The November 2013 physical hand over of the power holding company of Nigeria (PHCN) to new owners marked a turning point in the history of the Nigeria’s power sector. The handover was a culmination of fourteen years of painstaking effort of the national council on privatization (NCP) and its secretariat the bureau of public enterprises (BPE) to reform and liberalize the Nigeria’s electricity sector.
The onus of regulation otherwise lies with the Nigerian Electricity Regulatory Commission (NERC) to propel the industry through robust policies’
In this report Stanley Ignacel appraises the regulatory environment approximately three months after.
On the first of November, 2013, vice president of the country Arch. Namadi Sambo in an elated speech delivered nationwide during the physical hand over of PHCN assets to new owners stated ‘it needs to be restated that the electric power reform program became imperative in order to improve efficiency, reduce losses and cost.
No doubt, this reform will lead to increased access to electricity, engender private sector investment, improve infrastructure, and create employment for the growing population of our citizenry’.
The vice president made particular reference to regulation when he declared, that ‘Nevertheless, let me state clearly here that both the Nigerian Electricity Regulatory Commission and the BPE will continually monitor the operations of the successor companies and would not hesitate to sanction any core investor that does not deliver on the performance agreement that was executed with the government’
The declaration of possible sanction was a clear indication that the government is committed to ensuring that NERC does not derail in its terms of reference to regulate the entry and operations of the private operators in terms of tariff and service delivery.
NERC on its part understood the enormous responsibility assigned to it under the new regime and has continually monitored the performance of the new owners.
Although the agency is having complicated challenges in addressing the near failure in generation as a result of acute shortage in gas supply to most of the thermal stations.
Similarly, the NERC also appear not to have panacea to the vexed issue of estimated billing one of the issues that has pitched consumers against the distribution companies. Indeed the commission has been at cross road dealing with high ineptitude in the value chain.
For instance during the week, the electricity national control center (NCC) in Oshogbo released electricity statistics, saying that total maximum capacity of the nations grid stood at 4,151 mega watts (MW) with the minimum evacuation capacity put at 3,703 mw.
NCC further said that the maximum capacity available for domestic consumption stood at 3, 861 mw while the maximum capacity available for export to neighbouring country, Niger republic was 290 mw.
It would also be recalled that the national grid dropped from 3, 563 mw to 3,200 mw in January following the shutdown of Shiroro hydro generation facility for routine maintenance.
All of these have posed the challenging experience for the regulator in its bid to manage performance in the sector.
Both NERC and new owners have blamed the cut in power supply and distribution to inadequate gas flow to the generation companies (GENCO’s).
Government has also blamed gas supply constraint on oil and gas infrastructure defacement that cut short gas supply to over seven affected power generation plants in the eastern axis and the escravos western axis that linked Lagos and the entire south west.
NERC chairman, Dr. Sam Amadi reflecting on the situation that despite commissioning of the plants gas supply remained a serious challenge causing the shutting down of some of the integrated power plants (IPP).
Major stakeholders see the embarrassing situation as making NERC as being incapable of implementing its mandate.
The present situation is a complete opposite of what Amadi foresaw during the handover ceremony which took place simultaneously across the country.
Amadi had said that the structure of electricity supply in Nigeria has changed as in one day, the country moved from public ownership of most electricity utilities to almost complete private sector ownership of the utilities declaring that by the time the Nigerian Integrated Power Plants (NIPPs) were sold to preferred private sector bidders, it would be a complete restructuring of the electricity industry from a vertically integrated monopoly industry to a privatized competitive electricity market.
The NERC chairman said that the just concluded privatization is historic not just because it is the largest single sale of utilities in recent time but because it effectively marked the beginning of an electricity market in Nigeria.
He did recognized however, that the journey has its problems and pitfalls when he observed that today the industry is hit by an unscripted shortage of supply arising from disruption and shortage in the supply of gas to power plant.
‘This situation arises from both our inability to effectively protect gas pipelines and failure to provide effective policy and commercial frameworks for gas-to-power. Before 2010 we did not have an effective gas to power policy. This reflected in the dis-articulation of the two sectors. Gas power plants were established without the certainty of gas supply’.
He however, said that now this is changing as the sector is aligning power projects to gas supply and the NERC is building electricity tariff model on the commerciality of gas-to-power.
Amadi also said new gas pipelines are being constructed to convey gas to power plants and gas supply and transportation agreements are being made bankable and enforceable.
But last week, stakeholders in the Nigerian Electricity Supply Industry (NESI) while appraising the regulatory industry described the National Content Development regulation as the surest way of enterprise development in the power sector.
They made the appraisal during the public hearing organized by the NERC on the draft National Content Development regulation and the Enforcement Regulations in Abuja.
NERC chairman, Dr Sam Amadi at that forum remarked that enforcement regulations will ensure that processes are followed by the commission to enable compliance by the new owners of power utilities in the emerging privatised power sector.
The commissioner, Legal, Licensing and Enforcement, Dr. Steve Andzenge, said the national content regulation would strengthen the existing provisions in the industrial law while providing for the utilization of local human resources.
Also speaking at the hearing, the Managing Director of the Ikeja Disco, Mr. Abiodun Ajifowobaje, noted that the national content rule will only succeed if the rules are strictly adhered to.
He noted that no defaulter of the local content in the oil and gas sector has ever been taken to court for sanction. “That should be guarded against in the power sector,” he said.
A staff of the Transmission Company of Nigeria (TCN), Engr. Mike Ezedinma, said local content regulation has been successful in some sectors and hoped that the success would be replicated in Nigeria.
He called on government to encourage indigenous power sector equipment manufacturing in the country as it will go a long way to improve economies of scale while reducing the import duty waivers which have not been properly checked in the past. Also speaking on challenges of regulation, a power sector analyst Chineme Okafor argued that ongoing reforms in Nigeria’s electricity supply industry, particularly the privatisation of successor generation and distribution companies created from the unbundling of the defunct Power Holding Company of Nigeria (PHCN), have thrown up challenges that could make or mar the new electricity market.
He said that when the federal government handed over successor generation and distribution companies created from the unbundling of the Power Holding Company of Nigeria (PHCN) to their new core investors on November 1, 2013, many Nigerians had described the development as a watershed in the country’s electricity supply industry.
Okafor explained that the event, last year, ensured that the reform process, which started years back with several governments and various shades of man-made challenges, would grant Nigerians from all walks of life, the opportunity to think again of the possibilities of quality and reliable electricity supply system.
According to him their hopes and expectations stemmed from the almost limitless opportunities that could emerge from a private sector managed electricity industry in view of the often resourceful management bearing that private investors bring into the economy, more so, the electricity sector which is widely considered an indispensable stimulant to economic growth and prosperity.
Almost every Nigerian had reasons to equate the economic prospects of a functional electricity sector with what happened in the country’s liberalized telecommunication sector that immensely opened up the country’s economy and by extension, the socio-economic status of her citizens.
Indeed, Nigerians had reasons to buy into the power sector liberalization programmes, following the repulsive management and operational attitudes of PHCN under government’s ownership and quasi-supervision.
But it was not just the everyday Nigerians that had expectations from the privatized electricity industry as stakeholders and investors who participated in the acquisition of the utility companies, on their part expected certain conditions to have been met chiefly by the government upon their assumption of ownership of their acquired electricity assets.
Admitted that these expectations might have come so lofty or perhaps out of sync with extant realities in the industry such as possible shortages in gas supply to thermal electricity generation companies, which make up a larger percentage of the country’s generation sources, stumpy transmission wheeling capacity and transmission loses, shortfall in revenue generation with regards to the collection capacities of distribution companies as well as the distribution coverage of the distribution companies, but the burden of striking a beneficial balance for the sector has to be met, he pointed out.
Okafor reasoned that one of the many characters of a truly liberalised market is that consumers will mostly pay for services consumed and provided while service providers strive for quality operations to boost revenue generation and capacity expansion but this is expected to play out in the emerging power sector with an impartial arbiter managing interplaying reactions in the market.
Okafor further said that sitting in-between these two active expectant classes is the NERC which holds the statutory responsibility of chiefly stabilizing behaviors of participants in the country’s electricity market, amongst other responsibilities, through its various legally recognised regulatory tools.
As the sector regulator, NERC’s proactive management of expectations in the emerging electricity market has been considered by industry experts to be deeply vital in stabilizing the pace of upgrade and expansion of the markets’ capacities to meet the expectations of the various classes of its stakeholders.
This regulatory cum mediatory role was acknowledged by the Chairman of NERC, Dr. Sam Amadi who stated in one of the various meetings convened by the commission to resolve extant teething challenges that the intention of the regulator was to effectively manage expectations in the new electricity sector.
But shortly after they took over operations of the acquired PHCN assets, the new investors came up with complaints of various operational challenges throwing NERC ability to perform into a serious challenge.
The core investors had argued that reality checks on the power systems revealed that they acquired a system that was “upside down” whereas delivery expectations from them was very high.
One of the investors who spoke on the issue was the Managing Director of Kano Electricity Distribution Company, Dr. Jamil Gwamna picked holes in the market rules, particularly the Multi Year Tariff Order (MYTO).
Gwamna said, “In terms of complying with rules especially those in MYTO, the reality on the ground in Kano Disco is that all the assumptions in the MYTO model have been turned upside down.”
Specifically, he noted that load allocation to Kano was so bad at only about 40megawatts (MW) to cover Kano, Jigawa and Katsina states, with only about 20MW for the Niger Republic.
“How on earth will I make money? We are not even near the assumption of MYTO because MYTO say I should be allocated eight per cent of the total generation capacity, which means if the generation is 2000MW, Kano should be allocated at least 160MW. Our allocation was 80MW and out of that 25MW is going to Niger Republic. So I think these are serious issues which we have found on the ground and they should be addressed urgently, Gwamna regrettably stated.
Similarly, the Managing Director of Benin Distribution Company, Funke Osibodu had noted there were issues with payment of electricity after the take -over, as consumers claimed they were not to pay bills until January.
“There is confusion in the public and we have to as a group address the confusion in the public. For instance, the public believe that they are not supposed to pay their bills until January, they believe that the debt they owed before should be written off and that they should stand in front of you and collect free meters, Osibodu said.
She also observed that the feeling nationwide was that the new investors do not know what they are doing. “The public now believe that when they don’t have power, the new owners do not know what they are doing when in reality it is because of lack of gas,” Osibodu added.
But in-between, NERC has enunciated its expectations from stakeholders in the emerging power sector to include, strict adherence to industry codes and regulations, such as the grid, distribution and metering codes, market rules, methodology in MYTO, the tariff orders for 2012 as well as regulations on embedded generation, bulk power procurement and of course connection charges methodology.
On the issue of market rules, the commission said operators are expected to as a matter of obligation comply with market rules during the interim electricity market period leading to the Transitional Electricity Market (TEM). The commission also expects the distribution companies to meet up with their baseline revenue remittance, respect the collection accounts escrow arrangement and agreements on loss reduction and metering.
In addition, the distribution companies are also expected to establish standard Customer Care Units (CCUs) within the reach of electricity customers, ensure effective customer complaints redress mechanism, deploy effective customer relationship systems, and establish accurate customer numbers, as well as embark on sustained and effective customer enlightenment and engagement.
NERC would also impress it on the generation and transmission companies to amongst other market obligations, maintain stable electricity generation; keep up with their maintenance logs; promptly clear extant faults; conduct system studies and establish baseline Aggregate Technical Commercial and Collection (ATC&C) figures, besides establishing supervisory control and data acquisition (SCADA) systems as well as geographic information systems (GIS).
Managing expectations in the Nigerian Electricity Supply Industry (NESI), no doubt, comes with challenges that will ultimately determine the pathway for NESI. Therefore, strict adherence to statutory measures provided by NERC remains the key to effective handling of challenges in the new electricity industry.
Stakeholders in the nation’s power sector have also observed that the current rating of NERC by some advocacy groups is a pointer to the fact that the regulator has lived up to its billings as a transparent institution, and that the agency will replicate the gesture in bringing about transparency in management of electricity during post privatization era of the power sector.