Experts and commentators in the power sector are foreseeing a new structure that will engender competition in the Nigeria’s electricity market.
The country has witnessed decades of unresolved and intractable energy crises and power supply plunging to about 1,393 megawatts in March.
There have been concerns that except radical action to reverse the situation the industry performance would cripple the country’s nascent economy.
Adversely, power supply from the national power grid reportedly fell by 25.3 per cent to 3,320.7MW from 4,446.02MW on May 7, while the Nigeria Electricity System Operator disclosed that the 11 electricity distribution companies were willing to take only 2,949.02MW, leaving 371.68MW unallocated.
Only last month, the National Union of Electricity Employees, NUEE, called on the federal government to reverse the privatisation of the nation’s power sector, describing new owners of the privatised companies as ‘hustlers’ and ‘hawks’ that have contributed poorly to the power sector.
The union also accused the new owners of deceiving the federal government into paying N2 trillion subvention, insisting that they have continued to impoverish Nigerians, leaving the country pillaged.
They claimed that despite recognisable improvements in the wheeling capacity of the Transmission Company of Nigeria, TCN, of 7,000 megawatts, the generation output has now dwindled below 5,000 megawatts.
They pointed at the activities of the new owners as part of reasons why the power sector has almost gone comatose and the impoverishment of the average worker in the sector.
The zonal organising secretary (Liaison), Engr. Kolade Ayodele, said Nigerians should also be worried even as electricity tariffs continue to rise without commiserate service delivery.
He said,“Since the privatisation of Nigeria’s power sector in October 2013, electricity workers under the age of the National Union of Electricity Employees have been in the fore-front of speaking out on behalf of the Nigerian people
“It is an undeniable truth that the power sector privatisation has not added value to the lives of the ordinary Nigerians. The entire exercise which could be described as a charade has not brought any meaningful impact/improvement of the sector, rather, it has led the Nation to a huge set back.
“The infrastructural development by the new business owners in the power sector has almost gone comatose while the socio-economic status of the average worker in the sector has continued to decline amidst prevailing harsh economic conditions. The same equipment inherited from pre-privatisation have remained what drives the sector as there are no visible attempts by the Generation Companies (GenCos) and Distribution Companies (DisCos) to upgrade and expand their capacities/networks.
“Nigerians were deceived into believing that the ‘Harvestors’ had the Financial/technical muscles to improve power generation and distribution to Nigerians. Can Nigerians be told today that this purpose has been achieved? The answer was echoed in the print/electronic media by members of the National Assembly who even called for the total reversal of the entire process.
“Despite improvement in the wheeling capacity of the Transmission Company of Nigeria (TCN) which is still federal government owned to over 7,000MW, the generation output has been dwindling below 5,000MW.
He added, “Alas!, the ‘hustlers’ who deceived the federal government into paying almost two trillion naira subvention to the owners of the new companies since privatisation; are being used to call the union names in order to exploit Nigerians and sustain the current comatose situation. Their mission is simply to call a dog a bad name in order to hang it while they keep smiling to the banks.
“The same ‘Hawks’ who were gifted the DisCos and GenCos have sharpened their propaganda machinery through these same hustlers that mid-wived the privatisation of the power sector just to distract/hoodwink Nigerians from knowing the real issues.
“Almost nine years of power privatisation, the entitlements of some of the workers of the defunct PHCN have not been paid as they suffer untold hardship while some have been sent to early grave due to frustration and lack of fund to attend to health challenges after being forced out of service under the guise of privatisation.
“Similarly, the precarious work conditions have imposed hardship on existing employees in the sector as the generation companies have refused to sign Conditions of Service guiding Employer/Employee relations. Lack of workplace democracy, poor remuneration, lack of welfare packages coupled with being denied their fundamental constitutional rights to belong/join the union. They have simply become ‘glorified modern day slave camps.’
“Electricity tariff has continued to rise without making prepaid meters available to Nigerians despite the federal government’s directive to the Nigeria Electricity Regulatory Commission (NERC) and the DisCos.
“We are prepared to use our labour and sweat to liberate the sector and the country from the clutches of these “Hustlers’ in the power sector.”
This position was further corroborated by Kunle Kola Olubiyo, President, Nigeria Consumer Protection Network, as he told National Economy that prior to what he described as lease agreement in 2013, investors deceived Nigerians with tinkered financial and technical due diligence.
Olubiyo, said the country has witnessed decades of electricity industry wastage, and that regulatory inefficiency further frustrated agitations for a complete turnaround of the sector.
He, however, said the ongoing clamour for privatisation reversal would not be a major concern presently because in 2013, the investors were given a ten year moratorium which expires in 2023 when a new deal in the sector is expected to take place.
According to Olubiyo, who was member, Presidential Ad-hoc Committee on Review of Electricity Tariff in Nigeria, the privatisation exercise recommended for a midterm performance review which ought to happen after five years and a tenor of ten years provides that a total review should be carried out and based on outcome of the review a new structure should be entrenched.
In his opinion, he said for entrenchment of competitive electricity market, the power sector privatisation review should discourage government holding equity in the system.
He said the monopolistic system has caused much harm in the industry and as such core investors should not be allowed to acquire more than 30 per cent equity while the public will hold 70 per cent equity.
Under this arrangement there will be shareholder resolutions where decisions would be taken at Annual General Meetings, AGMs.
He argued that the Nigeria Electricity Regulatory Commission (NERC), is hamstrung under present arrangement where the federal government is retaining controlling shares in the system.
Speaking also, Adetayo Adegbemle, convened PowerUp Nigeria, said that the power sector privatisation is a subset of the power section privatisation, which is a process governed by law, the Electric Power Sector Reform Act, and the actual privatisation of the unbundled NEPA by the Bureau of Public Enterprise (BPE) Act.
Adegbemle, sad however, in the Electric Power Sector Reform Act, provisions was made for a review of the performance of the privatised entities, in the Distribution companies and Generating companies.
He noted that such reviews would entail use of parameters like how the Discos have been able to deal with the Aggregated Technical, Commercial and Collection (ATC&C Losses), and of course closing up of the metering gap as contained in the performance agreement.
“If we are to go by the above understanding, the federal government cannot just take away the Discos from the core investors, but can use other means like what we are experiencing presently with the banks calling in their loans from the core investors.
“Of course, we would want to avoid legal tussles and the unwanted and unintended consequences of investors losing trust in the Nigerian market.”
In September 2013, the Nigerian Electricity Supply Industry (NESI) was privatised and six generation companies (GENCOS) and 11 distribution companies (DisCos) were sold to investors who acquired a minimum of 60 per cent of the shares of each company.
Some of the stated goals of the privatisation programme are that the privatised entities would develop and improve electricity infrastructure in the country, increase generation capacity and improve power supply to end users. To ensure that the goals are achieved, the Nigerian Electricity Regulatory Commission (NERC) developed the Multi-Year Tariff Order (MYTO), a tariff system that is designed to be both cost reflective and to reward an efficient operator.
Olubiyo, said, Before the privatisation, the expectation was that NESI would be functional, when each part of the electricity chain, namely, generation, transmission and distribution functions efficiently and in a coordinated manner.
Thus, contracts that would enable proper commercial behaviour amongst players in the industry were signed, and regulations that would encourage discipline and reward efficiency were issued by the sector regulator, NERC.
He expressed disappointment that since privatisation, the Nigerian Electricity Supply Industry has been mired in crises including regulatory inconsistencies, political interference, and suspension/unenforceability of contracts, power thefts and low revenue collection.
In a opinion recently shared Olusina Sipasi, Partner, Energy & Natural Resources Practice Group, listed some of the post-privatisation problems to the privatisation process itself, which, somehow, allowed entities that did not have sufficient technical and financial capabilities to take control of critical generation and distribution assets.
Sipasi, further observed that during the process, NERC, the investors and the Bureau of Private Enterprises (BPE) (which superintended the privatisation process) did not have critical data on the extent of technical and collection losses of government-owned distribution companies.
Thus the post-privatisation crises have resulted in an increasing debt bubble which, if not contained, may bankrupt the entire Nigeria Electricity Supply Industry.
Post Privatization Challenges
One issue which has been of concern to players and investors in the Nigerian power sector is the power of the regulator to tinker with pre-agreed tariff mechanism. This power was exercised to a devastating effect, when prior to the 2015 election, NERC reduced tariffs by removing collection losses as part of the items used in calculating electricity tariff. This regulatory action, before it was reversed in February 2016, resulted in a significant increase of debts accumulated across the electricity supply chain.
Although NERC is established to be an independent regulator, it has not, in practical terms, been able to act, always, free from political interference. The institution has suffered from having its commissioners removed before the end of their tenures, and has had to function for a considerable length of time without a fully constituted board.
The insecurity of tenure prevents the commissioners from discharging their duties effectively as their actions are sometimes coloured by political considerations. An example of this is the tariff reduction in the run-up to the 2015 election. Another negative effect of political interference on NERC is that, when it has no validly appointed commissioners, it is unable to make decisions, issue licences and respond to market crises promptly.
Different types of contracts have been signed by different participants in the power sector to give effect to different transactions in the sector. Such contracts, broadly, include gas offtake and transportation agreements, grid connection agreements and power sale agreements.
Currently, gas is being supplied to power plants which, in turn, supply power to the grid and distribution networks with many of the contracts, signed across the electricity chain, being kept ineffective by regulatory fiat.
Sipasi, further observed some mismatches in the contracts signed by different participants across the electricity chain and the regulatory framework guiding certain commercial activities in the sector. A good instance of such mismatch is in the PPAs between the generation companies (GENCOS) and the Nigerian Bulk Electricity Trading Plc (NBET) which allow the GENCOS to reflect forex fluctuation in their invoices to NBET, while the tariff chargeable to end users does not automatically reflect forex fluctuations. This mismatch does not allow the tariff charged by the DISCOS to be cost reflective.
Because the contracts are not effective, it has been difficult to keep parties accountable to their contractual obligations. The non-effectiveness of the contracts has made it difficult to for the government to enforce the performance commitments of the privatised generation companies and distribution companies.
