10 Years After Privatisation, Stakeholders Push for Cost-reflective Tariffs to Attract Investments, Save Power Sector

FOCUS

•Tinubu: Insists privatisation yet to meet its objectives 

•Mainstream chairman says funding, power theft major challenges

•NERC extends expiry date for Discos’ licences till 2028 

•Adelabu: It’s shameful Nigeria has only 4,000mw, liquidity low

Emmanuel Addeh in Abuja

Major stakeholders, including top government functionaries, industry operators, regional electricity providers, among others, yesterday converged on Abuja for the Nigerian Electricity Supply Industry (NESI)  Market Participants and Stakeholders’ Roundtable (NMPSR) to mark the 10th anniversary of the privatisation of the power sector in Nigeria.

Speaking at the opening of the three-day event, President Bola Tinubu, described it as the perfect opportunity to reflect on the progress achieved and the challenges faced since the unbundling and privatisation of the sector.

Noting that the key objectives of the privatisation effort were to improve the efficiency of the power sector and unlock private sector investments, the president stressed that the objectives of the privatisation programme were yet to be attained.

He was represented by the Special Adviser to the President on Energy and Power Infrastructure, Office of the Vice President, Sodiq Wanka, during the event themed: “NESI Privatisation and Its 10-year Milestone: The Journey So Far, Opportunities and Prospects.”

“Ten years on, I believe it is fair to say that the objectives of sector privatisation have by and large, not been met. Over 90 million Nigerians lack access to electricity. The national grid only serves about 15 per cent of the country’s demand.

“ This has left households and factories to rely on expensive self-generation, which supplies a staggering 40 per cent of the country’s demand. What is worse, is that the total amount of electricity that can be wheeled through the national grid has remained relatively flat in the last 10 years.

“The grid capacity has increased from just over 3,000mw to typically just over 4,000mw today versus a 40,000mw target by 2020 that the federal government had set pre-privatisation,” he lamented.

Tinubu pointed out that the reasons for the underperformance of the sector in the last decade were already well known. He listed them as: deep commercial, governance as well as operational issues that have beleaguered the sector.

“As of Q2 2023, for every kWh of electricity sent to the grid, only 60 per cent of it is paid for. But as we know, even the tariff paid for that unit of electricity is far from being cost-reflective, especially in light of recent devaluation of the Naira.

“The sector has suffered from chronic underinvestment, especially in transmission and distribution. Many of the successor utilities of the PHCN have failed to meet their performance improvement targets due to technical and financial capacity issues.

“ We are in a vicious cycle of under-performance and under-investment, and everyone has a different view of which value chain player should be blamed for continued sector malaise,” he added.

To move forward, the president explained that in the short term, the sector must intensify efforts to address commercial issues and improve the investment attractiveness of the sector.

According to him, only around 45 per cent of NESI customers are metered today, with wide variations across Distribution Companies (Discos).

The scale of investment needed to meter current and new customers and replace obsolete meters, he said, is not trivial.

However, he stated that the government was committed to supporting the metering drive through the World Bank programme which should add at least 1.25 million meters, while activating the Meter Acquisition Fund (MAF) to procure another 4 million meters.

Nonetheless, the president said that the long-term sustainable metering should be within the remit of Discos and their partners.

“We need to have a clear plan to rebase tariffs, so we recognise the real costs and loss levels of the entire value chain, and we allow for adequate cost recovery for investments.

“We need to be clear on what shortfalls are and how we will finance them. And there must be a clear path to extinguishing historic sector debts to various value chain stakeholders. A reconciliation exercise in this regard is already underway,” he revealed.

Operationally, Tinubu stated that there a number of key imperatives that the sector must pursue, noting that with 80 per cent of grid generation today being from gas, he intends intend to convene all relevant stakeholders to develop a gas policy for the power sector delineating where the power sector will get gas from and how it will pay for it.

Stressing that Nigeria cannot build a sector on best endeavour arrangements, the president advocated what he described as  a single source of truth in terms of data in the sector.

“ We have to create an environment where the worst performers do not continue to drag the sector down.

“All licencees must not only have the technical capacity to deliver on their licence, but must also have the financial muscle to invest and grow their operations. Preliminary analysis shows that Discos today are under-capitalised to the tune of close to N2 trillion.

“We must facilitate a reorganisation and a recapitalisation process that brings in new partners and new capital to jumpstart performance in this critical section of the value chain,” he noted.

However , he explained that customers have differing abilities to pay and must be protected through the operationalisation of the power consumer assistance fund and other cross-subsidization schemes.

Also speaking, the Chairman, Mainstream Energy Solutions Limited, Col. Sani Bello (rtd), described the last 10 years as a decade of challenges and achievements for the sector.

Noting that the industry has evolved and has made positive strides and impact on the Nigerian economic landscape through investments in capacity recovery, Bello explained that for instance, in the Hydropower space, since the company took over the Kainji and Jebba hydropower plants, it has rehabilitated both plants and currently having an available combined capacity of 1002mw.

“It is pertinent to note that despite these achievements in the sector, energy transmission and distribution still poses a severe challenge to a functional NESI due to the state of the infrastructure and requires significant capital to finance its rehabilitation and expansion.

“The total generation installed capacity of about 13,000mw is more than the transmission capacity of 8,000mw with the distribution sub-sector taking up less than 5,000mw.

“This indicates the need for increased/enhanced investments in these sub-sectors of NESI to further boost energy supply to end-users.

“The major challenges we continue to battle with today is the lack of cost reflective tariff that will provide sustainable liquidity for the entire value chain, strengthened laws and enforcement of these laws.

“Also there is need to criminalise and deter energy theft as well as non-payment of electricity bills. We also implore that all arms of government and government agencies also pay all their invoices to the NESI.

“This will serve as the leading example to the populace to sustain and support the sector. Additionally, multiple taxation, levies on the value chain have hindered the growth of this industry and prevented the inflow of investments to the sector,” he noted.

According to Bello, the ever-present liquidity challenge exacerbated by inflation and a dearth of foreign currency continues to affect industry operations.

“While we acknowledge the effort of the current administration in trying to resolve and improve the foreign exchange environment, we look forward to a way out that will midwife an enabling environment for existing and prospective investors to thrive within the NESI,” he added.

Also speaking, the Senate President, Godswill Akpabio, stated that the gathering was not one for patting each other on the back, but one for sober assessment of what has been achieved, what has not been achieved, why it has not been achieved and how players can ameliorate the impediments.

Noting that little progress had been made, he pointed out that the Electricity Act, 2023, sought to address the inconsistencies, the areas of lacunae and incorporate changes borne of the evolution of a privatised NESI.

These, he said, will establish the grounds of a broader participation of the states in the electricity value chain, as well as put in place mechanisms to dissuade those who would increase the challenges by stealing electricity or vandalising related equipment.

“I shall look forward to receiving a copy of the resultant documentation, containing recommendations that will, I hope, move NESI forward- as we in the Senate are also open to working in partnership with the specialists of NESI,” Akpabio who was represented by Senator Eyinnaya Abaribe stated.

Speaker, House of Representatives, Tajudeen Abbas, represented by Victor Nwokolo, who heads the power committee of the House, said that power continues to be a significant obstacle to Nigeria’s development.

“There is no gainsaying that one of the factors that have hindered economic development in our country is epileptic electricity supply and lack of some other basic infrastructure.

“The current estimation of energy delivery of 4,000mw to a population of over 200 million Nigerians is grossly inadequate and falls short of efficient service and limits business opportunities, hinders investments, and raises the cost of production and goods for consumers.

“We must delve into why privatisation has succeeded in other countries but has not yielded the same results in Nigeria. Additionally, we need to understand why smaller neighbouring countries that rely on Nigeria for electricity have stable power supply while we continue to experience frequent outages.

“It is crucial that we identify the mistakes we have made and determine what actions need to be taken by the government to ensure the success of this sector,” he said.

Director General of the Bureau of Public Enterprises (BPE) Mr Alex Okoh, said the initial reform was to address the persistent challenges that had plagued the electricity supply industry for decades.

“Integrity demands that we admit that we are not be where we ought to be, with regards to the original intendment and vision of the reforms, and some may even go further to say that we are far from where we set out to be.

“We must however, not dwell on the past shortcomings nor engage in the easy but unhelpful exercise finger-pointing. Should we decide to do that, there would be more than enough fingers pointing at every one in and outside of this room.

“Please bear in mind that post-privatisation, there were years of mutual non-performance by both the private sector and public entities, huge market and tariff shortfalls, creating a huge liquidity problem and an imposing debt profile in the market, and other issues such as severe lack of investments, invariably creating a complex web of challenges which now face the sector.

“Virtually all of us in these room know these challenges and we do not need to continue to dwell on them. What will be helpful is to jointly and constructively focus on what can be done to resolve these issues and achieve optimal performance of the NESI,” he said.

Despite some progress, he stated that there have been persistent challenges in the sector, including issues related to tariff adjustments, gas shortages, market discipline, financing challenges and the need for further infrastructure investments.

 The Minister of Power, Bayo Adelabu  in his comments, stated that it was shameful that Nigeria, a country of over 200 million people only has access to 4,000mw of power.

Stressing that Tinubu remains committed to changing the narrative, he pointed out that the renewal of licences for the Discos will not be automatic , but will need to go through a lot of vetting.

Also, the Nigerian Electricity Regulatory Commission (NERC), represented by the General Manager in Charge and Head of Market, Competition and Rates, Sharfudeen Mahmoud, revealed that the controversy surrounding the renewal of licences for Discos should be laid to rest.

He noted that instead of the initial 10 years, which should have expired this year, the expiry date for the permits have since been deferred to 2028.