attained at 5,375MW.
From PHCN to private investors: Old problems persist
The entire value chain of the power sector, from generation to distribution and transmission, was managed by the Federal Government until November 1, 2013, when the sector was privatised.
More than five years after the privatisation, the investors who took over the six Gencos and 11 Discos that emerged after the unbundling of the Power Holding Company of Nigeria are still grappling with the old problems in the sector.
The Transmission Company of Nigeria, which manages the national grid, is still fully owned and operated by the government.
On July 2015, the Federal Government took over Yola Electricity Distribution Company following the exit of the core investor after it declared a force majeure, citing insecurity in the North-East region of the country.
The sector is still plagued with problems of gas supply shortages, limited distribution networks, limited transmission line capacity, huge metering gap, electricity theft, and high technical and commercial losses, among others.
NERC, in its report for the third quarter of 2018, said the aggregate technical, commercial and collection losses for all the Discos were still substantially greater than the expected industry average of 21.42 per cent, the allowable ATC&C losses provided in the Multi-Year Tariff Order for the year 2018.
The average ATC&C for the Discos declined to 51.91 per cent in the third quarter from 54.24 per cent during the second quarter.
The regulator said, “The high ATC&C losses reflect low investments in distribution networks aggravated by the low level of metering of end-use customers, thus creating lingering liquidity challenge to the industry.
“The implication of the level of the ATC&C losses in the third quarter of 2018 is that, on average, as much as N5.19 in every N10 worth of energy received by a Disco was unrecovered due to a combination of energy theft, inefficient distribution networks, weak management effort in revenue collection and low willingness to pay by customers.”
Our correspondent gathered that while the Gencos were sold to the highest bidders, the Discos were sold to the bidders with the highest projected reduction in ATC&C loss over the first five years.
In July last year, the Chairman, Jos Electricity Distribution Company Plc, Mr Tukur Modibbo, said the core investor was ready to sell off the company at a discount.
“We bought Jos Disco for $82m; we are ready to give it away for $72m if we see buyers now. If government refunds the investors their money, we will quit the business,” the News Agency of Nigeria quoted him as saying.
The Chief Executive Officer, Association of Nigerian Electricity Distributors, an umbrella body for the Discos, Mr Azu Obiaya, told our correspondent in an interview in September 2018 that most of the core investors would be happy to sell off the assets they acquired in November 2013.
The environment that would have made their investments worthwhile is not there. So, to the extent that it is not there, most of the Disco investors would happily sell the assets to any interested
parties to get back their money,” he said, adding that the investors were not sure of recovery of their investment, not to speak of returns.
Playing the blame game
Over the years, the Discos, Gencos and the TCN have continued to engage in blame game amid the lingering crisis in the sector.
While the Discos see transmission as the weakest link in the electricity value chain, the TCN has often argued that the state of the distribution networks was hampering its wheeling capacity.
In its response to some issues raised by the Minister of Power, Works and Housing, Mr Babatunde Fashola, during a press briefing on July 9, 2018, ANED decried the number of system collapses, saying there was a need for government’s increased focus on strengthening the grid.
The Discos, in a recent statement on ANED’s website, also said the energy sent out had consistently fallen short of the MYOT, 2015 generation assumptions governing their operations and service delivery.
They said, “Sent-out generation is critical for the Discos’ commercial and technical performance. It is the key factor in determining the availability of electricity supply and its price to consumers in any electricity market.
“During 2018, the daily generation sent-out by Gencos has averaged an estimated 91,000 megawatt-hours (3,791.6 MW). However, the MYTO-2015 forecast for the year is 203,976 MWh (8,499 MW), which is more than double the reality of electricity supply.”
According to ANED, the huge deviation has dramatic consequences on the Nigerian electricity supply industry, especially for the Discos, as their revenue requirement assumptions are impossible to achieve by just receiving less energy than they are supposed to receive.
It said, “Since 2015, the compound annual growth rate of the average daily generation sent-out per year has been less than three per cent, which indicates that the generation has not increased due to the lack of new generation power plants, gas constraints, water constraints and grid constraints.”
The Discos noted that the situation was worsened by the failure of NERC to implement six minor reviews to “alleviate the energy volumetric risk associated with MYTO 2015 generation assumptions.”
They said, “Correspondingly, the N1.4tn market shortfall, partially but significantly a product of the commercial impact of the generation deficiencies in the MYTO 2015, has limited the Discos’ ability to put in the necessary investments for network infrastructure expansion, network reliability, metering, customer services, worsening the liquidity crisis in the Nigerian electricity supply industry.”
The Gencos recently complained that their power plants were being forced to operate below their optimal capacity levels.
The Executive Secretary, Association of Power Generation Companies, the umbrella body for the Gencos, Dr Joy Ogaji, attributed the problem to transmission and distribution.
She said, “Specifically, generation companies are pinned down by some operational impediments. The frequency of instructions to either increase load or decrease load (ramp up and ramp down) and, in some cases, shut down, has induced damaging stresses to the components of the machines
“These instructions, reflective of the grid behaviour, are subjecting key electrical components of the power plants to operational stresses. Our available generation has always been steady between 7,500MW and 8,000MW; you can check the records at the National Control Centre, Osogbo.”
The power grid has suffered five collapses so far this year, according to the data from the system operator.
The TCN said early this month that the lack of adequate investment in electricity distribution network by Discos was making power transmission equipment to fail in many parts of Nigeria.
According to it, the inability of Discos to properly invest in distribution infrastructure recently led to the failure of five TCN power transformers in Abuja, Anambra and Benin, a development that may continue if not addressed.
The Managing Director, TCN, Mr Usman Mohammed, disclosed that the firm lost about $10m as a result of the failure of the five transformers.
He said, “Let me tell you why these transformers are failing. The distribution companies are not investing in their networks and because of this, most of our transformers have to supply the customers of Discos directly. So, there is no protection between our equipment and that of the Discos.
“And if there is a fault on their side, it hits our transformers directly and that is why we’ve been having transformer failures. This is why we are calling on the government to come up with a policy directive that will lead to the recapitalisation of the Discos.”
Mohammed also called on NERC “to do a regulatory order that will lead to the recapitalisation of Discos.”
“The blame game among the Gencos, Discos and even government is making nonsense of the whole thing and it seems the government is not shameful about it because some of us were very hopeful when this government started,” Egbesola said.
He added, “We thought that with the supposed sincerity of the government and the kind of person at the helms of affair, in the next couple of months, we were going to see tremendous improvement in electricity. But that is not so.
“Even till today, we don’t have prepaid meters everywhere in Nigeria; we still have crazy bills. So, it shows that it has always been the old thing; the only new things we have are on paper, which have not yet been felt by households and businesses.”
No end in sight to power grid collapse
The nation’s power grid has suffered 98 collapses since the sector was privatised.
It recorded 74 total and 24 partial collapses between November 1, 2013 and February 28, 2019, data obtained by our correspondent from the TCN showed.
According to the NERC, a total system collapse means total blackout nationwide, while partial system collapse is a failure of a section of the grid.
The grid has continued to suffer system collapse over the years amid a lack of spinning reserve that is meant to forestall such occurrences.
Spinning reserve is the generation capacity that is online but unloaded and that can respond within 10 minutes to compensate for generation or transmission outages.
Out of the five power stations meant to provide spinning reserves, none had any actual reserve as of 6am on February 28, with the contracted reserve put at 295MW.
The power stations are Egbin, Delta, Olorunsogo NIPP, Geregu NIPP and Omotosho NIPP.
NERC said to prevent further decline in the grid stability, it would, in collaboration with the TCN, intensify its monitoring and supervision effort to ensure strict compliance with the System Operator’s directives “to generators on free governor and frequency control mode in line with the provisions of the subsisting operating codes in the industry.”
“Furthermore, the commission has approved the extraordinary application by the TCN to competitively procure spinning reserves. This is to guarantee adequate spinning reserves for proper management of the grid by the System Operator,” NERC added.
The System Operator is a division of the TCN responsible for the wheeling of electrons (electricity) from Gencos to Discos.
The TCN boss said in February that the grid achieved frequency control of 49.80 Hertz and 50.20Hz for 65 per cent of the time from December 29 to date.
He said, “This is exactly the same quality of frequency control that Ghana has. Our intention is to go to the next level and we are going to get there.
“The grid, as it is, is not run with spinning reserves, and this is how it was even before we took over. But for the first time, we have done competitive procurement of spinning reserves and we have forwarded to NERC 260 megawatts spinning reserves.
“We are expecting NERC will approve it any time from now because we have done all the consultations leading to the approval. Once NERC approves this and we deploy the spinning reserves, I am going to assure you that system collapse will be a thing of the past.”
Consumers’ endless wait for prepaid meters
The demand for prepaid meters is growing stronger with many consumers groaning over “crazy bills” but the Discos continue to argue that the lack of cost-reflective tariffs was limiting their ability to provide meters.
Early last year, the regulator unveiled what it called ‘Meter Asset Provider Regulation’, which introduced meter asset providers in the sector, to fast-track the roll-out of meters through the engagement of third-party investors for the financing, procurement, supply, installation and maintenance of electricity meters.
But one year after its introduction, the impact of the metering initiative has not yet been felt by consumers as the outcome of the procurement of MAPs by Discos has not been announced by the regulator.
The Chairman/Chief Executive Officer, NERC, Prof James Momoh, said since the privatisation of the sector, there had been a constant decline in the provision of meters to existing customers by the Discos while new customers had been added steadily to their networks, contributing to a significant metering gap.
He said in the January edition of NERC’s newsletter that investigations by the commission revealed that a total number of 5,172,979 electricity customers were registered as of May 2012, but only 2,893,701 had meters.
He noted that the Discos signed performance agreements with the Bureau for Public Enterprises in 2013, with the provision of 1,640,000 meters expected annually over the next five years.
The NERC boss, however, said the Discos failed to abide by the performance agreement terms and also failed to effectively meter customers under the Credit Advance Payment for Metering Initiative.
“This setback meant that by December 2018, the number of customers had risen to 8,342,880 with 3,558,692 metered and a total of 4,784,188 unmetered and billed on estimates,” Momoh added.
He noted that the Discos had lamented at various times that the tariff granted by virtue of the MYTO 2015 remained insufficient for them to carry out the required investments in electricity infrastructure, comprising metering, network clean-up, customer enumeration and improvement to network assets.
MYTO was intended to set electricity tariffs for consumers over a 15-year period beginning from 2008 to 2023, with minor reviews of the pricing mechanism to be done twice a year and major reviews every five years.
The variables that are to be considered during the minor review are the cost of fuel (gas price), foreign exchange rates, inflation rate, and actual available generation capacity.
In February 2016, the regulator commenced the implementation of a tariff hike of over 45 per cent. No review has been done since then.
Commenting on the MAP regulation, Momoh said, “The commission is currently reviewing the procurement process in the Discos, having appointed tender auditors to audit the Discos and ensure that the Meter Asset Providers appointed are the outcome of a transparent, cost-effective process that will guarantee Nigerians best price of qualitative meters.”
He said the commission was reviewing all submissions by the Discos on the procurement of their MAPs, adding, “The MAPs will work with the Discos to ensure that the metering gap is closed.”
Stakeholders proffer solutions
The ASBON president, Egbesola, shares the view that the resolution of the lingering challenges in the power sector would lead to significant improvement in electricity supply, which he described as critical to economic development.
“We need a total resolution of the problems in the sector. The operators need to put their act together,” he added.
In October last year, the Director-General, Bureau of Public Enterprises, Mr Alex Okoh, said the review of the performance of the Discos would take place before December 2019.
He said the five-year performance agreement for all the Discos, with the exception of Kaduna Disco, became effective on January 1, 2015 and the fifth year anniversary for final performance review would, therefore, be December 31, 2019.
But the General Secretary, National Union of Electricity Employees, Mr Joe Ajaero, described the declaration of December 31, 2019, as the final performance review date as “a negation of the performance agreements, which provides for a five-year tenure stipulated in the Memorandum of Understanding and Power Privatisation Act during which the core investors in the Discos are required to fully achieve far-reaching efficiency improvement target.”
“We are worried that since the core investors took over the privatised electricity assets on November 1, 2013, their performances have been abysmal, with Nigerians bearing the burden of paying outrageous/estimated bills since they have refused to provide their customers with prepaid meters,” he added.
The Director -General, Lagos Chamber of Commerce and Industry, Mr Muda Yusuf, said a lot of issues needed to be addressed in the power sector.
“The current system is too centralised; we are too dependent on the national grid. We need to decentralise so that we have pockets of generating companies that can manage specific locations in the country,” he said in a telephone interview with our correspondent.
The Managing Director, Eko Electricity Distribution Company Plc, Mr Adeoye Fadeyibi, told our correspondent on Tuesday that some improvement had been recorded in terms of electricity generation, grid stability, and meter roll-out.
He said, “We have made progress but compared to where we want to be, there is a lot of work to be done.
“We have to see a relative increase in power supply that is quantifiable and sustainable; we have had a lot of ups and downs but that is not what we are looking for. For me, that is the biggest challenge.”
Fadeyibi said blame game should not be allowed to disrupt the progress already made in the sector or “what we are trying to achieve”.
“Yes, there will continue to be finger-pointing, but finger-pointing does not solve the issues. We need to focus on the issues while we deal with our differences,” he added.
The President, Electricity Consumers Association of Nigeria, Mr Chijioke James, said, “The way forward for the sector is clear: All the parties should comply with the legal framework that guides their operations. I believe the problem we have is implementation of ground rules. We have a situation where people want to subvert the process. We should, as a nation, begin to build strong institutions.
“The blame game they are playing is that all the parties are subverting the framework. Let the rules be obeyed by all the parties. If that is done, then we can make progress. There is no reason for blame game if everybody complies with the rules.”