Wole Abayomi, Head of Strategy; E.D. Business Strategy, Vanetti Advisory Limited; Powerex Limited
Subjects of Interest
- Electric Power
- Private Sector Development
Power politics in the era of privatised electricity assets 14 Nov 2016
November 2013 had signaled renewed hope in public power supply following the completion of the much-publicised privatisation of the sector. That the power sector has acquired a reputation of the Gordian knot is not in doubt. The question is whether this will be a permanent tag even as the post-privatisation experience has offered little hope thus far.
Just recently, the presidency gave further assurances of improving or fixing the sector but not many are quick to forget the fate of similar promises in the past. Some would wonder what makes the power sector challenges so protracted and intractable, and why a sector so cardinal to the national economy and social life is defiant of solutions even after privatization. We will be seeking perspectives in the direction of governance for likely solutions to this conundrum.
Power politics is often neglected but it is a very important part of the dynamics. If it is understood and done properly, it can give the required impetus to the process and system of power delivery. For starters, it is good to address the reader's mind to the importance of power politics as a key success factor in achieving the sector's objectives since the business of public power supply is done within the provisions of the law and policy framework. Such a large-scale business cannot be expected to freewheel without chaos, so it makes sense to have a framework guiding its activities sustainably.
The Electric Power Sector Reform Act (EPSRA) 2005 is a laudable document. It anticipated developments in the sector several years in advance and made provisions to respond accordingly by vesting certain powers in the Nigerian Electricity Regulatory Commission (NERC) to manage areas requiring flexibilities in line with dynamic realities in the sector.
Whereas the executive arm of government is high in hopes and promises on power delivery, the legislature thinks differently based on media reports on the unsavoury positions of the House of Representatives on the Distribution Companies (Discos). The reports came at a time the judiciary had given its own verdict on the propriety or otherwise of the tariffs increase by NERC, following painstaking efforts by some of the Discos in engaging with their customers on same.
The Minister of Power, Works and Housing would like to advance a sound business case for tariffs increase; that is, customers should pay more only on power that is actually consumed. But the consumers know better; such a system can be easily abused in a system that has a vast number of unmetered customers. The business case looks good but increasing tariffs in the current setup can only plunge unmetered customers into further arbitrary debts. This reality is not lost on discerning citizens irrespective of the side of the divide they belong.
Part of the pre-conditions for tariffs increase in the EPSRA 2005 (Section 76.2.a) is efficiency on the part of the operators. This means that the Act frowns at the operators passing their inefficiency costs to consumers. It would be good to know how much the NERC and/or Ministry of Power have insisted on the Discos delivering on their Aggregate Technical Commercial and Collection (ATC&C) losses reduction targets, to help their business case.
It seems the contention in the earlier litigation against NERC is that the moral side to the business case for tariffs increase is the need to offer value in exchange for every amount billed a customer. The case was resolved in favour of the litigant in July 2016. This also aligns with the position of the legislature which, incidentally, is not only popular but logical.
But while the lawmakers expressed their position on the power sector operators in grave terms, it is puzzling that there has been no visible follow-up effort from their chambers till date. The sector is too crucial to be left unattended by any organ of government that has a duty of regulation, monitoring or oversight. One of the allegations from the House of Representatives borders on technical competence and financial incapacity of the Discos. This author has raised same concerns for years running.
On a closer look, however, the relevant state organs need to look inwards to see if the requisite capacity exists to discharge their functions, whether in industry regulation, performance monitoring, legislative oversight, or any other duty. Although there may be doubts (whether rightly or wrongly) in the capacity or competence of the Discos, the organs of state cannot afford to nurture similar doubts in anyone's mind regarding their own capacity or competence. Nothing must be spared, therefore, to develop and deploy the needed capacity across board to re-position the sector.
There is no denying the current adverse business climate in general, and how it affects those that have a large part of their business dependent on foreign exchange, like operators in the power sector do. But in seeking tariffs review, there should be no loose ends in complying with relevant provisions mandated by the EPSRA 2005 and building a strong case backed by evident, improved supply outputs to forestall market resistance. The market environment should also be such that it cannot be exploited for arbitrary imposition of unfair and unjustifiable bills.
In their defence, the Discos are quick to refer to the NERC template on estimated billing but many think the template is nebulous and unfair. There is need to investigate where the unfairness lies, whether in the parameters of the template or its application, or whether there is need for more public awareness if nothing is wrong anywhere.
Another area where power politics should be leveraged is in the decentralization of the grid. The Minister of Power, Works and Housing, while on the saddle as Lagos State Governor, had advanced a position a few years back on the merits of decentralizing the electricity grid. With his influence as a key member of the current administration, and armed with the merits of such a move, it will be good to see something done in this direction in the lifetime of this administration. It is comforting to know that the technical viability of grid decentralization is already being explored according to the roadmap given by the minister earlier in the year.
Still on the issue of power grid, there are aspects of the framework where intervention has been duly vested in the NERC, to wit, regulation and administration of licenced undertaking both for generation and distribution. The EPSRA Act 2005 provides for licensing for power generation capacities exceeding 1MW, including captive plants. Sub-megawatt power generation requires no licence. On the other hand, a distribution undertaking within 100kW requires no licensing, and above that limit a licence is mandatory.
Based on the sense of emergency in the power sector (though officially undeclared), there is need to re-examine whether the 100kW limit for unlicenced distribution undertaking is sufficient in all cases and all places, or whether it should be reviewed based on the practicality of load requirements in some urban locations where neighbourhoods and communities are resorting to self help in pooling resources to organize micro-grid systems. It is unclear whether the licensing bureaucracy can justify a 120kW distribution undertaking for example, or whether the licensing limit is not a dis-incentive to neighbourhood initiatives in view of the perennial grid supply shortage.
There is another aspect that is more social in nature than power politics. It is the aspect of the Disco operations that directly touches the public – I am referring to public safety. It leaves much to be desired seeing that this aspect of the Discos' operations that is well within their control and requires no complicated approach could be left for so long with little visible attention. In many instances, this has remained a clear and present danger. Situations of exposed live parts within reach or in close proximity to public access, or electric poles propped up precariously as disasters waiting to happen, are deplorable. Even when penalties or compensations are prescribed in the event of fatality traceable to a Disco's negligence, the sanctity of human lives demands that no effort must be spared as far as humanly possible to assure public safety.
If there is any area where speed can save lives, it is in the quick and professional clean-up of the Discos' physical network so that fatalities arising from avoidable causes like derelict infrastructure bearing live parts can be drastically minimized or made a thing of the past. The NERC should step up their monitoring and enforcement in this area, beyond imposition of penalties and compensations.
In closing, it is not too early to have an objective appraisal of the progress in the sector post-privatization. This appraisal should cut across board, from the operators to the regulators and those mandated with monitoring (technical compliance and contract performance), and oversight duties. The conditions precedent to the privatization assets sale can be a good place to start. It is important for all parties to assess how they have delivered on their commitments and know the lessons learnt in these three years.