Power sector outlook for 2020

Power outage
Power outage

There is no subject matter that concerns all Nigerians more than the status of its epileptic power supply industry. With the Nigerian Electricity Supply Industry (NESI) beginning and ending the year with epic events, stakeholders are genuinely interested in what 2020 holds for all.

The most important stakeholder in any power system are the consumers. Therefore, our main focus for discussion will be around the potential increase in tariffs for various customer classes in January 2020. Recall that as part of the retrospective review of the multi-year- tariff order (MYTO) done by the Nigerian Electricity Regulatory Commission (NERC), and the accompanied minimum remittance order, the commission mandated electricity distribution companies (DisCos) to meet specified remittance thresholds of monthly payments to the Nigerian Bulk Electricity Trader (NBET) that will take care of services provided by the market operator (MO) in the electricity market. An increase in tariff without a corresponding increase in the quantum of power supply to consumers is a panacea for strikes and protests if one considers the history of the NESI. The argument for cost reflectivity of tariffs has been on the table for a while now and it may be that consumers will have it forced down their throats. Saying that, without cost reflective tariffs, operators cannot make the required investment to make power more available to consumers. At the same time, without an increase in power supply, consumers will remain apathetic to any increase in tariffs. This is a chicken and egg situation that makes the work of any regulator of power systems difficult and NERC is no exception. NERC has a dual conflicting role of ensuring operators make reasonable profit without taking undue advantage of consumers. The balance will always tilt in one direction or the other and the regulator must always tilt the balance in favour of consumers to strengthen the industry.

One of the key ways NERC aims to achieve this balance is to ensure the DisCos stick to the performance improvement plans (PIPs) submitted to justify the increase in tariffs to allow for investments that will bring about better customer service levels and efficiency of network operations. NERC will have to increase its monitoring of the activities of the operators in the industry in order to achieve this feat. Under this regime, it is expected that in 2020, DisCos will work with technical partners and investors to bring in the needed funds that will enhance revenue and expenditure required for network revamping.

There are many good policies that have been churned out by NERC which have not realised their expected outcomes due to implementation issues. One of such is the Meter Asset Provider (MAP) regulation. The regulation provides for a 10-day turn around from payment for meter to installation but the experience from those who have paid so far is a far cry from this. People have to wait for months after payment to get feedbacks and not many people have had their meters installed under this scheme. From our experience with the credit advance payment for metering implementation (CAPMI) scheme, where we paid for meters and never got them, the MAP scheme seems to be dead on arrival! This leaves us with the thorny issue of estimated billing where consumers have to pay, against their will, for electricity services not received. The criminalization of estimated billing is expected to be on the front burner in the new year just as lobbyist will argue for balance that this may throw the industry into further chaos. Estimated billing is an industry technique that is guided by rules which are not followed in the NESI. Under the rules, a consumer cannot be worse off than metered customers around them but what is practised in the NESI is “guesstimated billing” that bears the semblance of fraud, intimidation, daylight robbery and outright arbitrariness. Must we wait for consumers to take laws into their hands and unleash terror on assets belonging to DisCos and their workers going about their daily routines before a truce is reached?

A major leapt by the federal government (FG) towards moving the power sector in the right direction in 2019 was the signing of the agreement of the Nigerian Electrification Roadmap (NER) Project with Siemens AG. The level of commitment thus far is commendable. Discussions have reached commercial stages and the FG has set aside the sum of 61billion Naira captured in its 2020-2022 medium-term expenditure framework for this project. Therefore, we expect to see a project management team representing the interest of Nigeria in place for this project. The team will work hand-in-hand with experts from Siemens in the delivery of the three-phase project. As most of the equipment to be used in the project are long lead items, we cannot see any physical deliveries and installation of items until around the end of the year, that is if the contract is signed before the end of 2019. Saying that, a number of activities involving front end engineering design (FEED), site visits and more should take place earlier.

Unfortunately, power system collapses are still a feature of our fledging electricity market. We expect to see some of these, total or partial, in 2020. Investments in power systems are highly technical and financially demanding. They also take time and a sustained investment for at least a decade is required to enable us begin to feel no less than 18 hours of power supply per day. This requires the appointment of qualified technocrats in positions, revamping of distribution and transmission corridors, and a political will or determination to get gas-to-power right.

NERC, now being led by power system engineers, have been putting out some regulations to move the power sector in the right direction. We can expect to witness the approval or implementation of some of the regulations such as the mini-grid, eligible customer, meter asset provider and distribution franchising regulations with a view to connecting more off-grid and embedded generation in the NESI.

With the improved monitoring and regulatory actions witnessed in the second half of 2019, we expect operators in the NESI to begin pushing their operations towards ensuring a more efficient, reliable, safe and stable electricity supply in-country. More impetus should now be given to proper system planning and design. Also, there should be a shift towards earthing, protection, control and monitoring of networks to check the spate of mindless and needless deaths by electrocution witnessed in the NESI to date.

A functional electricity market depends alot on the ability of consumers to pay for metered electricity consumed. It is not possible to separate the social economic outlook of a country from the liquidity of the electricity market. Where many people are hungry or are struggling to survive, people will find ways to steal electricity, by-pass meters, collude with officials and cheat the system. In 2020, with the introduction of higher VAT, the purchasing power of Nigerians may become lower and thus affect their abilities to pay for electricity genuinely consumed. When this is put side-by-side with the potential introduction of higher tariffs, your guess is as good as mine as to what will happen! Consumers nationwide are already worried about insecurity, being underpayed at work, fuelling generators to run their homes and personal businesses, paying electricity bills, paying school fees etc. A truly “cost reflective tariff”, one that does not pass network losses and inefficiency unto consumers, and which may bring investor funds into the sector, may be beyond the financial capabilities of many.

The illiquidity challenge in the NESI is still a major cause of worry as the entire electricity value chain depends on the revenue collected and remitted by the DisCos to NBET. A healthy NESI requires more book keeping and transparency. If possible, NERC should declare that all payments for electricity consumed be put in an escrow account or paid directly to nominated Bank accounts such that CBN can provide visibility to relevant stakeholders for proper accounting.

The latest of actions in the power sector involved the suspension of heads of two of its agencies who were direct appointees of the President by the Minister in charge. Some have argued that the Minister ought to have written to the President, outline the reasons why the heads of these agencies have to be suspended or investigated for serious official breaches, and obtain necessary written approvals before the suspension notices. The drama that ensued when a former Minister of Health took unilateral action in sacking the MD in charge of the National Health Insurance Scheme (NHIS) should still be fresh in our minds. The Presidency and The Federal High Court declared that the Minister lacked the power to suspend the MD. Both the Court and Presidency reversed the suspension stating that Ministers require due authorization before suspending heads of agencies and parastatals. In view of this, it is left to be seen in 2020, what becomes of the suspension from duties of the MDs of the Rural Electrification Agency (REA) and NBET, Mesdames Damilola Ogunbiyi and Marilyn Amobi respectively, by the Honourable Minister of Power, Engineer Mamman Sale.

Whatever the case, 2020 will surely be eventful for the power sector.

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