“Current tariff rate considerably low to guarantee sufficient, reliable power”

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Dr Joy Ogaji is a legal practitioner with expertise in power, petroleum and energy law. Before now, she was a Senior Technical Adviser on the Presidential Taskforce on Power. She is currently the Executive Secretary, Association of Power Generation Companies in Nigeria (APGC).
In this exclusive interview, she speaks on the challenges in the nation’s power sector, investment opportunities and sundry issues.
Ayobami Adedinni brings the excerpt :

What is the major issue in the all-important energy sector?

Nigeria is the largest economy in sub-Saharan Africa, but limitations in the energy sector constrains growth. Nigeria is endowed with large oil, gas, hydro and solar resources, it currently has the potential to generate 12,522 megawatts (MW) of electric power from existing plants. However, over the years, it has only been able to distribute about a maximum of 4,500 MW, which is insufficient to consumers.
The current generation capacity of the Nigerian energy sector is mainly based on thermal power plants, as approximately 82 per cent of the grid-connected power plants are fossil fuel (gas) fired, while the remaining 18 per cent are through hydroelectric power plants.
There are numerous issues bedeviling Nigeria’s energy sector. These range from lack of leadership and coordination, liquidity, underperforming market, regulatory challenges, low investment due to a lack of incentives and a disjoint between relevant government MDAs, lack of corporate governance, lack of capacity, policy gap and poor communication amongst the players and the regulators and policy makers.
Another major issue, however, seems to be the lack of synergy between the related ministries. For instance, 82 per cent of power generated is through the thermal power plants using gas, which is under the Ministry of Petroleum.
There is absolutely no synergy between the two ministries as both ministries work in silos. There also seems to be a disconnection between the Ministry of Power and the regulators in the power sector.
Another important player is the Ministry of Finance; which is supposed to play an intervention role to help bridge the liquidity gap that the energy sector faces, but without adequate industry know – how of the power sectorial issues to effectively carry out an intervention that may offer some succor, how can a sustainable solution be found?
There is also no harmonization among stakeholders, citing for instance, the Energy Commission of Nigeria (ECN) and the Ministry of power in terms of policy setting and implementation for the energy/power sector.
ECN is charged with the statutory mandate for the strategic planning and co-ordination of national policies in the field of energy in all its ramifications, and to ensure adequate, reliable, cost-effective and sustainable energy supply for the nation’s economic and socio-political development. The ministry of power on the other hand is expected to be the implementation body but instead sees itself a policy maker as well.
Thus, there is need for a synergy, for example, a body of interrelated MDAs instituted with the mandate of effectively monitoring the issues of the energy sector.

Going forward, when will Nigerians have stable power supply and is it achievable?

Firstly, it is important to clearly state that stable electricity is achievable in Nigeria. However, for this to happen, certain factors have to be in place. The most fundamental factor in achieving stable power supply in Nigeria is political will power. Without political will there will be no change in the sector. It takes political will for drastic decisions and ultimatums to be issued to solve the problems bedeviling the sector. It also takes political will to appoint power sector experts with not only the requisite qualifications, but also the needed experience to manage the sector rather than making political appointments.
Also, there is the need for discipline in the electricity market. NERC has to become attendant to the responsibilities placed on it by the EPSRA, amongst which is to license and regulate persons engaged in the generation, transmission, system operation, as well as electricity distribution as provided by Section 32 (2)(d) of the Act. Furthermore, the EPSRA under S. 62(7) provides for actions the Commission can take against licensees contravening the terms and conditions of their license, which includes non-performance.
Then, there is the problem of leadership and lack of coordination in the sector which must be addressed. This can be achieved through policy and regulation. Furthermore, every stakeholder has to recognise and adhere to its role in the sector. For instance, the Energy Commission of Nigeria (ECN), should focus on its role to initiate policies for the sector, the Federal Ministry of Works and Housing, is tasked with implementing policies in the sector, while the Nigerian Electricity Regulatory Commission (NERC) is to regulate the market, the licensees and all the value chain. The licensee cannot not assume the role of the regulator as is seen in the sector today.
Also, there is the need for synergy between players in the power sector. It is imperative that each player understands that all stakeholders are key to the success of the sector, as the electricity market is a value chain and the non-performance of a part, affects the entire value chain. It is also important that there is a synergy between the power sector and related ministries and their regulators, such as the Ministry of Petroleum as the gas used by thermal power plants is acquired from oil & gas sector. There is also the Ministry of Finance which approves funds for the sector.
There are reports that there may soon be an increase in electricity tarrif. Should Nigerians be worried about this?

In all markets, the price of a commodity is usually determined by a number of parameters. In the Nigerian Electricity Supply Industry (NESI), price is determined by 5 Parameters, namely; Naira/USD Exchange Rates, Nigerian and US Inflation Rate, Gas of Price and Available (Power) Generation Capacity.
Pursuant to section 32 and 67 of the Electric Power Sector Reform Act (EPSRA), Nigerian Electricity Regulatory Commission (NERC) issued the MYTO 2015 Tariff Order. The MYTO methodology states that a major review should be carried out every 5 years, and a minor review bi-annually. This review should take into cognisance changes in the aforementioned parameters.
In August 2019, NERC carried out a minor review of the Tariff. Considering the fact that the review was suspended for the past 3years, it is factual to state that these parameters must have undergone some significant changes.
Contrary to the uproar by consumer associations, the main concern of consumers should be on the quality of generation capacity data used in the computation of the tariff: was it real historical data or merely figures quoted by the Electricity Distribution Companies? The efficiency of Electricity Distribution Companies in line with their vesting contracts should also be of concern. Value must be demanded for all payment made for power; an increment in tariff without the corresponding provision of necessary infrastructure to improve power supply may translate to exploitation. Consumers also need to ask questions about the Meter Asset Providers (MAP) regulation that is meant to eliminate estimated billing, by metering over 4.71million customers.
To be fair, it should be stated that the current tariff rate is considerably low to guarantee the sufficient and reliable power Nigerians yearn for, thus, an increase in tariff should not necessarily be regarded as a bad thing, so long as end consumers are able to get value for monies expended on power.
How are the debts owed by the Nigeria Bulk Electricity Trading Plc affecting the operations of the Gencos?

The GenCos have been faced with a host of challenges since inception. One of the major challenge is the liquidity issue currently plaguing the power sector. This liquidity issue is a factual problem generation companies have had to battle with and it has worsened with the constant poor remittance by the DisCos. GenCos are now faced with a lack of funds to improve infrastructure due to this challenge.
Oftentimes, they are forced to generate below their available capacity, which in turn leads to minimal power generation. Payment for gas, unfavorable exchange rate, etc poses a major threat to power generation companies across Nigeria.
They are started having difficulties servicing their loans and offsetting gas costs. Most of these loans are obtained from commercial banks and now appear on bank balance sheets as non-performing loans (NPLs).
This threatens the very existence of GenCos, as no business can survive without converting debt into cash. Other GenCos under concession may also become unable to pay their Concession fees and royalty payments.
Milestones set by regulators such as capacity factor and expansion may not be attained as a result of the debt being owed to them, and this could expose GenCos to sanctions.
The strained liquidity situation has stunted the GenCos cash flow; while the capital required for medium to long-term is grossly inadequate. Most players in the market have complained that lenders are unwilling to extend loans, as they are unsure of the borrowers’ capability to remain in operation.
This is in addition to the associated issues with the newly introduced under IFRS 9and 15 which may lead to companies having an eroded equity base, with current assets ending up being less than current liabilities. The current debt the GenCos are being owed is currently over a trillion naira.
One of the challenges that Gencos complained about in the past was that the gas they were buying was denominated in dollars; is that still an issue?

It is still very much an issue. As is well known, the thermal GenCos, (who make up about 85 per cent of power plants in the country) cannot venture to generate power without gas. This essential factor of production is sold to GenCos only in dollars, whereas GenCos’ revenue, by way of tariffs collected by DisCos from end users, is remitted in naira. Commercially, there is a huge disparity between the cost of inputs being domiciled in dollars, while revenue and ultimately profit, is domiciled in naira.
The power sector has made several strategic bids to access cheaper forex, but has been unsuccessful. It is of interest that citizens who embark upon pilgrimages have better access to forex, whereas the power sector, which can easily be considered the engine of all other sectors, has been repeatedly denied this important privilege.
It is also worthy of note to state that about 60 per cent of all power sector costs, such as equipment, operation, maintenance and technical services are incurred in dollars. Hence, it is safe to conclude that forex is decidedly still one of the major challenges militating against the successful operations of the GenCos, and there is need for the appropriate MDAs to address this issue.

What are some of the investment opportunities available in the sector?
The Nigerian power sector is ripe with various investments opportunities across its value chain. In the area of electricity generation, opportunities abound both in the on-grid and the off-grid sections. With regards to on-grid power generation, the investors can invest in either thermal or hydro power generation. Although currently non-existent in the country, there is also the prospect of coal-fired electricity generation.
The off-grid sector offers investments in embedded generation, particularly the renewable energy sources. Nigeria is blessed with abundant renewable sources such as solar, wind, biomass and small hydropower potentials and lately there has been a lot of focus on renewable energy, particularly solar, to bridge electricity deficit especially in rural areas.
Another area with diverse investments opportunities is the distribution arm of the sector. The opportunities range from metering, to billing and collection and to investment in the distribution networks. The proposed NERC franchising regulation if implemented, is also a viable investment opportunity.
The role of data in the Nigerian power sector or any sector indeed, cannot be over-emphasized. Unfortunately, notwithstanding its great importance, there is a paucity of accurate and transparent data in the power sector, therefore creating a lacuna. A willing investor can explore providing a digitalized data center for the sector, which will carry both accurate and transparent information.
Furthermore, in the Nigerian electricity sector there is the need for more emphasis on long-term investments in manpower, skill development and general domestic expertise in line with 21st century global standards, which would also encourage long-term growth in the sector.
Another area of investment which is quite uncommon in the Nigerian power sector is the area of energy storage. This allows for purchasing of energy generated during excess generation period and sold during high demand but low generation period. This could reduce the wastage of stranded power.

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