Problems in power sector
I want to correct some assumptions and inaccuracies about the role of the ministry in a privatised power sector. There was this impression that I was either being handicapped or too soft, or maybe the Distribution Companies (DisCos) should be punished and I think it is important that members of the public should know the true position of things.
With a better understanding, you will understand that it is not that I’m handicapped or that I was being soft. It is really that under the private arrangement that we now have, there is only one regulator, the Nigerian Electricity Regulatory Commission (NERC), nobody must disturb its work. This the body statutorily backed to set the standards and rules, fix prices, set tariff and sanction the DisCos, among others. Once the government has privatised, it becomes a regulated industry. So, just like we privatised banks, the regulator is now the Central Bank of Nigeria (CBN), or the Financial Regulatory Commission (FRC). Broadcasting, print and electronics have the Nigerian Broadcasting Corporation (NBC) as their regulator.
Nigerian Communication Commission (NCC) regulates telecoms. They have their ministers but you will not see the Minister of Finance going to remove a bank managing director or the Minister of Communication going to sanction a telco managing director. That is where we are today. And before sanctions are meted out, regulations are made. Even the TCN that is government-owned is subject to those regulations and the reason is important and we all know it. We all say we want investment, people won’t come and invest if we don’t play by the rules they are used to. In other countries, it is only the regulator. When last did you see the minister for energy in the UK or elsewhere getting involved? It is the regulators that do this work.
Can the process be believed?
Yes. I said this because privatisation has brought in some benefits. Some people may ask what such benefits are. In Europe and America when they privatised power and rail, they privatised functional concerns that were operating. When they privatised British telecoms, it was operating. So, in view of this, the government decided not to spend money on these services for the private sector to manage them. Our experience is quite different. We privatised difficult concerns. They were not giving us the service we wanted. Part of the reason is that we haven’t spent enough money on power. A lot of capital still has to come into it. Those are some of the reasons it appears to some people that when such concerns are privatised in Europe, they work but when they are privatised here, we don’t achieve the same result.
On why the problems in the power sector linger four years after privatisation.
Those are the things that I will get to if you allow me to set that background because I think the most important thing I want to achieve in this meeting is just share information, give you the facts and let you form your own editorial and journalistic opinions. Let me give some examples, Jebba hydro power plant for instance, out of about four turbines, only one was working when the private sector took it over. That power plant was commissioned by President Muhammadu Buhari when he was the Head of State. It was supposed to undergo turnaround maintenance every six years but the first turnaround maintenance was done between 2013 and 2015. It was the first plant I visited as minister. It was when the private sector took it over that the remaining turbines were rehabilitated. Is that good or bad? Also, Egbin was commissioned, I think by President Badamosi Babangida when I was in the university around 1985-86. Egbin has six turbines and at the time it was sold, only two were working. You will remember that Lagos State Government then did a gas-to-power plant around Egbin. The gas being used then by the Lagos State Power Plant was the gas meant to fire Egbin because four turbines were down and could not use the gas. Now the owners of Egbin have refurbished all the turbines. All the turbines are working. The turbines could of course have maintenance issues from time to time or parts breakdown that is capital that has come in. If you look back a few years from now, you will see that some people can now recharge their cards online through online portals and stay connected to electricity without physical contact with the utility providers. It wasn’t there before. All those are investments. But, are they enough? No. Some things have changed. So, to me, there is a journey here that we must undertake and as a matter of principle, is privatisation right? My answer is yes. Has it delivered on what we expect? Not yet. Can it deliver? Certainly and categorically, yes. What are the problems? Undoubtedly, lack of capital by some of the asset owners and lack of technical capacity in some cases because I will not lump all of them together and say that they are all not good because I now know better, having gone round all of them. Egbin has good technical partners who have helped them. On governance issues, there are abuses without a doubt. Some came there just to make money. The general economy also has not spared anybody. For example, assets they bought for N165 to one dollar have now depreciated in value. That also is part of their total assets against which any company can take its venture to raise capital, the value has gone down and that is not their fault.
Evidence of progress
There are human issues also. People steal energy whether you like it or not. People also damage assets. So, this is the picture. But in that picture, are we making progress? I think so. Perhaps it is not quick enough or perhaps also because of our understanding. Maybe our expectations had been set rather high. I think four years of privatisation, is still a transitionary period by any fair right-thinking assessment. If we ran this thing as a government for 60 years and it didn’t give us results and now we give it to somebody and within four years, we are seeing results, in that context, we can now go into the gains and constraints. You were talking about asking for money from the government and I will make two assumptions that the money you are talking about for example, the loan from the Central Bank of Nigeria (CBN) and perhaps the N701 billion. Let me clarify what they are. The loan was created by the CBN in order to support them to be able to invest in the assets they bought to the extent that it was below commercial rate. You can argue that the government was indulging them. But it was a loan they still have to pay back. The government itself takes subsidised loans from the World Bank. So, it was not a grant and that’s what a CBN can do in any economy. The CBN has done it successfully in agriculture. If we say this is a real problem for us, why should we be in disagreement with the CBN lending to our own people? The only benefit they get is that they get it below commercial rate, which is 10 per cent. The commercial rate then, I think, was between 16-18 per cent. If you calculate the cost of lack of energy in real and social terms, that cannot be measured. And if you are looking for an example that is parallel, I will give you two. Even the American capitalist economy, went in to save its banking and automobile sectors in order to avert a more serious problem. There is a study conducted by the either Cambridge or Oxford University. It was done by two research fellows and it is a book called the ‘Political economy of power.’ The research studied five developing economies that privatised power – Brazil, India, China, Mexico and I think South Africa. Many of those countries still inject one form of subsidy or the other into their power sector and you can check that out. So, if you call that loan with sub-market interest rate as subsidy, my argument is, if that is important to you, why not. For me, the balance sheet of the government must be the prosperity of its people and not naira and kobo. The N701 billion is not a loan to the privatised power sector. It is a loan by the government to one of its own agencies – Nigerian Bulk Electricity Trading Plc (NBET). When the power sector was privatised in 2013, one of the companies created was NBET to buy bulk power from the generation companies (GenCos) in order to create a market situation. NBET entered into power purchase agreement (PPA) with any GenCo that puts power into the national grid. NBET uses the TCN to transport that power to the distribution companies to sell under another contract called “vesting contracts.” Go and do this retail business. The DisCos are supposed to make a profit of about 30 per cent, return the bulk money to NBET just like any retail business – you buy wholesale, retail and send the money back to the manufacturer. So, there are two contracts here – a contract by NBET with the power producers, and a contract with DisCos to vend the power. The assumption was that NBET will pay from what it collects from the DisCos in order to discharge its contract with the GenCos. But so many things happened. The economy tumbled and tariff increase was halted in court. There was a big gap in collection. So, from collections of about 56-58 per cent dropped to about 25-29 per cent and NBET became a debtor to the GenCos. The GenCos, the thermal power plants that use gas, were owing their gas suppliers and their gas suppliers were owing their banks. In this situation, we said to the government “you are the debtor here because NBET is a 100 per cent government owned company.” Before the N701 billion, NBET had tried to raise a bond of N301 billion when parliament stopped it. That was why government got the N701 billion and said to NBET go and discharge your contract. The decision was taken for many reasons. One, it was a contractual obligation and NBET is a 100 per cent government company. So, you must pay. This is one of the liquidity issues in the sector. So, if government defaults, there will be no power sector. Secondly, don’t let this debt spiral the gas and banking sectors, otherwise, it will spiral into the entire economy. Because it was critical, the Federal Executive Council (FEC) approved it because it is a no-go-area. That doesn’t mean you write-off the debts owed by the DisCos because they are two separate contracts. That is why when we calculated, the debts owed to the DisCos, I recommended to the government, don’t pay them (DisCos) the money, set it off and use it for what they owe you. One of the problems with privatisation, therefore, is the illiquidity that has come as a result of largely economic dynamics and we have to reset that. It is not as if government is just dashing them money.
Can the DisCos be exonerated from allegations of under-remitting their collections by GenCos and NBET. No, you have to understand how these things work. I’m only able to say this because of what I have seen and learnt in two years as minister as well as what I have read. Every electricity utility suffers losses everywhere in the world without exception. What is good practice is to reduce the losses over time. That is why it is difficult to eliminate subsidies completely. The interesting thing about electricity today is that it still cannot be stored. So, from production, transmission to distribution, there are losses. For example, by the time 100 megawatts (Mw) of electricity is metered to a DisCo, it gets there at perhaps 98Mw and by the time it gets to the end end-user, it may have dropped to 97Mw, the DisCo has to bear the loss. If a customer bypasses his meter, somebody has to pay for the energy. If the meter is faulty and there is no bypass, there is still a loss somewhere and it must be paid for. So, every power utility in the world suffers some losses. The best practice is to reduce it and when you get to 10 per cent, you’re doing well. So, with that picture in mind, it is not as if we are exonerating anybody. In the same way DisCos owe NBET and their accounts are kept. I think the last figure is excess of N500 billion and it was from that we took out N25 billion. I’m very optimistic that the sector will turn around and those debts would be paid by those who survived. I say those who survived because in every privatisation that we have had, whether in broadcasting, banking and telecoms, not all the players survived. Some merged and some failed. It is a competitive environment. All the Mobitel and Celtel of this world, where are they today? There are some newspapers, televisions and banks that have gone and some changed. No need to mention anybody’s name. But it will come good if we agree on what to do. What to do is what we call “Power Sector Recovery Programme.” It contains policies, regulations and actions that government and everybody in the industry must do. Proper corporate governance, solution to the liquidity issue is part of it, extensive communication and the people’s understanding of everybody’s role. Understanding what is going on and what to expect is part of it. Your obligation and my obligation to pay our bills is part of it. The obligation of the DisCos to ensure that every one of us is metered as quickly as possible is part of it. The obligation of all of us as citizens to protect power assets is part of it. We cannot want a transformer to supply us power and we go and damage it. This is what we have put together and what we want to do is translate it into major languages as a communication outreach. Everybody should also understand that electricity is no longer a social service, it is now a commercial venture. Just as you pay for your pure water, you must pay for it. So, when they (DisCos) are setting the tariff and call for tariff meeting, you must go. So, it will not be like the last one when some people went to court and say they (DisCos) didn’t explain properly to them. People must understand that the Nigerian Electricity Regulatory Commission (NERC) doesn’t fix tariffs. NERC approves tariffs.
How tariffs are set?
Under the Multi-Year Tariff Order (MYTO), there are two broad tariff setting seasons – minor tariff review that must happen every six months and major tariff review in every five years. It is just like the price of any other commodity that goes up or down. If it goes down, citizens must get its benefits but if it goes up, the citizens must take the responsibility. Therefore, every six months, there is a threshold, that doesn’t mean that tariff must increase every six month but you must have a review. You must look at the interest rate and inflation because you are buying a commodity and perhaps things have gone up but not too high but it is not significant, it is within a threshold. The threshold, I think, is set at about five per cent. If it doesn’t exceed five per cent, you leave it. That must happen without anybody panicking, it happens as a normal event without any sensationalism, with people saying government wants to kill poor people. It must happen as a way of life and we must know that every five years, they will go to major review. The process of a major review is that each DisCo must advertise in the newspaper, radio or television and none is compulsory but it must advertise in at least one – the date it will hold meeting to discuss tariff with its customers. That meeting held in 2014 or 2015. I saw all the records – people who attended, email addresses, telephone numbers but people didn’t really understand what it was, so they discussed it generally and left. At such meeting, everybody is free to say I can pay this or I cannot pay that. They (DisCos) must send the results of those meetings to NERC because NERC has a duty to stand between the consumers and the investors. The law says the investor is entitled to recover all of his investments and make profit. We assume it in economics but this one is a matter of law. But there is a difference between profit and profiteering and that is where NERC comes in and says no, this is too high, set it at this. There are different classes of customers. They don’t pay the same tariff. Different classes of customers are R1, R2 & R3, maximum demand consumers. R1 was not changed, it is still N4. It is fixed. But everybody just went out to protest that they have killed me with tariff. In that exchange that goes on, NERC ultimately approves what it thinks is a fair tariff. With this, there is a band, so the tariff for R2 customer in Eko DisCo is not exactly the same for R2 customer in Ikeja DisCo even in the same city. There are variations, a few kobo here and there. This is part of the public enlightenment we must put out. If you go through the tariff computation, you’ll see variations between the same classes of customers from DisCo to DisCo, changing between a band. Let me tell you something that is related to that, metering. If you are R2 customer, clearly you cannot use the same meter as R3 customer. So, to meter you, they must come to each house and check your energy consumption. They cannot give R1 consumer R3 meter, you will be over-paying. If you give R3 consumer R1 meter, he will be under-paying and the system will collapse. That is the logistics of metering. If they don’t meet you at home and your wife and children are not around, how do they assess your home? These are the real problems apart from funding because they must actually come and do the energy audit and know what a customer consumes and that is why you have estimated billing. A customer is on R3 but he has a One Phase meter; he is clearly stealing energy because he is using more power than his meter records. When a bulk sells power to you (DisCo) and you bulk it to a feeder to a district, and you just know how much energy you passed through. If you don’t have the right meter, what do you do? You divide the number of houses by the amount of power bulked and that is responsible for estimated billing crisis. Agreed, they haven’t captured everybody, some customers are rejecting metering and some are beating them (DisCo staff) up, I have evidence.
The barracks are even a different thing. We are working now with the Minister of Defence, who said he is supporting us because the President has ordered that he must meter all the military formations because that’s where government’s debt is really coming from. This is what servicemen should enjoy for serving their country. So, it is a journey. That is why I have categorised it a roadmap. First get incremental energy, get stable energy and to uninterrupted energy.
What is our roadmad to incremental energy? Every existing power plant that is not producing power must produce. We have an installed capacity of 12,000Mw.
Nigeria’s power production capacity?
Yes, Nigeria has. So, instead of seeking new power assets, we focused and say let’s make what we have work.
Rising figures in megawatts, yet, poor power supply
Precisely, that is why I changed the conversation. It is a journey – incremental power. Every one megawatt is defined. We cannot have 12,000Mw installed and be concentrating on new ones without optimising the existing ones – Egbema and Gbarain power plants are not finished, Olorunsogo, Omotosho, and Geregu are not optimising because there is not enough gas. In some places, there are transmission problem. This is what the ministry is now talking. Let’s be focused… which transmission project will we award? Is it the one that goes to a power plant that is ready to deliver power? Some have gas and the power is there but they cannot evacuate, so, let’s build the transmission line. Some have the transmission but don’t have gas, so, let’s build the gas pipeline. That is what is happening in places like Omoku plant in Rivers State. We will complete Omoku by March next year and it will give us about 270Mw. We will finish Gabarain this year and it will give us over 115Mw, Alaoji by June next year.
Are these plants putting power into the grid?
Yes, they are putting but it is their capacity design that is not optimised. When I visited Geregu, it has six turbine of 115Mw each but only two are working because no gas to fire the remaining four. I also told you that Egbin now has its six full turbines running. So, the Lagos power plant has 245Mw sitting there and no gas because Egbin can now take all its gas. So, why build more? Rather, we should focus on how to provide gas. Now, we are continuously working on how to solve this gas supply problem with the Nigerian National Petroleum Corporation (NNPC), Gas companies and others. That is why I’m so clear in my mind the power sector will turnaround. The 7,000Mw we produce now doesn’t come from the sky. We are only making what was not working to work. Sometimes, just by completing a transmission line, you get more power on the grid. Sometimes, just by doing routine maintenance as we did in Afam IV plant, you get more power. The transformer of Afam IV plant shut down in January 2015 and nobody touched it.
By repairing the transformer, we had 100Mw back on to the grid. By completing one section of Ikot-Ekpene switching station, we evacuated some stranded power from Ibom Power and Alaoji plant. By completing a transmission station at Magboro in Ogun State, we switched on power there. It didn’t have power for 10 years. By December or January next year, we will finish the one of Mowe in Ogun State and it will have power. We will come to switch on transmission facility in Odongunyan by December or January next year and that will boost the wheeling capacity. When the people say transmission system is the weakest link of the supply value chain, it is a lie.
Any part of the value chain can be the weakest link at any time. The DisCos had more capacity when the generation capacity was between 2,000 and 2,800Mw but now, the power capacity has exceeded what the DisCos can carry. Now, we must help DisCos to ramp up their capacity until we reach steady power, which is middle of our journey. The end of our journey will be behavioural, conservation of energy and paying for what you use. Don’t steal energy because if you waste anything, it will never be enough no matter how much you produce. I have clarity because I have been to most of these power stations, substations and to all the DisCos. So, I know what is going on and I’m educating myself and I have a great team working with me – the advisory power team in the Vice President’s Office, my permanent secretary and directors, among others . The important thing now is that we are focusing on what we should complete. We will get more power from Kaduna. The story of Kaduna is interesting, 215 Mw because most of the equipment to complete the project were stuck in the ports for almost 10 years. So, we are just clearing them now because nobody budgeted to pay.
The first time the government budgeted to pay the shipping companies and warehouses was in the 2016 budget. So, work has resumed in Kaduna and the project will give Nigerians 215Mw. We will get 10Mw Wind plant in Katsina State, maybe by early next year because it had a problem. We are paying for insecurity there because they killed the contractor and the worker and captured the main contractor handling the project. So, when he escaped, he ran back to his country and refused to come back. So, the project stopped but it is back on track now. Zungeru project will give us 700Mw but was locked up in court for three years before we came on board. We have got the parties out of court but have lost three years. It will be delivered by early 2019 another 700Mw. Azura in Edo State, they refused to sign the partial risk guaranty but Buhari’s administration signed it. Azura project is on track and will be finished in June next year. So, we have to prepare to evacuate Azura and I have submitted the memo to the FEC. We have to quickly build a 14-km 330kv line so we can evacuate power produced there to the grid.
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