February 25, 2024

10 years after privatization: NERC says ‘Discos’ licenses expire in 2028, not 2023, despite President Tinubu’s criticism

Oredola Adeola

 

The Nigerian Electricity Regulatory Commission (NERC) has cautioned that the licenses of the 11 electricity distribution companies (DisCos) expire in 2028, not 2023, despite President Bola Tinubu’s criticism of the performance of most of the successor utility companies ten (10) years after the privatization deal.

 

 

This was made known at the 10th anniversary of the Nigerian Electricity Supply Industry (NESI) Market Participants and Stakeholder Roundtable in Abuja, on Monday, reviewing the privatisation exercise after a decade.

 

President Tinubu who was represented at the Roundtable by Sodiq Wanka, the Special Adviser, Energy and Infrastructure, Office of the Vice President, said, “Ten (10) years on, I believe it is fair to say that the objectives of the sector privatization have by and large, not been met, because over 90 million Nigerians lack access to electricity, while national grid only serves about 15% of the country’s demand.

 

 

He further said, “Preliminary analysis shows that DisCos today, are undercapitalized to the tune of at least N2 trillion.

 

 

“The poor performance must not continue to drag the sector down. All licensees must not only have the technical capacity to deliver on their license but must also have the financial muscles to invest to improve their operations.

 

 

“We must facilitate for the reorganization of the sector, the subsector, and the recapitalization process that brings new partners and capital to jumpstart performance in this critical sector of the value chain,” he said.

 

 

He further aligned his thought with the data provided by NERC in its Q2 2023, that for every kWh of electricity sent to the grid, only 60% of it is paid for. This, according to him, has left households and factories to rely on expensive self-generation, which supplies a staggering 40% of the country’s demand.

 

 

Tinubu said, “What is worse, is that the total amount of electricity that can be wheeled through the national grid has remained relatively flat in the last 10 years. The grid capacity has increased from just over 3000MW to typically just over 4,000MW today. Versus a 40,000MW target by 2020 that the Federal Government had set pre-privatization.

 

 

He therefore noted that the present electricity tariff is not cost-reflective, adding that the recent devaluation of Naira has further impacted the liquidity of the sector.

 

 

President Tinubu said, “But as we know, even the tariff paid for that unit of electricity is far from being cost-reflective, especially in light of the recent devaluation of the Naira.

 

 

He, therefore, emphasised that the 10th anniversary was a perfect opportunity to reflect on the entire operations of the privatisation deals, review the progress achieved so far, and the challenges faced since the unbundling and privatization of the integrated national utility.

 

 

According to him, the objective of the privatization effort was the need to improve the efficiency of the power sector, unlock private sector investments, and unleash the potential of the nation through an energized economy.

 

 

Tinubu however noted that the Nigerian power sector has suffered from chronic underinvestment, especially within transmission and distribution sub-sectors.

 

 

President Tinubu while bemoaning the commercial performance of the sector, noted that only about 45% of electricity users in Nigeria are metered, with wide variations across DisCos.

 

 

He therefore called for improvement in commercial collection and reduction of AT&C losses with the idea of improving the power sector investment to make it more attractive to more investors.

 

 

The President emphasized that the investment required to meter current and new customers and replace obsolete meters is significant.

 

 

He however reemphasized the commitment of his administration towards the metering drive through the World Bank Distribution Sector Recovery Program (DisReP) program for Nigeria and the re-activation of the Meter Acquisition Fund targeting the procurement of 4 million meters.

 

 

According to him, the long-term sustainable metering should be within the remit of DISCOS and its partners. 

 

 

President Tinubu also recommended the need for the re-basing of the electricity tariffs, adding that this would enable all stakeholders to recognize the real costs and loss levels of the entire value chain and pave the way for adequate cost recovery of investments.

 

 

He said, “We need to be clear on what shortfalls are and how we will finance them. And there must be a clear path to extinguishing historic sector debts to various value chain stakeholders. A reconciliation exercise in this regard is already underway.”

 

 

Speaking about the industry bottleneck and the need to settle the issue of legacy debt, the President stated that since 80% of grid generation is from gas, the government intends to convene all relevant stakeholders to develop a gas policy for the power sector delineating where the power sector will get gas from and work out sustainable approach towards payment for the gas.

 

 

He said, “We cannot build a sector on best endeavour arrangements. We need to have a single source of truth in terms of data in the sector, a national electrification plan that highlights the energy gaps, supported by clear investment plans on how to close the gaps.

 

 

“We need to institute a Presidential Taskforce that will monitor and unblock the progress of deployment of key projects in the sector. This includes projects that will help un-constrain the grid and deliver the full available generation capacity to our homes and factories.

 

 

“We have to accelerate the pace of deployment of renewables and solar in places where it makes sense. There is a real opportunity to accelerate the deployment of inter-connected and isolated mini-grids to deliver power close to the point of use.

 

 

“And will support the rollout out of initiatives aimed at diesel displacement to reduce the carbon intensity of embedded power plants, while supporting innovative financing schemes for solar solutions in the home.”

 

 

President further announced the plan to initiate his administration’s transformation roadmap by the end of 2023.

 

 

According to him, we are going to announce what the transformation roadmap will be by the end of this year.

 

 

Commenting on the national electricity framework of the Electricity Act 2023, Tinubu stated that the Act has also given the NERC the power to advise on the transition of the market away from a single bulk trader and the unbundling and concession of the country’s transmission network.

 

 

The President further said, “Under the universal access to electricity framework, we need to understand that every electricity user has differing abilities to pay and must be protected through the operationalization of the power consumer assistance fund and other cross-subsidization schemes.”

 

 

Shamsudeen Mammud, NERC General Manager, Market Competition and Rates in his comment stated that the licenses of the DisCos will expire in 2028 and not in 2023.

 

 

According to him, the commission extended their 10-year licenses by five years, with an option to renew for a further 10 years, if they meet the performance threshold.

 

 

He said, “It has been rumored that the licenses of the DisCos will expire this year, but the truth is that the DisCos were given a 10-year license, but as they took over, the commission extended their license by five years.

 

 

“So, the DisCos have 15 years license. So, their license will expire five years from now which is 2028.”

 

 

He said the commission has always sanctioned the licenses when they err, he added that the industry has been making slow progress.

 

 

Adebayo Adelabu, Minister of Power, in his remark, emphasised that the renewal of the licenses of the DisCos and GenCos will be a factor in their performance and not automatic.

 

 

According to him, no licence of any of the underperformed power companies will be renewed. He added that the companies would have ascertained if they had complied with their agreement to reduce AT&C losses.

 

 

The Power Minister said, “10 years down the line the licenses are expiring, and it is high time for renewal. Renewal is not automatic.

 

 

“Any of the privatized companies that have not lived up to expectations will not have the license renewed. We have to consider whether you have complied with the terms and conditions of the licence you were given.

 

 

“We will look at the technical capacity of the GenCo and I’d the DisCo. We will look at the financial credibility of the DisCos, and how much investments made since you got this license.

 

 

“How much improvement have you made in addition to it? How much of the ATC&C losses have you reduced based on the agreement when you were given this licence? “These are the serious conversations we need to have with the private sector of the generation and distribution companies.”

 

 

Hon. Tajudeen Abbas, Speaker of the House of Representatives, was represented by Hon. Victor Nwokolo, Chairman, House Committee on Power, and he opposed the idea of holding only the private investors accountable for the challenges in the industry.

 

 

He pointed out that the government, which holds only 40% of the equity of the DisCos, has the upper hand in the board meetings instead of the private sector which has 60%, and he also wondered how many government ministries, departments, and agencies pay their bills.