Privatisation only changed the dimension of the challenges in Nigeria’s power sector

– LCCI Power Sector Chairman

 

Otunba Akinbo Akin-Olugbade, Managing Director/Chief Executive Officer, Kawai Technologies Ltd, who doubles as Chairman, Power Sector Group, Lagos Chamber of Commerce and Industry, LCCI, in this exclusive chat with Oredola Adeola, Regional Editor, EnergyDay Nigeria, has identified major failures in the Nigerian Electricity Supply Industry(NESI), he revealed that the FG and private owners of the power assets have not really played their part to guarantee a smooth transition and growth, an action he said has further exacerbated the sector’s challenges. Excerpts.

 

How would you assess investment efforts made under the present administration in the power sector within the last seven years?

We are not where we used to be, some improvement have been recorded in the power sector. The administration has not really achieved what it set out to achieve ab-initio, we could have achieved more, but there are chances of doing better.

For instance, in 2012, the Federal Government proposed N300 billion for Power and Airline Intervention Fund (PAIF), which was managed by Bank of Industry.

The objective of the special intervention fund was to fast track the development of electric power projects, especially in the identified industrial clusters in the country; improve power supply, generate employment, and enhance the living standards of the citizens through consistent power; provide leverage for additional power in the power and aviation sectors.

Similarly in 2014, the Federal Government also proposed N213 Billion, through the Central Bank of Nigeria, CBN- Nigerian Electricity Market Stabilization Facility (NEMSF). The objective of the fund was also to settle the outstanding payment obligation due to electricity market participants, service providers and gas suppliers that accrued during the interim rules period, as well as legacy gas debts of the PHCN (Power Holding Company of Nigeria) generation companies owed to gas suppliers and the Nigerian Gas Company Limited (“NGC”). This was done with the sole purpose of putting Nigerian Electricity Supply Industry on a route to economic viability and sustainability.

In 2017, the FG also earmarked N701bn for Power Assurance Guarantee for the Nigerian Bulk Electricity Trading (NBET). The facility provided by the Central Bank was meant to guarantee payment for the evacuation of power produced by Generating Companies (GenCos). The objective was to assist in resolving over N500bn debts owed to gas suppliers. The target then was to guarantee payment for gas supplied for power generation and to act as an incentive for improved gas supply to power generating plants across the country.

However, in 2020, the FG also earmarked N140 billion, for Solar Connection Facility, the objective then was to structure the fund as part of support to the economic recovery in response to COVID-19, roll out 5 million new solar-based connections in off-grid communities; expand energy access to 25 million individuals, 5 million new connections through the provision of solar home system or connection to a mini-grid and lastly to provide affordable electricity to rural dwellers through the provision of long-term interest credit facilities to the Nigerian Electrification Project

In 2019, the Presidential Power Initiative earmarked $2.3Bn Siemens Power Project Memorandum of Understanding(MoU) with the objective of upgrading the electricity network to achieve the operational capacity of 25,000 MW from the current average of 4,500MW.

Phase 1 of the project targets 7,000MW by unlocking and optimizing existing assets, while Phase 2 targeted of 11,000MW will focus on the full use of existing generation capacity and distribution capacity The Phase 3 of that project targeted 25,000MW. These projects were to be achieved with the upgrade and expansion in both generation, transmission and distribution.

Meanwhile, I personally think we should have focused more on the SCADA system, a digital automation to monitor the entire power system in real time, this is an achievable goal financially as it has potential to give us insight into power utilization.

Despite all these investments and based on the key industry data released by NERC,concerning NESI between Jan 2019 to Sept 2021, the sector recorded growth in energy delivered to the DisCos between 2019 to 2020. Distribution saw an 8 percent increase from 27.7GWh to 29.8GWh.

Peak Energy recorded on the grid in Nov 2015 was about 4,700 MW, but today, it is 5,800 MW. This is about 1000 MW increase in the peak operational grid capacity in 7 years.

It is however clear that, a lot of the aforementioned payments were designed not for a capacity increase but to prevent a collapse of the Nigerian Electricity Supply Industry. The funds were essentially used to pay off the shortfall resulting from the lack of cost reflective tariffs.

Whereas, there is need to stabilise the market, which is what the FG has been doing, but more network expansion investment is required to unlock industry capacity.This should be the focus of every player in the sector including government and private players.

The FG has concluded plan to generate 30,000MW of electricity by 2030, with 3,000MW from renewables and 27,000MW from its power plants to serve its over 200 million people. How achievable is this?

On the 27th of 2015, TCN announced a record peak of 4810.7MW and on the 25th Sept 2015 a new all-time maximum energy of 104, 794 MWH per day.

In 2022, the Peak Operational Generation capacity is 5801.6MW and a maximum daily ever attained was 119, 471.15MWH, this is according to figure obtained from the Nigerian System Operator.

If in seven years, we only unlocked, 1,000 MW of operational on-grid capacity and increased the daily amount of energy the grid can wheel by 14%, based on this data alone, it is difficult to believe that as a country we can scale the 2030 target that quickly. We have only managed a 25% increase in the last 7 years, instead of about 500% increase in capacity in 8 years.

An optimistic view is to unlock the grid and deliver the 13,000MW of grid installed generation capacity.

 

What is your assessment of the efforts made in the renewable space within the last eight years?

In Q2 of 2021, hydro power plants which were also an aspect of renewable energy, contributed only 18 percent to the total grid energy. The completion of the Mambilla Hydropower project is expected to deliver an average of 3050MW on completion. The renewable energy target is achievable if we are committed to this.

There is also a lot of development funding into energy access, the World Bank Performance-Based Grant has reduced the financing barrier to the build of mini-grids. Therefore renewable energy capacity can be deployed in isolated or interconnected mini-grids.

According to the State of Global Mini-Grids Market Report, 2020, by the end of 2019, Nigeria’s estimated installed mini-grid capacity was about 2.8MW. This number can easily become 100MW in 8 years with the momentum by all the various players within the off-grid space right now.

The country’s power generation still hovers just above 5,000MW despite the 13,000MW installed capacity; eight years after the sector was privatized. Is this evidence of failure of the 2013 privatization exercise?

From the perspective of a customer who only wants to turn on a switch and see power, we can say privatization failed to deliver on that promise. The narrative at the time of the privatisation programme, made Nigerians believe that once you add the verb privatized to the NESI, there would be a magic wand and power would be available and reliable. What we have seen is that privatization only changed the dimension of the challenges in the power sector, while it has provided the solution to some problems, it has unearthed some more challenges.

The goal of the power sector reform was to move the Nigerian Power sector from a state monopoly towards a competitive electricity market, while improving quality of service, increasing capacity, reducing losses and becoming self-sustaining. This was designed as a four staged journey viz, Pre-Transitional – Privatization; Transition Electricity Market: No central administrative balancing mechanism, essentially no more NBET and introduction of settlement procedures; Medium Term: Electricity Trading, spot electricity market, bilateral trading of electricity and long term market focusing on retail competition, separation of distribution and retail activities and open access to transmission and distribution networks.

The Government and the private owners had different parts to play to guarantee a smooth transition and growth, however, both parties have failed to deliver power fully on the agreed responsibilities at the time it was required. This has further exacerbated the challenges.

We have scenarios where 2016 market problems are solved in 2019, a three-year lag, you can only imagine the spiral effect this will have on the entire market structure . Example of this are the Ministries, Department and Agencies(MDAs) collection losses. However, I believe that with coherent policies, incentives and penalties for all parties, as well as strong policy implementation systems, we can easily unlock our electricity delivery capacities in the coming years.

 

Gas accounts for 81.53% of the electricity generated in 2020/2021, why is gas supply a major issue for the power sector despite the country’s largest gas reserves?

According to the Power Sector Recovery Program limitation in gas supply effectively removes 1,400MW of the 7,000MW of gas-fired power plants operational available on the grid. The major issue is a lack of active and bankable gas supply agreements at scale. The other reason is that gas power plants are not located close to gas pipelines. So whilst we have huge gas reserve, a robust value chain that can ensure that the gas is delivered where it is needed is not available. Today we have idle power plants and unutilized gas reserves.

There are plans to increase Electricity Tariff this year, 2022, will the much-touted service-based tariff regime solve liquidity issues affecting the sector?

Comparison between the United Kingdom’s power costs to the consumer and Nigeria’s N53 kiloWatt per hour prices in view of the similar capital investments required.

The summary of Aggregate Technical and Commercial Collection (ATC&C) losses recorded between 2019 and 2021 is part of the liquidity problem affecting the power sector. The money collection agency for the value chain is the DisCo, unfortunately the liquidity issues affecting profitability are correlated with the Aggregate Technical Commercial and Collection losses.

In 2019, the average ATC&C for the sector was 45%, which means that for every 100 Naira worth of energy the disco received, it only collected 55 Naira.

The service reflective tariff was implemented in late 2020, unfortunately, the year ended with an ATC&C of 50.1 percent, essentially more money was lost than was retained.

The average sector ATC&C for the first nine months of 2021 was 47.22%, a worse ATC&C than what it used to be before the Service Reflective Tariff regime of 2019. The persistent ATC&C losses in sector have continued to make the sector less profitable.

The FG last year, concluded the first phase of the National Mass Metering Programme(NMMP) with key objective of increasing Nigeria’s metering rate, and elimination of arbitrary estimated billing, how would you rate this development and plan for the take-off of the second phase (Phase1) where four million meters are expected to be distributed?

In 2021, the FG dedicated N210 billion for National Mass Metering Program, the objective was to increase Nigeria’s metering rate, eliminate arbitrary estimated billing and to strengthen the local meter value chain by increasing local meter manufacturing, assembly, and deployment capacity. The mass metering programme aimed to reduce collection losses and increase financial flows to achieve 100 percent market remittance obligation of the DisCos.

It was also meant to improve network monitoring capability and availability of data for market administration and investment decision making.

So far N47.66 billion has been disbursed by CBN to acquire 858,0256 meters. According to the NERC’s key data of NESI for Sept 2021, the metering gap is 8 million. At the end of Q3, 2021, there are 12.8 million grid connections, only 4.8 miliion are metered, leaving 8 million unmetered connections till date.

We still have a long way to go in bridging the metering gap but the NMMP is expected to supplement the MAP program and accelerate metering in Nigeria.

How this is going to work with that gap is what I am trying to figure out with the prevailing circumstances.

The core investors and managers of some electricity distribution companies have been having issues over their inability to turn around the fate of public utilities. These developments have led to take overs of some including Abuja Electricity Distribution Company (AEDC), Ibadan Electricity Plc and Yola DisCo. Does this further establish the failure of the privatisation programme of 2013?

The privatization programme produced 18 successor companies out of which six(6) generations companies, eleven(11) distribution companies and one (1) transmission company emerged. Statistically, three(3) out of eight(18) is not an indication of failure, and the case of Yola is very peculiar.

It may be erroneous to judge the success of the privatization based on takeovers, in fact, take-overs may indicate growth and a strong market. Take-overs indicate that the market is thriving and moving out the old unprofitable companies to make room for other companies with better value propositions for the consumer and the shareholders.

Infrastructure deficit has been a major issue affecting the sector across all the entire value chain especially on the distribution side. What are the quick fixes?

An educated guess will put the distribution installed capacity around the country at about 10,000 MW, about 17 percent less than generation capacity of 12,000MW. The capacity exists, however, operations and maintenance methodologies, tools, systems are lacking.

While expansion is required, the quick fixes will be the rehabilitation and reconfiguration of existing assets and improving the maintenance system with smart tools e.g SCADA.

Rehabilitation will ensure full asset capacity, reconfiguration will align supply to demand, and upgrade of maintenance system will reduce the occurrence of faults and/or the time to repair the faults.

 

There is a global shift from fossil fuels to cleaner energy, given Nigeria’s dependence on revenue from oil and gas, what is the prospect for our economy?

I am a full believer in renewable. Distributed generation is one possible solution. Nigeria has serious infrastructure challenges though, and things like Electric Vehicle (EVs) are not on the cards for us now with the current death of infrastructure We can however use the opportunity to leapfrog power requirements by using renewable for homes and light industry. Nigeria needs to also double down on gas contracts for long term supply as well as for industry.

As an expert in the alternative energy, how best can Nigeria optimise the potentials in green energy. Do you think renewable can offer the best solution to ending Nigeria’s energy poverty?

A hybrid system of the available resources, technology and capacities, deployed to match the unique climate of Nigeria will solve the energy poverty in Nigeria. In places where the green resource is available and the technology is accessible, it should be deployed. Every sustainable resource should be exploited and used for energy solutions across the nation.

There is an increased interest in deployment of renewable facilities amongst MSME and industrial players, how best can we upscale alternative penetration to address national energy deficit?

Coherent and resilient energy policies and financial systems will attract the funding required for the transition.We need to do more upscaling human capacity. We also need develop a strategy to localize development and fabrication of parts. More needed to be done to optimise available potentials in the clean energy value chain.

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