By Clara Nwachukwu
IN the run-up to the privatisation of the distribution companies, the Federal Government said it hoped to realize an average of N17.6bn monthly revenue from electricity distribution companies by the end of April next year.`
Monthly average revenue from the distribution arm of the Power Holding Company of Nigeria, PHCN, is currently about N10bn, and as such, it is not immediately clear how the 11 distribution companies in the country will realize the amount in view of the very high rate of customer indebtedness to them.
But government said in the new Roadmap for Power Sector Reformed, recently unveiled by President Goodluck Ebele Jonathan, that it is working hard to enhance the operational and commercial performance of the companies.
“The keys to this improvement are the targeted increases in power generation; the targeted reductions in technical and non-technical losses; the introduction of better customer care service programmes; and improvements in collection efficiency. With regard to the latter, the Government’s target is to increase the total collection efficiency of the industry by at least five percent by April 2011,” the Roadmap stated.
The sum is expected to not only will these efforts improve the quality of service experienced by electricity customers but they will also enhance the value of the distribution companies and the prices which the government is able to realise upon their divestiture.
To ensure that the performance targets (both operational and commercial) are reached within the time periods outlined above, the Presidential Task Force on Power, said it has “developed an incentive scheme for the staff of the distribution companies which will offer rewards for good performance and sanctions for poor performance,” without giving further details.
Boosting commercial viability
To boost revenue base and commercial viability of the sector, government called for the establishment of an appropriate pricing regime, to bring the end-user tariff to “a cost-reflective level”.
In government’s opinion, “the tariff as it now stands is significantly below what is necessary for the sector. As a result, not only is PHCN continuously unable to meet recurrent expenditure requirements, it must continually beg government for additional monies for short term and long term capital expenditure.”
It further noted that “without a pricing regime that supports financial viability in the sector, it simply makes no sense for a private sector operator to come into the market.”
Accordingly, the Nigerian Electricity Regulatory Commission, NERC, has been directed to undertake “a major review of the tariff regime which will be completed before the end of the first quarter of 2011, with a view to replacing the national uniform tariff with a new genuinely cost-reflective ceiling on end-user tariffs.”
However, the review will be based on consumer price differentiation to protect against “rate shock” and ensure that low-income consumers are equally provided with affordable electricity.
Expenditure and consumption
Although the tariff review claims it will be income conscious, but the Roadmap also indicates that the poor pays the highest cost for electricity in Nigeria.
Statistics from the Roadmap showed whereas tariff is just N8.5/per kilowatt hour,kWh: The poor currently pay more than N80/kWh burning candles and kerosene; Manufacturers pay in excess of N60/kWh on diesel or LPFO generation;
Everyone else pays around N50-70/kWh on self-generation (diesel or petrol).
“The result is that Nigerians as a whole spend between five and 10 times as much on self-generated light and power as they do on grid-generated electricity,” it concluded.
The Roadmap admits that Nigeria’s per capita electricity consumption is amongst the lowest in the world and far lower than many other African countries.
Without actually indication how much electricity each Nigerian consumes, government put Nigeria’s per capita electricity consumption at just seven percent of Brazil’s and only three percent of South Africa’s.
Where Brazil has 100,000 mega watts, MW, of grid-based generating capacity for her 201 million people, South Africa has 40,000 MW for just 50 million people, while Nigeria in all its might has achieved a peak of 3,804 MW for 150 million people as at August 2010.
Self-generation of electricity (from diesel and petrol generators) is conservatively estimated at a minimum of 6,000 MW i.e. more than twice the average output from the grid during 2009.
Despite annual capital injections averaging $2billion per annum, the available capacity has been stuck at about 3,000 MW for the past two decades. However, the cost in terms of lost GDP, is many times greater than all the waste and leakage which have attended these capital budgets.