January 10, 2022

How poor generation, metering gap, financial crisis shackled power sector in 2021


•Generation stunted at 50% capacity, 4,200 mega watts stranded

•Increase tariff, remove non-performing DisCos — Don

•No improvement, no tariff hike — Consumer group

NERC, How poor generation, metering gap, financial crisis shackled power sector in 2021

By Obas Esiedesa, ABUJA

For electricity consumers in Nigeria, 2021 was not a particularly good year, as poor generation, lack of meters and other infrastructure deficiencies ensured that homes and businesses remained largely without public power supply most part of the year.

According data released by the Nigeria Electricity Regulatory Commission (NERC) power generation in 2021 averaged 4,094.09 mega watts as at September, despite having available generation capacity of about 8,000MW.

While poor transmission and distribution infrastructures were largely blamed for limiting generation, gas supply difficulties remained the biggest hurdle for gas powered plants.

In May 2021, low pressure on the Escravos-Lagos Pipeline System, ELPS, left several power plants without gas supply leaving about 4,200 mega watts of power stranded.

READ ALSO: FG to increase power generation to 25,000MW — Minister 

The 439Km ELPS which was commissioned in 1989 is owned and operated by the Nigerian Gas Company, a subsidiary of the Nigerian National Petroleum Corporation, NNPC. It was built to connect Egbin Power plant with the abundance of gas at Escravos in the Niger Delta.

Low gas supply from gas producers left the ELPS with little gas leaving power plants at Sapele, Ihovbor in Benin, Omoku, Omotosho and Egbin without supply.

6.7m customers unmetered 

The NERC data also showed that 6.68 million customers were still without electricity meters as at September 2021.

The Federal Government had at the beginning of 2021 began the implementation of the National Mass Metering Progrmamme that was expected to provide one million meters to consumers.

NERC in a public notice in November 2021 disclosed that over 900,000 meters had been distributed. The Commission however raised the cost of meters under the Meter Asset Programme (MAP).

The cost of a single phase meter was raised from N44,896.17 to N58,661.69 while the three phase meter was also raised from N82,855.19 to N109,684.36.

Speaking on the performance of the sector, the National President of Electricity Consumers Association of Nigeria, Barrister Chijioke James, rated the industry below average.

James pointed out that there has not been any remarkable change from what the sector was in the past several years.

He stated: “The performance has been below average and below expectation. This is because there has not been any remarkable improvement in the power sector.

“The investment made in the power sector ought to have shown some remarkable improvement since when the sector was unbundled and we had the distribution companies created from the oil NEPA.

“The expectations were high that with the metering system been ramped up that power supply would improve.

“There may be minor improvement but it is not sufficient and it is below our expectation. We had expected something better than what we have now”, he added.

Mr. James noted that majority of consumers were still without meters, leaving them with estimated bills and at the mercy of electricity distribution companies.

“I am in the village now and you cannot talk about metering. Majority of consumers are largely unmetered.

“I just came into Aba and majority of the consumers are without meters. Even in Abuja, the nation’s capital, large number of consumers is without meters.

“Yes the level meter penetration is higher in Abuja than most parts of the country but you still have consumers without meters. You can say that in Abuja there is improvement but that cannot be said of other parts of the country”, he added.

He urged the Federal Government to do more to ensure that more customers are provided with meters, saying “that is the only way they can control their consumption and the amount they have to pay for electricity”.

He stated that electricity tariff increase cannot be justified until services improved, pointing out that the last service based tariff increase was not followed by the DisCos.

Eligible Customer controversy

The Eligible Customer regulation was released by the Nigeria Electricity Regulatory Commission, NERC, in November 2017, following a declaration by then Minister of Power, Babatunde Fashola.

The regulation allowed power generation companies (GenCos) to sell electricity directly to customers with capacity to consume at least two Mega Watts of power monthly.

Since then, GenCos and large customers had entered into contracts using the provisions contained in the regulation. But in a controversial turn around, NERC ordered the suspension of the contracts in July 2021 following pressure from DisCos.

The DisCos argued that the policy was depriving them of revenue since the large consumers were moving to buy power directly from the GenCos.

Speaking to Vanguard on the policy, the Executive Secretary of the Association of Power Generation Companies (APGC), Dr. Joy Ogaji said the Eligible Customer policy was win-win situation for the operators, consumers and the economy.

According to her, “Eligibility introduced competition on the demand side and completed the liberalization of NESI and improved efficiency.  It brought greater pressure for efficiency on the suppliers  too”.

She pointed out that the “presence of retailers, or the mere possibility of future competition, would force existing distributors to establish appropriate customer services and commercial divisions.

“It will promote national economic development through supplying electricity to the productive sector of the economy and support economies of scale through bulk purchase of electricity”.

While admitting that the sector has not lived up to the expectations of the consumers, she added that “sadly, over 8-years post-privatisation, the sector continues to grapple with several low hanging fruits impeding the objectives of the privatisation exercise”.

Dr. Ogaji noted that the market situation was not only crippling the GenCos but also the economy “as it is halting their desire to recover or expand capacity. 

“The Nigerian Electricity Supply Industry requires major intervention if the gains of the  Power Sector Reforms are to be realised.

“The liquidity crisis is not the problem, but a key symptom of the problem and can be  solved. If we get the Nigerian Electricity Supply Industry right; we will get the Nigerian Economy right,” she added.

Impact on Economy

According to a report by the Power Sector Recovery Programme of the World Bank, Nigeria has the largest number of people without electricity in the world with every one in ten people without electricity globally now residing in the country. 

Another report by the Small and Medium Enterprises Development Agency (SMEDAN), stated that SMEs were the most vulnerable to losses from lack of power supply with majority of them receiving between just one to five hours of electricity daily. 

The agency added that power cost component of manufacturers overhead represented about 36 percent of the total production cost.

“In the last 5 years, SMEs have contributed about 48 percent to GDP. However, this would have grown by over 50 percent if there was constant power supply.

“Bridging the stranded power gap could save the closure of 2,877 Micro enterprises with the capacity of employing an average of 28,770 Nigerians”, it added.

Expert views

Also speaking to Vanguard, the Director, Centre for Petroleum, Energy Economics and Law, University of Ibadan, Prof. Adeola Adenikinju, noted that the sector performance was a big disappointment as Nigerians had expected much more.

Prof. Adinikinju said the sector was expected to provide strong support for economic growth and for SMEs and households across the country who were working very hard to overcome the challenges of poverty and Covid-19.

“In spite of the investments that have been made, the power sector has continued to be a challenge to development.

“In terms of generation, the performance was not significantly different from what was generated in 2019, if you take out the Covid year 2020.

“In transmission, yes, there was a lot of investment but the old challenges are still there. In distribution, the situation got worse with millions of Nigerians without electricity.

“The power sector is one sector that the government needs to urgently find a way solving the problems facing it because it will go a long way to achieve sustained development of the economy”, he stated.

He expressed concerned over poor power generation in the country, adding: “I have been closely involved in the sector for many years now.

“In 2005 when we were doing the power sector development plan for Nigeria, we projected that by 2020 we will be looking at 40,000MW but unfortunately we are still talking about 4,000MW.

“4,000MW is not enough to power a very big city in a developed country but that is what we have for a whole country and by the time you take out the losses both in terms of transmission and distribution what we actually consume is far less than that.

“It is a big shame because we have gas in the country that could help us generate much more”, he stated.

On metering, Prof. Adenikinju observed that the DisCos were reluctant to deploy meters because they use estimated billing system to boost their revenues.    

Increase tariff, remove non-performing DisCos

Prof Adenikinju who advocated for market driven tariff, noted that it was one of the ways to attract investment and improve services for consumers.

According to him, “The government has to do something about the tariff. When you pay more and the sector becomes liquid and attractive, then you can get out the DisCos that are not performing by getting other investors to buy into them”.

He pointed out that the indices that make up the tariff have all gone up, explaining that “exchange rate, price of gas, inflation rate are way higher than what it used to be. Definitely without apologies we have to do something about the tariff.

“When we do that and there is liquidity in the system and if they don’t then deliver we can start taking action against them or can hold them to some agreement. The government can also sell some of its shares to other investors”.

He added that low tariff can only provide low quality of service and “that is what we are getting.

“Let us have the tariff at a level that is economically good for the operators or commercially viable and then we can demand for quality. Although they are not mutually exclusive, we can do both, but it has to be balanced.”

Vanguard News Nigeria