•Sector performance remains poor

•Businesses lose $29bn annually to poor electricity – World Bank

ELECTRICITY: Investments in sector surpasses N2trn post-privatisation

By Prince Okafor

There seem to be more  hurdles for Nigeria’s power sector chain to attain stability, as the sector continues to lag behind performance expectations despite over N2 trillion investments both from the Federal Government and international donors in the past nine years.

The sector has also suffered a huge deficit due to generation, transmission and distribution gaps amongst other constraints after privatisation.

A World Bank report seen by Vanguard Public Finance, indicated that Nigeria has the largest number of people without access to electricity in the world, with over 60 percent of households not connected to the power grid.

The report also noted that the sector has not been able to keep up with demand or provide a reliable supply to existing customers.

READ ALSO: Electricity: Nigeria’s generation drops 13.8% to 3,835.3MW

According to the report, “Only 51 per cent of installed capacity is available for generation. An average Nigerian consumes four times less energy than her counterpart in a typical lower middle-income country.

“Businesses in Nigeria lose about $29 billion annually because of unreliable electricity.”

Privatisation 

In November 2013, the privatisation of all generation and 10 distribution companies was completed with the Federal Government retaining control of the transmission assets. The privatisation of the 11th distribution company was completed in November 2014.

In 2020, the federal government took over one of the Distribution Companies, DisCos, following the Senate approval of the sum of N26.9 billion as a refund for the acquisition of the company by a private investor.

But, another private company, Quest Electricity, in 2021, paid N19 billion to BPE to re-acquire the asset from the federal government.

In a chat with Vanguard Public Finance, the former Managing Director, Transmission Company of Nigeria, TCN, Mr. Gur Mohammed, had disclosed that the privatization process was built not to work, as the nation sold its 60 percent stalk to unqualified investors that have no record of successful projects in the past.

According to him, “I was part of the team that started the Power Sector Reform Programme in 2007.

“I was called to be the secretary of the team during President Umaru Musa Yar’Adua administration, I declined the offer because I already know that the programme will never work.”

Also, an Energy expert, Ayodele Oni stated that, the problem with the distribution segment of the electricity value chain is quite unfortunate. The privatisation was done to improve power supply to the populace.

“Unfortunately, the gains, in terms of actual power supply have been very marginal.

“Metering has remained a problem with DISCOs seemingly uninterested inadequately metering and a fraction of the populace too, more interested in stealing electricity than paying for same.

“There is also the general issue of market indiscipline and the regulator, at times, not doing enough to enforce its own regulations.

“Added to this is the fact that there are not limited number of judges who understand the electric power sector, such that the incidence of flimsy Court decisions, is reduced drastically.

“In this case, to reduce the tendency of decisions and judgment that are not supportive of or favourable to the sector. It is important that the issues around service standards are enforced and drastic decisions are taken to enforce those standards,” Oni said.

DISCOs, GENCOs, TCN, capacity 

The 25 operational GENCOs investment in their operations have shown significant progress from 11, 000 megawatts in 2020 to 13, 000mw.

According to the Executive Secretary of the GENCOs Association, Joy Ogayi, “The Nigerian Electricity Regulatory Commission, has issued 160 licenses to power GENCOs, only 25 are operational currently.

“The other thermal stations are waiting on the sidelines and if they are actively involved, we can generate an additional. 

Also, NERC had disclosed that the Transmission Company can wheel about 7, 500mw, but distribution has remained abysmally low due DISCOs inability and unwillingness to invest in distribution infrastructure and supply consumers the much-needed electricity.

“The DISCOs had complained of low tariffs which had their operations and also responsible for their constant rejection of load transmitted by the TCN.

“In September 2021, the Federal government approved cost-reflective tariffs to address their shortcoming. 

Despite the adjustment, they have continued to complain that they cannot recover their operational costs from existing tariffs and the unwillingness of some to pay for power consumed. 

NERC, in a circular on Meter Asset Programme, MAP, last year, raised the price for a single-phase meter to N58,661.69 from N44,896.17 while the cost for three-phase meter was increased to N109,684.36 from N82,855.19.

Investment, and FG’s intervention 

A breakdown of investment in the sector shows that, the Japanese Agency for International Cooperation (JICA) gave 1.317 billion Japanese Yen or $12.4 million (about N4.5 billion) grant for the TCN to install capacitors and switch gears at the Apo (Abuja) and Keffi (Nasarawa State) substations in April 2018, which have been inaugurated.

The TCN has raised another $1.661 billion (N601.3 billion) multilateral loans to increase capacity through the Transmission Rehabilitation and Expansion Programme (TREP). 

Also, the federal government provided some financing in cut down on the liquidity challenge in the sector through the Central Bank of Nigeria (CBN). The apex bank provided N213 billion to sustain operation for the DISCOs.

Arrangement by the federal government shows that the DISCOs are to collect revenue from consumers and pay both the GENCOs and TCN for power consumed by households. 

However, at some point, the DISCOs debt payment through the Nigerian Bulk Electricity Trading Company, NBET, was insignificant. This led to the opening of an escrow account of the DISCOs by the CBN, into which all revenues generated were paid.

By escrowing the accounts, the bank accounts were locked, with cash allowed to come in but withdrawals by DisCos blocked. The fund is thereafter allocated based on priority.

Under the arrangement, the repayment of loans to the Federal Government was the first priority followed by 100 per cent payment of market operators’ invoices and the invoices from the NBET before others.

Loans to the power sector from commercial banks currently stand at about N819.97 billion as of the third quarter of 2021 as banks are already warning that the loans from the sector could increase the risk for these banks.

The National Bureau of Statistics, NBS, had said the non-performing loans in the power sector stood at N33.22 billion at the end of 2020, out of N1.23 trillion NPLs recorded by banks.

While the financial crisis, especially unpaid debt had led to rancorous development at the Abuja Electricity Distribution Company, the CBN had reported that the combined indebtedness of power firms in the country currently stands at about N820 billion.

In October last year, the Presidential Power Sector Working Group said: “Through the collection discipline via CBN there is full visibility to DisCos collections. Collections over the past six months have stabilized at between N57 to N65 billion.”

Between July to December 2020, industry statistics showed that electricity market revenue grew by 10.55 per cent to N272.47 billion.

In the same period in 2019, the revenue was N246.46. The development was then linked to the imposition of restrictions on revenue collection bank accounts of DISCOs.

Special Assistant to the President on Infrastructure, Ahmed Zakari said that the account escrow led to a significant increase in the upstream remittance from discos to NBET/TCN.

According to him, these remittances have increased by over 100 per cent which has aided the liquidity flows to enable operations of the generation companies and TCN.

“The visibility provided by the escrow system has also aided NERC’s regulatory oversight of the DISCOs while also providing data which is being used to independently evaluate sector performance and impact of various interventions being embarked on in the sector,” Zakari said.

Oni who is also an Energy Partner at Bloomfield Law Practice noted that, “In summary, the issues are the Discos not improving the quality of the facilities they acquired.

“Many are several decades old transmission infrastructure needing upgrade by the government to be able to do more than the bandied 7,000mw.

“NERC needs to enforce its rules, standards and performance obligations of the Discos, including metering obligations. Consumers need to stop electricity theft, the legislature needs to pass strong laws against electricity theft and enforcement of same taken seriously. There was need to test the tariff structure and rates for sufficiency.”

 In addition, a source from NERC, noted that the gains in the revenue may remain elusive if it doesn’t translate to improved operations of the DisCos.

According to him, “I don’t think it has significantly improved power supply to homes and businesses,” adding that the purpose of the escrow was to enable the CBN to recover its fund so that it is not frittered away or used by the DisCos to finance their investment.

He said: “The CBN intervention is special funding to deal with liquidity crisis and legacy debt in the sector.

“It was supposed to be repaid but through a convenient process that will not adversely affect DisCos’ investment plans.

“The gains are twofold: whether CBN is getting repayment as and when due. I think through the escrow the CBN can guarantee itself repayment.”

Vanguard News

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