To avoid the failure of power reforms

Power

Power

Discussing with a friend about the power sector reforms, we came very quickly to the issue of the tariff review. It took me a while to lay out for him facts about the industry that disproved his assumption that the Discos ‘who were already making so much money, were asking customers to pay more.’

Besides, he asked, what investments have these new owners made into their businesses since the takeover?

I explained to him that from the implemented MYTO 2.2, Discos receive only 25 per cent of the monthly collection from electricity bills. The other 75 per cent is distributed among the Generating Companies (GenCos), the regulator and other service providers in the value chain to keep the sector moving. It is from this 25% that Discos eke out funds to cover their infrastructural and operational obligations.

My friend is not alone. There is a pervasive paucity of information about the sector, and because nature abhors a vacuum, the negative perception held about the industry has led customers to conveniently reach wrong assumptions and hold these tightly. This grew over decades and until recently, not much was being done to enlighten the public.

Even when the Minister of Power, Works and Housing, Babatunde Raji Fashola, SAN, took time to explain why the tariff review had to be implemented, and despite presentations to different stakeholders among the public including members of the legislature, many Nigerians remained skeptical.

It is practically impossible to sell a product below its cost of production and expect its parent industry not to collapse. Many Nigerians are still unaware that for decades, the government was meeting most of the funding deficits of NEPA and the burden on the nation’s budget is part of the reason why the sector had to be privatised.

Now the general expectation is that the unrealistic subsidised prices should be maintained without a critical look at how this will eventually bring us to the total collapse of the sector. Someone even mentioned once that the worst that could happen was darkness…and that we were already used to that. But current efforts are designed to ensure that we never have to live in darkness.

The improved revenue flow from the appropriately priced electricity will help the Discos significantly reduce their Aggregate Technical, Commercial and Collection (ATC&C) losses in 2016 alone, a core basis for success of the power sector privatisation. The reduction of these losses, power experts have shown, will ensure that more electricity is supplied to genuine customers.

Also, electricity usually lost through energy theft and other network defects will now be available for the customers, due to the capital-intensive investments the Discos have committed to in the year and beyond. As projected for this year in the reviewed tariff order, Eko Disco will reduce its losses from 28.32% to 20.66% in 2016, and by 2024, it will be as low as 10.32%.

The Ikeja Disco had 32.15% but it is reducing it by about 9% this year. Only 9.1% loss will be left in its network by 2024, it assured. For Abuja Disco, its ATC&C was at 49.22% but it’s being reduced to 33.79% and will go down to 18.05% by 2024, Kano Disco had 45.0% losses in 2015 but it is cleansing its networks to reduce loss by 7% and will go down to 14.67% by 2024.

As for new investments by the owners, the 11 Discos have already begun the implementation of their Capital Expenditure (CAPEX). Eko Disco in its tariff plan requires about $1.1billion in addition to the N5billion that has been spent in acquiring the EKEDC Head office. They will be spending N18.05billion annually which is in excess of the N141.9billion approved for EKEDC in present MYTO 2.2. The Disco earlier earmarked N445 million to expand its network technology, procure and install prepaid meters.

The Ikeja Disco on its part is spending N60 billion in the first five years but the entire plan assumes a total of N92.8 billion which tallies with the MYTO assumption of N92.2 billion CAPEX by 2024. The Disco has installed about 4,560 prepaid meters since it took over.

Abuja Disco has spent N2.3 billion since it took over in November 2013; it is forecasting N73.3billion spending by 2024.  It installed 140 transformers for over N200 million, to replace faulty ones. It is providing additional 200 distribution transformers with a combined capacity of 80MVA for about N260 million. It has started the installation of meters with similar assurance of 100,000 installed units annually.

Kano Disco has injected over N500 million revamping its network and proposes N4.769billion yearly spending which will be over N47billion by 2024. It has begun the installation of meters and would have installed about 100,000 by year end, while recruiting additional 350 staff.

The story is also progressive for Jos Disco. It has invested N210 million to address its infrastructure, meter and billing challenges in the coverage area.
Most of the Discos this year have committed to rolling out 100,000 meters annually for the next five years (2019) as provided for and agreed in their contracts with the Bureau of Public Enterprises at the point of sale. This figure will see the closure of the five million metering gap accumulated over decades under the NEPA/PHCN era in just five years of the 10-year tariff plan.

In effect, by 2020, all old electricity customers would have been metered and new entrants must be metered before they are connected as directed in the new tariff order. The order enacted and now strictly monitored by the Nigerian Electricity Regulatory Commission (NERC) insists the 11 Discos, after exhausting the installation of 500,000 meters each in 2019, must complete metering for all remaining customers within one year (in 2020).

There are brighter days ahead for the power sector in Nigeria and a lot of foreign interest is focused on the sector. The recently signed Electrify Africa Act by the USA targets not less than $40 billion to be pumped into the electricity sector in Africa. Nigeria remains the biggest potential consumer of electricity on the continent and leads in terms of electricity shortage. There is no doubt that a considerable amount of those funds will end up within our shores. The question is, are Nigerians aware of this and the efforts to make this a reality or are they still angry at the power sector’s past and trying to transform that against the attempts to revive it?

Zigwai, a certified energy analyst, wrote from Wuse 2, Abuja



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