In May 2017, the Minister of Power exercised his rights as enshrined in the Electric Power Sector Reform Act (EPSRA) 2005 to declare classes of eligible customers within the Nigerian Electricity Supply Industry (NESI) to, among other benefits, unlock stranded generation capacity estimated to be above 2GW and breath financial life into the illiquid NESI.
Almost 2 years after, such a very good policy that could have moved NESI in the right direction is yet to take off.
It is therefore pertinent to examine the underlying reasons why the policy is yet to translate into the anticipated dividends.
All stakeholders in the NESI agree that the Eligible Customer (EC) regulation will drive the NESI into full competition and improve the economy with industrial and commercial entities having incremental quantum of electricity supply. Yet, of a total number of 44 organizations that have so far expressed interest in becoming ECs, only 14 have submitted their applications to the approving authority, the Nigerian Electricity Regulatory Commission (NERC). More worryingly, none of these applications have been successful. The low level of success is not due to any inefficiency in NERC but the inability of applicants to satisfy the requirements of the application process. A major requirement for the successful application is the letter of non- indebtedness to be issued by the Distribution Company (DisCo) to which the applicant customer had been hitherto connected prior to switching into the EC category. The Letter will be giving to the EC to absolve it of any debt, thus qualifying to switch customer classes. As expected in our clime, the DisCos have withheld this letter. If na you nko? (what will you do in their shoes?). To be honest, no one will agree to personally signing away the major source of his or income. This effectively is what the regulation is asking the DisCos to do. The so called cherry picking of customers is the bane of the successful implementation of the EC policy.
Although the regulation provides for the Competition Transition Charges (CTC) to help DisCos cope with the realistic loss of revenue as a result of the implementation of the policy, the exact details of the CTC is yet to be worked out. DisCos have experienced alot of disappointments having signed performance agreements based on promises which have not been kept by other parties and are thus reluctant to go head-on with the EC policy and get their fingers burnt again. This has the potential financial implications for the DisCos that are already financially bankrupt.
Applicants also have to comply with technical, legal, commercial and safety requirements including registration with the Corporate Affairs Commission (CAC), signing of Market Participation Agreement (MPA), Power Purchase Agreement (PPA), Transmission Use of System (TUOS) Agreement, Distribution Use of System (DUOS) Agreement, and providing letters of credit from their Banks. Whereas NERC is endeavouring to simplify the application process, obtaining Bank guarantees is very difficult for potential ECs as Bankers have had their fingers burnt badly in view of the scale of their exposure, as of today, to the Nigerian energy industry.
In addition, generation companies (GenCos) are prevented, according to the rules, from selling contracted but unutilized capacity with the Nigerian Bulk Electricity Trader (NBET) to ECs. This does not make economic sense both for GenCos and for the Federal Republic of Nigeria. Infact, Nigerians are being short-changed as we all pay for the inefficiencies in the power sector since government provides a payment guarantee for unutilized and unsupplied electricity to GenCos. This is crazy!
Furthermore, it is obvious that the major beneficiaries of the EC directive are large industries and heavy consumers of electrical energy in the country. The members of the Manufacturing Association of Nigeria (MAN) have naturally applied to switch customer classes to become ECs. As they subsidized the tariff paid by other classes of customers on the DisCos’ financial income stream, it is difficult for DisCos to let go of them. This has led to MAN taking DisCos to court with NERC as a respondent. Thus, it is difficult for any of the parties, especially NERC, to mediate between the other two parties directly involved in the impasse. As of now, attempt towards an out of court settlement is been pursued. However, a resolution is not nigh.
The level of network losses in the NESI is very high. Up to 50% of the electricity that flows through the electricity network disappears and cannot be accounted for. This is unsustainable and effectively means NESI cannot work efficiently. Yes, there are bottlenecks in the transmission and distribution network interfaces that impede the successful implementation of the EC policy.
The following are my recommendations:
- DisCos should be allowed to participate in the EC market with business separation ensured by means of regulation.
- The requirement for letter of non-indebtedness be removed while an arrangement is made for the electricity market to pay the verifiable debts owed by prospective ECs.
- The court case between MAN, NERC and DisCos should be discontinued and the out of court settlement in process should be concluded.
- GenCos should renegotiate their agreement with NBET as far as the contracted capacity is concerned to reflect the level of consumption by the electricity market to date so as to provide additional capacity over and above the stranded 2GW for ECs.
- The Rural Electrification Agency (REA) should contunue to champion the provision of electricity supply to unserved, underserved and unsatisfied consumers using the many regulations and provisions within the NESI to help electrify the nation and catalyse the economy positively.
- NERC should simplify the application process, be less bureaucratic and continue with advocacy and education of consumers on how they can take advantage of the EC and many other policies available to maximise investment in the NESI.
The EC policy is a radical departure from the status quo. It creates a positive shock to the NESI that will steer it in the positive direction. All stakeholders are encouraged to make room for shifts in their positions to allow the country to see the light. The focus of all stakeholders should be to give full effect to this policy directive.
Idowu Oyebanjo is the CEO, Idfon Power Engineering Consultants Limited (iPEC)