Power
Nigeria government wades into problems of new power investors
ABUJA – The Federal Government at the weekend responded to the tale of woes by new investors in the power sector, saying it was not under any illusion that the new dispensation in the sector won’t face some challenges before the return of stability in the operation of the new owners of power firms.
The clarification came on the heels of a harvest of complaints by new investors in the sector barely 27 days after taking over the operations of successor generation and distribution companies of the defunct Power Holding Company of Nigeria (PHCN).
The investors, who spoke at a meeting in Abuja, last week, disclosed that their reality checks on the power systems they took over indicated that the system seemed to be “upside down.”
But responding to the complaints of the new investors, Chairman Presidential Taskforce on Power Mr. Beks Dagogo-Jack explained that every major sector reform exercise was bound to face teething problems.
“No one in government gave an impression that the minute we handed over, all our electricity problems would vanish,” he said, adding that a reform program was akin to a pregnancy.
“For nine months, you focused on the mother and after the baby is born, you shift more attention to the nurturing of the baby who is more vulnerable than the mother.”
Dagogo-Jack said “the business of nurturing the reform to maturity is not a casual responsibility and rests squarely on the Ministry of Power, with the invaluable support of the regulator and the Bureau of Public Enterprises.”
And according to him, the Presidential Task Force remains on hand to provide the much-needed technical support for risk anticipation dimensioning as well as solution generation.”
Asked about the way forward, he said: “A well-integrated proactive progress management team structure under the leadership of the Honourable Minister of Power, which meets for two hours daily, at least to resolve critical issues and sustain market confidence, is a sine qua non for ensuring steady progress during this teething period.”
The aggrieved power sector investors made their complaints known to the Nigerian Electricity Regulatory Commission (NERC) at the meeting, which was the first, since they physically took over their electricity assets by the federal government on November 1.
One of such investors who expressed his discovery is the Managing Director of Kano Electricity Distribution Company, Dr. Jamil Gwamna.
He said the market rules, especially with regards to the Multi Year Tariff Order (MYTO-2), had been turned upside down.
Gwamna had said: “In terms of complying with rules especially those in MYTO, the reality on the ground in Kano Disco is that all the assumptions in the MYTO model have been turned upside down. Load allocation to Kano is so bad that for the last three days we are getting as low as 40 megawatts (MW) to cover Kano, Jigawa and Katsina states. Not only is that so, about 20MW gone to Niger Republic.
“How on earth will I make money? We are not even near the assumption of MYTO because MYTO says I should be allocated eight per cent of the total generation capacity, which means if the generation is 2,000MW, Kano should be allocated at least 160MW. Yesterday, our allocation was 80MW and out of that 25MW is going to Niger Republic. So, I think these are serious issues, which we have found on the ground and they should be addressed urgently.”
Also, the Managing Director of Benin Distribution Company, Funke Osibodu, said: “There is confusion in the public and we have to as a group address the confusion in the public.
For instance, the public believe that they are not supposed to pay their bills until January, they believe that the debt they owed before should be written off and that they should stand in front of you and collect free meters.
“In the past couple of weeks, there have been problems nationwide. The public now believe that when they don’t have power, the new owners do not know what they are doing when in reality it is because of lack of gas.”
Other officials who spoke on behalf of Egbin and Geregu power plants accused the Market Operator (MO) and System Operator of the Transmission Company of Nigeria (TCN) of not adhering to the MYTO-2 agreements and provisions in the interim rules, stating that the MO does not use the official rate stipulated in the interim rules.
However, the Chairman of NERC, Dr. Sam Amadi, in his response, assured them that the regulator would address all the issues raised, adding that the essence of calling the meeting was to bring the operators together to craft out interventions that will address the problems.
He said Yola and Kano distribution companies had perennially low power allocation problem, stating that although the MYTO-2 provides for a particular allocation to all distribution companies, they were not getting enough power to supply.
– THIS DAY
According to reports, Nigeria’s population may face more challenging times ahead as electricity tariffs are projected to increase by over 40 percent in the near future.
This rise in tariffs could ultimately result in the elimination of all energy subsidies in the country.
Currently, the electricity sector relies on a monthly subsidy of approximately N50 billion, stemming from a shortfall in revenue.
The tariff hike, scheduled to take effect from July 1, will pose another significant test for President Bola Ahmed Tinubu’s administration and its ongoing market reforms.
The government has already taken steps to remove subsidies on Premium Motor Spirit (PMS) and implemented a floating exchange rate for the national currency.
These decisions have added complexity to the price-setting process of the Nigerian Electricity Regulatory Commission (NERC) and its 2022 Multi-Year Tariff Order (MYTO).
Despite power sector players failing to meet the target of supplying a minimum of 5,000 megawatts, even after signing contracts with the Nigerian Electricity Regulatory Commission (NERC), the current Service Based Tariff (SBT) is based on an exchange rate of N441/$ and an inflation rate of 16.97 percent.
According to NERC’s directives in 2015, the average tariff for distribution companies (DisCos) and different categories of end-users was N25 per kilowatt, as per Order 198/2020, which came into effect on September 1, 2020.
However, in the MYTO for 2022, the average tariff increased to N60 per kilowatt across all customer categories, and in the most recent update, it stands at N64 per kilowatt.
The determination of the 2015 tariff relied on a foreign exchange rate of N198.97/$, which increased to N383.80/$ in 2020 and further to N441.78/$ in 2022. In terms of inflation, the 2015 MYTO utilized an 8.3 percent rate, which rose to 12 percent in 2020 and reached 16.97 percent in 2022.
Currently, the inflation rate stands at 22.41 percent, and experts predict it could reach 30 percent by the end of June, considering the floating of the naira and the removal of subsidies on Premium Motor Spirit (PMS).
The tariff determination process takes into account various factors, including the significant metering gap of over seven million, gas prices, losses within the system, and the actual generation capacity. These elements play a role in determining the final tariff.
As anticipated, NERC had projected that the tariff for July 2023 would eliminate subsidies and introduce increases to the previously frozen tariff bands D and E.
These adjustments were intended to raise the bands from N54.59/kilowatt to N62.16 for band D and from N48.37/kilowatt to N61.16 on average. Moreover, the average increase across all bands was expected to reach N67/kilowatt.
However, due to the ongoing floating of the naira and the significant inflationary pressures, it is now projected that the new average tariff will need to be approximately N88/kilowatt for the power sector to recover its costs.
According to energy lawyer Madaki Ameh, the continuous and frequent increases in power tariffs are akin to a form of blackmail against electricity consumers.
Amen said “Indexing the cost of electricity on the dollar is a huge mistake because most of the inputs for electricity supply are local. The DisCos are also holding Nigerians to ransom by failing to increase the supply base, thereby spreading the tariffs across a broader spectrum of consumers to reduce the unit cost of electricity.”
He insisted that as long as there remain many unmetered consumers and many others not connected to the grid at all, the few consumers on the grid would continue to be subjected to unjust tariffs, which are not reflective of the quality of service delivered.
Ameh hoped that the signing into law of the new Electricity Act would mark “the beginning of light at the end of the long tunnel of inefficient and epileptic power supply in Nigeria.”
Segun Ajibola, the former President of the Chartered Institute of Bankers of Nigeria (CIBN) and a professor of Economics at Babcock University, highlighted that there remains a gap between the cost of electricity and the value it provides in exchange.
“Nigerians are still struggling to keep pace with the cost of energy for business and household use. If the electricity tariff goes up as envisaged, the question remains if there will be value for the quantum of electricity so paid for.
“The truth remains that if electricity supply is constant, of the right quantity and quality, the envisaged upward review in the tariff will be gladly absorbed by the populace,” he said.
Lanre Elatuyi, an Electricity Market Analyst, expressed that the recently implemented tariff rate would have significant implications. He emphasized that the devaluation of the Nigerian currency poses a major challenge for companies with dollar-denominated loans to repay.
He said “They will need more naira today to buy a dollar. They need to manage their exposure to foreign exchange risk. Even operators of hydro plants pay their concession fees in dollars. So, wholesale electricity price will be adjusted upward and this will get to the end users’ tariffs too.”
Senator Shehu Sani, a prominent Nigerian lawmaker has accused President Muhammadu Buhari’s government and state governors of secretly selling five power generating plants without disclosing the utilization of the funds received.
He disclosed this in his Twitter handle on Monday.
Senator Sani, known for his outspoken nature and activism expresses his concerns over the alleged undisclosed sale of the power plants.
He claimed that the government, in collaboration with state governors, had carried out the transactions without informing the Nigerian public about the purpose of the funds acquired from the sale.
The post reads “Buhari’s Government in collaboration with the State Governors quietly sold the five power generating plants without telling the country what the money was used for.
The Vice President of Nigeria, Prof. Yemi Osinbajo, has inaugurated the Afam 3 Fast Power 240-megawatt turbine project in Rivers State.
The project, which is a subsidiary of the Transcorp Group located in Oyigbo, on the outskirts of Port Harcourt in the state, was unveiled during a ceremony that took place on Tuesday.
The event, which was attended by several dignitaries, including the Chairman of Transcorp Group, Tony Elumelu, and other top officials, saw the Vice President arriving at the venue in a chopper at exactly 11:35 am.
Upon his arrival, he was escorted into the premises where he officially inaugurated the project.
During his speech at the event, he disclosed that the acquisition of the project was approved by the National Council on Privatisation (NCP) and the acquisition cost was ₦105.3 trillion.
Osinbajo further emphasized that the successful completion of the project is a significant breakthrough in Nigeria’s power sector.
In his address, Osinbajo said, “In 2020, electricity subsidies reached N584 billion, but service-based tariffs have led to a doubling of collection in the Nigeria Electricity Supply Industry from N40 billion in 2020 to N80 billion in the first quarter of 2023.
“If this trajectory continues, the Nigeria Electricity Supply Industry will be able to pay for itself. Our administration has also created programs for off-grid for electrification. Rural Electrification Agency now has the capacity to provide electricity supply on a first-class basis.
“We are on track to electrify all Nigerians in the next decade. However, we will not make progress if our gas supply does not improve. The gas supply challenges are hampering improvements.”
He further lauded General Electric, the National Council on Privatization (NCP), and the host communities for their contribution to the completion of the Afam 3 Fast Power 240-megawatt turbine project in Rivers State.
Osinbajo highlighted that the successful completion of the project will significantly increase the country’s power supply capacity, leading to a better quality of life for Nigerians.
In November 2020, the federal government and the Transcorp Power Consortium signed a share sale and purchase agreement in relation to Afam Power Plc and Afam 3 Fast Power Limited.
The National Council on Privatization approved the privatization of the Afam Power Plant back in August 2017, which triggered a competitive bidding process involving 12 prospective investors.
After careful consideration, Transcorp Power Consortium emerged as the preferred bidder with a combined offer of N105 billion.
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