A Pathway to Addressing the Power Sector Challenge - PowerUpNG

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Tuesday, October 13, 2020 / 07:20 AM / by PowerUpNG / Header Image Credit:  CrudemixAfrica


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Being a Submission to HM of State, Labor by  PowerUpNG and the ADHOC Technical Committee On Tariff Review

 

Thank you for the opportunity to make this presentation.

 

Since Privatization came into effect in November 2013, we have had several Tariff Reviews. Twice in 2014, Once in 2015. The 2015 review was frozen by Court after Bar. Toluwani got an injunction against it. This Review was eventually implemented, the reminding of the popular "Bitter Pill" analogy made by the then Minister of Power, Works and Housing, Babatunde Fashola, to Nigerians. Historically, there has always been a resistance to further electricity tariff hikes. Apart from the Multi Year Tariff Order regulatory requirement by the Electric Power Sector Reform Act 2005, which stipulated that these Bi-Annual Reviews must be made(One Major, the Other Minor), the private investors in the Electricity Distribution Companies have also made it a point of duty to mandate that Tariff is not Cost Reflective. I will argue against this submission further later in this submission. Please take note of the specific use of the word REVIEW, which could either be upward, or downward.


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History of MYTO

The Multi Year Tariff Order, or simply called the MYTO, a supposedly 5years Tariff Plan, is clear about the requirement, or factors that should be used for a REVIEW.

 

MYTO 2008

 

i.                 Rate of inflation,

ii.               Gas prices, and

iii.             Foreign exchange rates

iv.             Actual daily generation capacity

 

MYTO 1

 

i.                 Rate of Inflation

ii.               Foreign Exchange rates

iii.             Cost of Gas

iv.              Generation Capacity Projection(For instance, a 16, 000MW was projected to be available by 2011)

 

MYTO 2.0

 

i.                 Available generation capacity

ii.               Forecast of electricity demand

iii.             Expansion of the transmission and distribution networks

iv.              Capital expenditure (capex)

v.                Actual and projected sales

vi.              Operating costs (opex)

vii.            Fuel costs

viii.          Interest rates

ix.              Weighted average cost of capital (WACC)

x.                Revenue collection efficiencies

xi.              Subsidies

 

MYTO 2.1

i.                 Rate of inflation,

ii.               Gas prices, and

iii.             Foreign exchange rates

iv.              Actual Available Generation Capacity.

 

"The major reviews involve a comprehensive review and overhaul of all the assumptions in the MYTO model. During the minor review of MYTO in May 2009, Successor Discos requested that the major review of MYTO scheduled for 2013 be brought forward in order to take care of the increasing cost of power, the rising cost of O&M expenses and also declining revenue due to the absence of the growth in generation capacity envisaged in the 2008 Tariff Order. NERC considered this request and the MYTO major review was brought forward."

 

This major review affords stakeholders the opportunity to evaluate the methodology, inputs to the existing model, incorporate Feed-In Tariffs (FITs) for renewable energy (wind, biomass, solar and small hydro) and also develop tariffs for coal-fired generators. Some of the assumptions reviewed include:

 

i.                 Available generation capacity

ii.            Forecast of electricity demand

iii.          Expansion of the transmission and distribution networks

iv.           Capital expenditure (capex)

v.             Actual and projected sales

vi.           Operating costs (opex)

vii.        Fuel costs

viii.     Interest rates

ix.          Weighted average cost of capital (WACC)

x.             Revenue collection efficiencies

xi.          Subsidies

 

The objective of laying this background is to establish

i.                 There has been several Tariff Reviews in the past

ii.               All Tariff reviews has considerably increased Tariff

iii.             All have similar theme: Cost Reflective, and making the power sector viable/attractive for investments

iv.             Making it possible for investors to recoup their supposed investments.

 

However, at every point of these reviews is the fact that Nigeria keeps bending over to satisfy the investors in the Power Sector.

 

For instance, while the MYTO 2008 says that the Actual Daily Power Generation Capacity should be a factor in determining the prices, MYTO 1.0 gave them some breather when it took a long term approach, and making the "target" flexible by introducing "Power Generation2 Target of 16, 000MW.

 

By MYTO 2.0 and MYTO 2.1, the Operators have been let off the hook totally by changing a Key Determining Factor to "Available Generation Capacity", thereby removing every milestone of performance from the Pricing Guideline for which the MYTO should have been.

 

Observer should also notice that NONE of the Multi Year Tariff Order did actually went through their lifecycle. NONE.

 

An interesting Data ensued from this. For Virtually NO improvement in electric power that gets to Nigerians, as "Available Power" has remained marginally the same, Nigerians have been made to continue to pay for non-performance of power sector.

 

The Table below shows the history of Power Generation in Nigeria since 2013. Our Focus should be on the Available Generation Column, as this is the Electric Power that eventually gets to Nigerians


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The Aggregated Technical, Commercial and Collection Losses:

 

As at MYTO 2012, Nigeria does not have the Aggregated Technical, Commercial and Collection Loss Figures. According to NERC,

 

"NERC is particularly keen to see significantly reduced levels of commercial and billing losses, reflecting an urgent need to see distributor/retailers increase their revenues not by tariff increases but by reducing unmetered withdrawals from the system and improving the rate of collecting bills. Pending surveys to validate current loss data, NERC has set targets to reduce average commercial losses from 12% (average across all distributor/retailers) in 2012 to 5% in 2016. Revenue collection losses are also expected to improve from 16% in 2012 to 6% in 2016.

 

Given the urgency of the reform/privatisation agenda and also taking account of the uncertainty about the credibility of some of the data from which aggregate losses are calculated, NERC and BPE have agreed that:

 

a) Commitments on the reduction of aggregate losses will remain one of the primary determinants for determining successful Disco core investors;

 

b) NERC has already commenced a study to create a credible industry performance database, particularly as regards aggregate technical, commercial and collection (ATCC) loss data, which will take at least 12 months to undertake;

 

c) Pending completion of the ATCC database study, the privatisation of the Disco sector may proceed and commitments made on the basis of current data; and

 

d) At the conclusion of the ATCC database study, any difference in losses will be the subject of separate reduction targets to be agreed between NERC and the relevant Discos; and commensurate cost implications will be the subject of a Minor Review consultative process.

 

If distributor/retailers can improve on the agreed loss reduction targets then they stand to earn and retain revenues in excess of those provided for in this Tariff Order"

 

Data available from the Regulatory Commission shows a consistent average ATC&C Losses of 65% across the 11 Electricity Distribution Companies.


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Why are the Masses already suffering from Covid19 induced downturn be made to pay for the inefficient and ineffective power system like ours in Nigeria?

 

Metering: 

The Electricity Distribution Companies have consistently failed to provide Meters for their Customers thereby creating mistrust and lack of confidence to pay for electricity consumed. Data readily available from the Regulators Website also indicate that Nigeria' Metering Gap presently stands at about 55%, which means that for every 100 Customers, only 45 are Metered.

 

There is absolutely no way the investment made in the Power Sector can be attractive as long as the Metering Gap remained this huge. As indicated above, Collection is a Key Performance Indicator that tells you how well the Power Industry might be dog.

 

Apart from the Distribution Companies, It is also the ONLY basis other Stakeholders like Gencos and Market Operators can receive a good returns on their investments. Performance Agreement signed by the Distribution Companies promised that the Metering Gap would be reduced to less than 10% within 3years on taking over their Franchises Unless this is first addressed, increase in tariff without Metering would only further increase Collection losses, creating further problems for the sector.

 

Our Organization had advocated and pushed for an Independent Metering Service Providers scheme(Attached) that will take away the job of Metering completely from the Discos. One key reason is also for an independent structure to be created so Data can be obtained and easily verified. Part of the problem is the disappearance of a N2.9billion Federal Government Metering Fund which NO ONE has been able to account for today. When the Discos says they have Metered 100 Customers, there is no independent means of verifying this.

 

Customer Enumeration 

Lack of reliable power sector data on the number of customers being served should also be a source of worry for the Federal Government.

 

This is another knotty, but very important, issue the Regulator, and all proponents of continuous tariff hike has overlooked. One of the Performance Agreement the Distribution Companies signed was also to complete the Customer Enumeration in all their Franchise areas. A 2014 Document from NERC(See attached: Customer Estimation for 2014) put the Total Number of Customers at 7,978,809. There is no way this figure could be accurate as the National Census Figure 2005 as obtained from the National Population Commission put to households connected to NEPA at 9.4million.

 

The Nigeria Electricity Regulatory Commission, NERC has the number of Customers as 8.5million on their Website, Sources in the Electricity Distribution Companies also put the figures at 10.5million, while the Spokesman of the Association of Electricity Distributors, on a recent TV Program on Channels claimed that the number of connections to the National Grid stands at between 20million and 32million. What this basically speaks to is the fact that for as long as we have reliable data, whatever decision taken on it cannot have integrity. Moreso, it plays very well into th Discos hands to continue to have a low Customer Estimated number, as they can continue to demand for higher tariff.

 

Regulatory Independence 

here is a general Trust Deficit for the Nigeria Electricity Regulatory Commission by Nigerians. This is because the Regulatory Commission has shown serious lack of depth and inability to strictly enforce and see through compliance to their own rules and regulations. The general consensus within electricity consumers is that the NERC is NOT capable of regulating the industry, with calls from several quarters that the present leadership be disbanded.

 

Forensic Audit of The Electricity Distribution Companies 

In our submission to the recent Adhoc Committee to review the Ownership of the Distribution Companies instituted by the Federal Government, and led by the Kaduna State Governor, HE Mallam Nasir Elrufai, one of the observations we made was that the Government owns 40% of the Disco, but that they have only one representative on the Board of Directors. This definitely raise Corporate Governance Issues, and called for the Books of the Discos be audited.(Submission Also attached)

 

This Submission was adopted by the Committee, only for the Discos to head to Court to have the Forensic Audit stopped. If they have nothing to hide, why not open your books?

 

Conclusion 

Since privatization, Nigeria has continuously bent over to the demands of the private operators without experiencing any notable improvement in the fate of Nigeria's Power Sector, except the demands for tariff increase.

 

As noted by several Nigerians, and has seen with all the several tariff increments, which Nigerians have been paying for, it is not just about the cost of the electricity, but the quality as well. The Investors have not done well to keep to their end of the bargain, and the truth is that NOBODY trusts them enough to want to gamble on more time. There is no amount of money thrown at the Power Sector that will resolve the problems, as the Power Sector Challenge IS NOT A MONEY PROBLEM.

 

As noted in our submission to the Elrufai Adhoc Committee "I have personally held the believe that the Power Sector Reform is a marathon, and NOT a dash. Our policy-oriented responses would go a long way in determining the success or otherwise of the Reform.

 

It should be noted that there is no silver bullet, and none should be expected Quick policy responses to changes in the market is being advocated for here. I am of the hope and trust that you will find this submission useful, and that if the need arise, to make myself available in whatever capacity I might be useful. We do not have another country but Nigeria. I have decided to positively make Nigeria better, for the future generations.

 

Our Nations interest remains paramount, and I am certain that has been your drive since you joined government."

 

Dowload Here - FGN-Labour Tariff Committee - TUC Presentation


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