31 October 2016, Sweetcrude, Lagos — Private investors in Nigeria’s power sector are recouping losses rather than gain three years after the sector was safely placed in their hands to improve and sustain power generation, distribution and revenue collection.
On November 1, 2013, the power sector officially moved away from government control with exception of Transmission Company of Nigeria, TCN which was managed by Manitoba of Canada for some time.
According to Market Operations, MO department of TCN, it was recently reported that the monthly revenue remittances of the 11 electricity Distribution Companies, DISCOs to the Nigerian electricity market dropped to 30 percent from about 58 percent.
The 30 percent drop was linked to Discos disregard for market rules approved for the Transitional Electricity Market (TEM).
In addition, it was general believed that the power sector will fare better when freed from government control, however, lawmakers in Nigeria opined that the power sector appears to have gone from back to worse in the hands of these new investors.
“Are you sure the privatisation of the power sector is producing the needed result with the under performance by the new investors,” Chairman Senate Committee on Power, Senator Enyinnaya Abaribe said.
Senator Abaribe concerns were on the liquidity crunch in the power sector just as his member in the committee cast doubt on the financial and technical ability of the private investors in the power sector.
The Committee members who were on oversight visits to government agencies in the power sector were at the Nigerian Electricity Regulatory Commission ,NERC where they queried the reduction in cash collection which they claimed notched N15billion before privatisation but to about N5billion, even as electricity distribution companies relied on estimated billing rather than meter their customers.
In response, NERC’s acting Chairman, Dr. Anthony Akah said that the Commission was changing its regulatory approach from being soft-handed as was adopted when the operators came on board three years ago to strict applications of rules and regulation to ensure operators in the value chain play by the rules and regulations.
Akah said that such strict applications of rules and regulations would be balanced with efforts to remove obstacles militating against the optimal performance of licensees in the power sector.
He cited imposition of sanctions on erring operators in nine different instances within the last four months as indications of the change in regulatory tactics, even though some of the sanctions are been appealed and he assured that the operators would be guided back on the track.
Repeated system collapse
Post privatisation of the power sector has witnessed several challenges but the second quarter of 2016 has been described as the worst which witnessed repeated system collapses grinding to a halt power generation first time in the history of the country.
Specifically, in June, there were five instances of total system collapses and three incidents of partial system collapse, due to generation limitations.
According to the Independent System Operation (SO), “the grid witnessed six instances of total system collapses and one incident of partial system collapse, essentially due to generation limitations. Total generation again went down by 19.23 percent compared with energy generated in May,” adding that that Afam I-V, Gbarain, AES, Rivers IPP and Omoku Power Stations operated at zero levels.
Debilitating Government Debt
Government exclusion from the generation and distribution chain in the power sector, being operated by private investors indicates that the sector will be driven by profit. However, the government and its agencies now owes these operators over N80 billion.
Commenting on the huge debt, Managing Director and Chief Executive Officer of Egbin Plc Mr. Dallas Peavey, Jr said: “We are owed over N86bn by the Federal Government; we have been producing but we haven’t been paid for almost six months. The last amount of money that we got was about 16 percent of the total bill for the power that we generated for the month.
“We can’t continue to operate simply because we don’t have the money to pay for materials. We don’t have the money to pay for repairs and we can’t continue to pay our employees simply because we are owed so much money. We have gone out to banks and different financial entities to borrow the money to continue to do maintenance. You know for banks, the limit is only so much and we have reached that limit.”
Beside government debt, Mr. Peavey said the supply of gas and the weak transmission system are major challenges the power sector is going through.
He explained that Egbin generation capacity is about 1,320MW but are currently able to generate doing about 425MW, representing only 30 percent of their installed capacity due to shortage of gas supply
Mr. Peavey described TCN as the weakest link the power sector value chain noting that the transmission system which is 37 years old needs a complete overhaul as it can not accommodate 5,000 megawatts from generation companies.
Meter manufacturers ordeal
Investors in the meter manufacturing also have their own share of challenges in the power sector. Prior to the privatisation of the sector, about 80 percent of electricity consumers in the country are unmetered. Meter manufacturers saw the market and invested to bridge this huge gap.
Three years after privatisation, however, meter manufacturers in Nigeria complained about low patronage from DISCOs.
Electricity Meter Manufacturers Association of Nigeria, EMMAN said only Ibadan, Eko and Abuja distribution companies patronised its members. EMMAN Executive Secretary Mr. Muyideen Ibrahim said most of its members had to retrench some of their staff because they could not sustain them due to poor patronage.
He urged the DISCOs to stop importing meters, saying by doing that, they were boosting and developing the economies of foreign countries at Nigeria’s expense.
“The Federal Government needs to intervene in order to prevent the metering industry from collapsing. The government can compel the DISCOs to buy meters from us, the local manufacturers because we produce quality meters.
“By doing this, the government will be promoting local- content initiatives introduced to promote the growth of indigenous business operators. At the same time, government will be helping to conserve foreign exchange,’’ Ibrahim said
Meanwhile, meter manufacturers who rely on importation may close shop due to the scarcity of foreign exchange.
The Managing Director and Chief Executive Officer, Mojec International Limited, a meter manufacturer, Chantelle Abdul, told journalist in Lagos that “One of our critical issues at the moment is the lack of access to foreign exchange. A lot of our manufacturing inputs rely on goods abroad. My goal as a manufacturer is to produce as much of my manufacturing input here in Nigeria.”
She noted that financing still remains a big challenge for meter manufacturers adding borrowing at double-digit rate will automatically increase the price of the meter.
“Already, Nigerians are struggling to buy the meters, even the electricity distribution companies themselves. So, imagine doubling the price of the meter that already costs between N40,000 and N65,000; it means that we will not be able to bridge the metering gap that already exists in the country,” she said.