INSIDE STUFF: What Happened to ‘Power Sector Recovery’?

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By Martins Oloja

I am fully persuaded that this is the right time to bring to the attention of those who are seeking to lead us from 2019, public policy issues, even as they seem to be bereft of ideas of what to do with Nigeria. It is tragic that campaign messages all over the place centre on only hate speeches and buck-passing between the ruling and main opposition parties in a country that is supposed to lead the black race and Africa.

In any case, I hinted at the imminence of hard and pertinent questions to political aspirants last week. I had said that no matter how hard they would try to tamper with press freedom, those who aspire to lead us at this time would have to face questions about critical factors that have shaped this country’s underdevelopment to the extent that Africa’s richest country is paradoxically the global headquarters of extreme poverty now.

It will be recalled that last week, I had asked the government of the day and indeed the governing party’s leadership to tell us what happened to their ‘report on true federalism’ that they promised the nation. And I also notified them to expect ‘hard questions’ sooner than later on what they have been doing with us since 1999.

So, it is questions time. And all public officers have a responsibility to answer questions without delay as they seek to continue to lead us.

Today’s question is not political: it is simply on a governance issue the governing powers have promised. And it is simply on what they would like to do with the ‘Power sector Recovery Programme’.

Ordinarily, we shouldn’t be asking a question on this technical thing that most citizens may not understand but those of us who are paid to ask questions should do our job: ask relevant questions on the state of the union and the state.

So, what does the Buhari administration want to do with another critical document – Power Sector Recovery Programme that the administration has produced?

It is another change management policy support instrument that the administration has also produced that should not be allowed to gather dust too. It is a public private partnership (off-grid) powerful weapon of competitiveness and ease-of-doing business. It is a critical element in their economic recovery and growth blueprint.

It is a policy that can spark us up as an entrepreneurial nation. What is extraordinary about the PSRP?

The origin: some facts of history of where the rains began to beat us may be relevant here.

Part of the story began in 2001 when the federal government launched a far-reaching set of power sector reforms, which, ultimately led to the unbundling and privatisation of electricity companies in 2013.

The initial design of the reforms triggered four stages of development, ultimately resulting in “a competitive, efficient, private sector-led power sector regulated by Nigerian Electricity Regulatory Commission (‘NERC’), with the Ministry of Power providing general policy oversight.”

The four stages of the development plan can be summarized thus:

The interim period, which began in November 2013 and was marked by the allocation of sector cash deficits across all market participants before expected tariff reviews; The transitional electricity market (TEM), characterised by Nigerian Bulk Electricity Trading’s (NBET) active trading of bulk power – as a buyer from GENCos and IPPs and reseller to DISCOs;

The medium-term electricity market, characterised by all contracts being between GENCOs and DISCOs (NBET ceases to exist at this stage and its contracts/PPAs with generation are novated to discos); And the final market, with bilateral contracts between electricity buyers and sellers at all levels, and, a central balancing mechanism through the creation of a spot electricity market.

However, stakeholders and consumers should understand that in January 2015, when TEM was effectively declared, not all the predetermined pre-requisites had been met. This meant that the reforms were still at TEM stage, while commercial operations had not yet been fully implemented.

In the circumstances, not many understand that Nigeria has 13,400MW of installed power generation capacity of which 8,000MW is mechanically available.

However, less than 4,000 MW has been dispatched on average over the last two years because of constant challenges in gas supply, electricity transmission and distribution. But the grave implication has been lack of constant electricity supply, which has affected consumers’ willingness to pay and contribute to an inherent shortfall in the tariff and the accrued sector cash deficit.

Besides, the power sector has thus been facing multiple challenges relating to infrastructure, liquidity, and governance that require specific and urgent attention.

To address these systemic challenges comprehensively, the federal government in June last year launched the “Nigerian Power Sector Recovery Program: 2017 – 2021’, which lays out plans to improve the financial capacity of NBET and improve the viability of the distribution companies in the country.

There are huge challenges that the NPSRP is supposed to address frontally including: Non-cost reflective tariff:

Part of the reasons for privatisation of the power sector was an understanding that tariffs would reflect the ‘end-user tariff trajectory’ and that agreement would be made regarding tariff adjustments over the course of the period.

Unfortunately, the end user tariff has only been cost reflective for short periods since the multi-year tariff order (MYTO) was reviewed in June 2012.

This development – non-cost reflective tariff – has resulted in a huge sector cash deficit and has effectively eliminated any incentives the private sector owners of the discos may have had to invest in improving efficiency and capacity.

The lack of cost reflective tariff has also led to significant cash deficits across the sector. According to the Nigerian power sector recovery programme: 2017 – 2021 documentation, “between February 2015 and December 2016 alone, the market shortfall (amount owed by discos to the rest of the market) is estimated at NGN 473 billion ($1.5 billion), while the tariff shortfall (amount owed by consumers in aggregate to the power sector) is estimated at NGN 458 billion ($1.4 billion).”

And so for the reformed power sector to remain efficient, long-term viability of the DISCOs is vital.

However, current figures from the Nigerian Electric Regulatory Commission (NERC) would indicate that between 2014 and 2016, performance may well have dropped. This has been mainly attributed to the lack of cost reflective tariffs.

Well over $200 million is owed by ministries, various federal government departments and agencies across the sector. Combined with a lack of effective governance and enforcement of rules and policies, the challenges have been reinforced. Part of the remedial actions proposed by the federal government included the inauguration of new NERC commissioners in February 2017.

The Nigeria’s power sector recovery programme: 2017 – 2021 sets out a number of remedial actions which must be undertaken in order to “to restore the financial viability of Nigeria’s power sector, improve transparency and service delivery, and reset the Nigerian Electricity Supply Industry for future growth.” The plan will be carried out over a five-year period and includes the following interventions:

Financial: To fund historical and future sector deficits, the federal government will “commit to fund implied future sector deficits from 2017 to 2021 and execute a plan to fund the required electricity market support until tariffs attain cost recovery levels. The Medium-Term Expenditure Framework (MTEF) and the annual federal government budgets will include provision for this funding.”

In addition, sector revenue deficit must be addressed and all ministry, departmental and agency debts must be paid. Future payments for these will be automated. The federal cabinet reportedly approved N26 billion for payment for MDAs last year.

And Cost reflective tariffs will need to be restored over the next five years, and the methodology for tariff setting reviewed. Part of the tariff adjustment will see increases for non-residential consumers being implemented from July 2017. This has been stalled.

A facility of $2.3 billion has been provided to assist NBET meet its payment obligations, thereby easing liquidity challenges.

And finally, the World Bank has expressed its willingness to help the federal government with the recovery programme and support may total as much as $2.5 billion coupled with support from the IFC and MIGA which may unlock a further $2.7 billion in private investment. But it is curious why the current administration has remained complacent about efforts to access this lifeline. There is no indication that they have convinced the Securities and Exchange Commission (SEC) to begin any process. Again, it is inexplicable why no budget for the power sector has reflected seriousness on this since 2016.Technical interventions:

A minimum of 4,000 MWh/h must be guaranteed and distributed daily from 2017 to ensure stability of the grid. This, in turn, will help drive improved DISCO performance. Coupled with aggressive plans to tackle technical and non-technical losses, through the implementation of a metering programme, the DISCOs should be in a position to undergo financial restructuring and recapitalization – in the absence of cost-reflexive tariff.

There have been actionable policy support promises too from our own African Development Bank (AfDB) to support Nigeria’s power sector recovery programme.

On March 16, this year, the African Development Bank (AfDB) said it would support Nigeria’s Power Sector Recovery Programme (PSRP) in three areas.
It listed the areas as operational and technical intervention, governance issues and policy-based support.

Specifically, in February this year, the Minister in charge of Power, Works and Housing, Mr. Babatunde Raji Fashola at a workshop in Abuja on the PSRP reiterated government’s commitment to the PSRP document his ministry worked out last year.
He said the PSRP would serve as means to solving the seeming intractable challenges in the nation’s Power Sector, stressing that this was encapsulated in the government’s Economic Recovery and Growth Plan (ERGP) where Power forms one of the five major pillars

The deliverable here is that just like the APC document on true federalism, the Power Sector Recovery Programme is again another strategic plan that government can implement and flaunt as a significant achievement from 2015 to 2019. It is unfortunate that leadership is simply lacking here.

Specifically, the Buhari administration officials and enforcers should note that unless they get cracking with the actionable plans of the PSRP, improve electricity generation, transmission and distribution significantly, not many will be persuaded about any significant achievements now. There is a correlation between stable electricity and higher tariff, a hard sell at the moment.

Today, it is said that the average retail is about N80 per kilowatt hour but the average price as approved by the regulator is about N32 per kilowatt hour. The big gap of about N50 per kilowatt hour among other liabilities created by this is believed to have increased market debts of the DISCOs to about N1.3 trillion.

How can the DISCOs survive this when it is owing the National Bulk Electricity Trading Company (NBET) a whopping N800 billion?

This is not a time to blame anyone. It is not just a time to be piling up war chest for elections without significant achievements. It is time to engage all the stakeholders on the PSRP, lest there will be total darkness and the Buhari administration that has advertised the actionable and strategic ‘power sector recovery plan’ will be blamed for lacking in dynamic capabilities to implement its promises and plans.

Martins Oloja is a Columnist with the Guardian Newspapers

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