New Recovery Plan to Rescue the Electricity Market

A series of policy actions embedded in a new plan – the Power Sector Recovery Programme – which the federal government initiated with the World Bank, could help Nigeria’s privatised electricity market get out of its current difficulties. Chineme Okafor reports

It is obvious that Nigeria’s attempt to restructure her power sector for optimal efficiency dates back to 2001 when the National Electric Power Policy (NEPP) was initiated, and then followed up with the passing of the Electric Power Sector Reform Act (EPSRA) into law in 2005.
With the EPSRA in place then, the unbundling and privatisation of successor companies of defunct Power Holding Company of Nigeria (PHCN) was done, and completed in 2013.

But before the privatisation was settled, a ‘roadmap’ to guide in setting standards or determining the course of action for the exercise was established, and it was from its proposals that the government attempted to create a competitive, efficient and private sector-led power market for Nigeria.

However, just about four years after the successor generation and distribution companies of defunct PHCN were handed over to their private sector investors, the electricity market cannot from its current offerings, be said to have taken off to an efficient progression.

Today, the sector which initially held out hopes of improvement and stable electricity services to Nigerians, has remained fraught with lots of troubles comprising underdeveloped transmission and distribution infrastructure, very poor financial liquidity, and often politically-influenced governance systems, all of which have kept it down and inefficient.
In view of the obvious fact that the sector needs some quick and stable intervention, the federal government and the World Bank came up with the PSRP to recover the prospects of the market, and of course, support its drive for an ‘incremental, steady and uninterrupted’ power supply in the country.

PSRP offers promises of reform
Justified by the gas, generation, transmission and distribution infrastructure constraints, inadequate retail electricity tariff, sector financial shortfall worth N420 billion, and other market governance challenges, the PSRP has promised to reset the way the market operates and encourage diverse investments that could enable it to grow its opportunities as was initially intended.
In it, the government said it has embedded, “a series of policy actions, operational, governance and financial interventions,” to be implemented by it over the next five years, and from which it hoped to restore the financial viability of the power market.
It also stated that within the PSRP, it would seek to improve market transparency and service delivery, take up consumer satisfaction as priority, and reduce losses and energy theft recorded by the market. All these, it explained would holistically add up to in the next five years gift Nigeria a brand new power market that would be responsive and responsible.

Components of PSRP
In a clear-cut explanation, the government said its PSRP would restore the financial viability of the market, improve supply reliability, strengthen market’s governance, as well as place a premium on transparency and contract-based market.
However, a detailed review of the component of the PSRP indicates that within its operational timeline of 2017 to 2021, the government would first commit to fund projected future sector deficits, as well as required market support measures until tariffs are adequate enough to support the market’s liquidity.

To accomplish this, the government said, “the Medium Term Expenditure Framework (MTEF) and other federal government budgets to include provision for this funding.”
Being that the lack of a deep financial base has remained a major challenge to the sector, the government equally stated that it plans to in the PSRP, eliminate historical revenue deficits of the sector worth N420 billion, as well as debts owed the market by its Ministries, Departments and Agencies (MDAs).

The PSRP would also ensure that payments for future electricity services to government’s MDAs are netted through a payment mechanism to be developed by it, allow the sector to operate a cost reflective tariff, as well as meet up with its approval of the Central Bank of Nigeria (CBN) to support the Nigerian Bulk Electricity Trading Plc (NBET) with a N701.9 billion facility to guarantee its payment obligations to the generation companies.
Similarly, it would pursue the promise of the World Bank to support the sector recovery efforts with a financial facility totalling $2.5 billion, as well as keep a baseline daily power supply of 4500 megawatts (MW) across Nigeria.

The Discos which are largely accused of inefficiency in the market, would also be covered by the PSRP as it would push to see them improve their performance through a balanced incentives. These incentives would involve thought-out metering programmes, upgrade of distribution and transmission interface, restructuring and recapitalisation of Discos’ financial frameworks, and implementation of credible business continuity models, to aggressively drive down their Aggregate Technical Commercial and Collection (ATC&C) loss figures.

On the governance of the market, the government has also promised to through the PSRP, restore proper governance framework to the sector, in which it would appoint only credible and qualified persons to represent its interests in the Discos and related agencies that run the industry.
It equally said it would go for a data-driven process of decision-making to boost the sector’s transparency, in addition to encouraging a bi-lateral power contract system to promote competition and efficiency in the market.
These actions, it noted would be constantly monitored by a dedicated team drawn from the office of the vice president, and power ministry over the course of its implementation, to ensure they follow the set objectives.

Need for resourceful execution

Though the government may have initiated actions that seem to suggest it is already putting its hearts to the PSRP, especially starting with the approval and drawdown of funds from the N701.9 billion CBN facility to the NBET, amongst a couple others, industry authorities however feel that unless fully executed with no reservations, the PSRP could end up as another piece of government’s many policy intentions that never achieved its full potentials.

Operators, who shared their thoughts on the PSRP with THISDAY, indicated their fears of the government abandoning the plan midway in its implementation. They based their fears on Nigeria’s well-known uninspiring approach to following up a plan to accomplish its final goal.

Specifically, they noted that being a time-bound policy, the absence of a clear-cut implementation timeline by the government was a source of worry. They also added that the value of such specific timelines included the convenience of stakeholders making business based decisions in line with the programme and its objectives.
They also stated that with a clear-cut timeline in place, key stakeholders would be able to monitor and give back to the government relevant feedbacks to guide its execution of the programme successfully.

“Activity does not necessarily mean progress. We understand the urgency of this, and how important the PSRP is to the sector, but then, you must understand that progress of any endeavour is not measured by mere activities in that regards but by the impacts which should be part of its KPIs, what are the KPIs for the PSRP and time pegged to their accomplishments,” said an expert who preferred not be named in the paper.

Further on its implementation, the expert stated that it would almost be reckless of anyone or operator in the sector to disregard the potential impacts of political interferences on the implementation of the programme.

According to him, “The government seems to want to spend its way through the periods there would be a cost reflective tariff in the market, meaning that it would provide subsidy to the market. It said it would do this through the MTEF and annual budget, but has it convinced the National Assembly of this?

“Secondly, we have the NERC still without a substantive chairman, which does not seem to me like a good arrangement in terms of regulatory independence for market transparency. By 2018, this government would become busy with politics again, and perhaps push aside the need for a substantive chair for the NERC.”

“Besides, the Discos say they do not know the terms of the PPAs the NBET has with the Gencos. All these are very essential. If the government cannot fix the simple things of placing a time on the action plans of the PSRP, then I would be too cautious to expect a lot from it,” he added.