In search of a lasting solution to power sector challenges

Last week, the Presidency touted the need for recapitalisation of the electricity distribution companies (DISCOs) in the country citing the firms’ lackluster performance and parlous infrastructure that cannot deliver uninterrupted power supply to consumers. This position reinforces concerns by some operators on the need to revisit the privatisation exercise in the power sector. Will the Federal Government see this process till the end? FEMI ADEKOYA writes.

Across several spheres of the economy, access to stable electricity has been cited as one of the major challenges limiting development and optimal productivity, especially in the real sector.

Though operators have continued to trade blames about the weakest link of the electricity chain, the need to revisit operations in the power sector has been emphasised and described as one of the solutions to the problem.

Last week, Vice President, Prof. Yemi Osinbajo, expressed the Federal Government’s readiness to recapitalise assets in the distribution stratum of the power industry.

This corroborated earlier confession by President Muhammadu Buhari that his administration had not performed satisfactorily in solving the power challenges.

The vice president pointed out that the lack of infrastructure by the DISCOs was hampering successes so far recorded in the generation and transmission strata of the power industry.

Osinbajo, who spoke at the inauguration of the 2X60MVA, 132/33KV Substation and Associated 132KV transmission lines in Ogun State, said there was a need for a substantial change of strategy to meet the electricity needs of homes and businesses.

According to him, the distribution capacity of all the 11 DISCOs in the country “is as low as 4,000MW,” leaving an excess of over 4,000MW of unused electricity wasting away.

Stating that Nigeria has about 13,427MW available capacity, the VP said the country now has 8,332 MW installed capacity while the national grid capacity has increased to 7000 MW.

He, therefore, stressed the urgent need for recapitalisation of the DISCOs to enable them to build more infrastructure to cater for the excess power generated for distribution.

Similarly, the Managing Director/ Chief Executive of Officer, Transmission Company of Nigeria (TCN), Usman Gur Mohammed, stated that a recent power audit by the company showed that a $4.3 billion investment deficit is rocking the DISCOs.

While the move appears noble and encouraging, operators attribute the poor performance of the power sector to inconsistency in policy and weak regulation.

Even though the power sector is privatised, the government dictates how the sector operates, instead of allowing market forces to do so.

For instance, the Executive Director, Nestoil, Dr Chukwueloka Umeh, argued that government has been trying to regulate the power sector into existence despite having not done true privatisation, as many of the licensees are not building plants due to unfriendly regulation that makes it difficult to recoup investments.

Umeh insisted that quick fixes will not address power sector issues, but a review of regulation that will drive investments.

He said: “Generating companies need to be able to charge a tariff that allows them to generate power by gas and the government should not be telling private companies this is what they should charge when competition should be what drives the price and tariff down.

“Let GENCOs compete amongst themselves, likewise DISCOS. Market forces will drive down the prices, just like it happened with the deregulation of the telecoms sector. The government simply needs to create an enabling environment and then step out of the way to let private companies compete for business.

“The government believes that they are helping the masses by fixing prices. In reality, they are not. The government should not be the one telling us how much to sell our power because you know, it would never be a question of capacity anymore,” he added.

On his part, the LCCI President, Babatunde Ruwase, stated that reforming the power sector in Nigeria must align with the global energy direction of increasing renewables in the energy mix.

This reinforces the need for renewable energy development rather than the nation depending solely on the grid.

“There is an urgent need for the government to find a permanent solution to the challenges affecting the power sector in Nigeria, and this should cut across the entire value chain. Some of the challenges include but not limited to funding, metering constraint, tariff issues, debt issues, competence and capacity challenges, transmission, gas, among others.

“We are of the view that the discos do not seem to have the financial and technical capacity required for efficiency in the distribution network, and are not making tangible investments. We recommend that the Power sector be overhauled for efficiency and effectiveness”, Ruwase added.

Former Chairman of the Nigerian Electricity Regulation Commission (NERC), Dr. Sam Amadi, who rated the current administration poor in terms of promises in the power sector had told The Guardian that the model for privatisation was unrealistic because it hinged so much on the private sector and didn’t think of holistic government reform.

“Performance in the last four years have been very underwhelming. The government did not lead the sector away from the errors or underperformance of the last administration,” Amadi said.

He added that the challenges in the sector included structural arrangement, market operation, metering, weak infrastructure, market governance, capacity input, leadership, finance, stranded power, historical public sector inefficiency and gas related problem.

Amadi noted that there was a need for the new cabinet to urgently address the sector’s challenges by bringing back Presidential Taskforce on Power to keep traction on a minor project to optimize supply, adding that this would be an inter-ministerial team that would ensure consistent and high-level executive attention on the electricity crisis/

Amadi equally canvassed that DisCos performance should be benchmarked for six months and those who fail the trial should have their territory split to ensure effective management, stating that this would be a regulatory process that is transparent and credible and therefore would not be political intervention.

“In the long term, consider unbundling distribution so that the retail of electricity can be competitive. It is competition, not privatization that will lead to efficiency. Ultimately bring back state investment in electricity. It is a joke to believe that with the present risks in the electricity market we can expect the private sector to grow the power sector significantly. No government should socialize the investment risks and allow private sector management power facilities under special arrangement,” he said.

Besides, the Association of Nigerian Electricity Distributors (ANED) also reports that the Federal Government will take over some distribution facilities.

Ahead of a planned review of the sector in December, there were indications that government would, in line with the provisions of the share sale agreement, stake about $2.4 billion (about N736 billion) to repossess some of the investments that failed.

But ANED stated that government would only address the challenges affecting retail electricity distribution in the country.

Executive Director, Research and Advocacy of ANED, Chief Sunday Oduntan, urged the public to dismiss claims that the government would pay N736 billion to repossess the distribution infrastructure from investors.

His words, “The Federal Government and the DisCo (distribution companies) investors remain committed to working in partnership to address the current challenges of retail electricity distribution, as evidenced by the recent Siemens initiative and recent regulatory activities.

“It is the hope and expectation of the DisCo investors and operators that, collectively, the aforementioned initiatives and activities, in tandem with respect for the sanctity of contract, will provide the enabling environment that will result in a Nigerian Electricity Supply Industry (NESI) that is commercially viable and sustainable.”

To address the challenges in the power sector, the Centre for the Study of the Economies of Africa identified the need for operational and technical interventions to improve baseline power supply (using data-driven, innovative on- and off-grid solutions); improve transmission wheeling capacity and redundancy; as well as improve grid design and electricity demand estimation.

“Governance intervention is also necessary to improve sector governance and transparency, to make contracts fully effective, as well as to improve sector communication, coordination and monitoring. A clear and concise contractual, regulatory, and financial framework is a critical requirement for attracting private sector capital to the NESI.

“Lastly, regulatory/policy interventions, especially related to the tariff that balances the protection of electricity customers with the interests of investors, outlines a trajectory to the cost-recovery tariff, and is implemented in a timely manner is essential. Well-enforced policies that incentivize improvement in DISCOs performance, as well as fiscal and monetary policies aimed at encouraging private sector investments, are needed”, the Centre added.