At the Punuka Attorneys and Solicitors Annual Lecture, legal and industry experts proffered solutions to power sector challenges, reports JOSEPH JIBUEZE.
Years after it was privatised, the power sector has failed to deliver the desired results.
Vice President Yemi Osinbajo believes the sector needs to be “re-engineered” to be effective.
Addressing workers on May Day, he said: “We must act as a matter of national importance and we are committed to doing so, to work and re-engineer the sector for much more effective performance.”
Electricity plays a crucial role in a country’s socio economic development.
Perhaps one of the sectors that touch on the lives of the average Nigerian the most is the power sector.
Millions feel robbed when forced to pay for power not consumed because of abuses of estimated billing, for instance.
Nigeria’s power generation over the last five years has continued to hover around 3,000 to 5,000 megawatts, with 7,000 been the highest reportedly ever recorded.
To proffer solutions, a leading law firm Punuka Attorneys and Solicitors chose Rethinking the model for an effective Nigerian Electricity Supply Industry: challenges for government and industry as the theme of its yearly lecture in Abuja.
In attendance were renowned experts in the power and energy sector, international investors and senior government officials.
They include former Nigerian Head of State, General Yakubu Gowon (rtd), former Chief Justice of Nigeria (CJN) Alfa Belgore and Minister of Power, Works and Housing Babatunde Raji Fashola (SAN).
Others were Bureau of Public Enterprise (BPE) Director-General Alex Okoh, Punuka Attorneys and Solicitors Senior Partner Chief Anthony Idigbe (SAN) and Eko Electricity Distribution Company Director Ernest Oji.
The guest lecturer was international energy expert Jonathan Cohen.
Fashola: non-performing DISCOs can lose licence
Fashola said non-performing electricity Distribution Companies (DISCOs) could have their licences revoked.
According to him, the Nigerian Electricity Regulatory Commission (NERC) is empowered to amend a license or withdraw it outright.
His words: “The power not to renew or to revoke the operational license of any of the authority is in sections 73 and 74 of the Act. So, there is no monopoly granted any agency unless it is endorsed on their license.
“There is nothing that stops the regulator from licencing another person to do the same activities within their territory as DisCo.
“If you are not serving an area well, you will get a notice that consumers in the area are not happy and you will be given a time limit to deal with the problem.
“Upon failure to address the problem, the regulator can amend your licence, take the area out of your territory and license another person or cancel the entire licence.”
Fashola said states were empowered under the Constitution to generate, transmit and distribute electricity in areas not covered by the national grid.
The minister urged electricity consumers to protect power installations from abuse, vandalism, to pay bills and be vanguards against energy theft.
Heirs Holding Limited Chief Executive Officer Emmanuel Nnorom, who chaired the event, maintained that it would be near impossible to achieve economic diversification without power.
He stressed the need to stop the blame game within the sector, adding that all stakeholders have very important roles in moving it forward.
An expert’s solutions
The Power Holding Company of Nigeria (PHCN) was unbundled in 2011, resulting into 11 Distribution Companies (DISCOs); six generation companies (GENCOs) and the Transition Company of Nigeria (TCN).
At the centre of the new deal is the Nigeria Bulk Electricity Trading Plc (NBET), which purchases power from the GENCOs under a standard form Power Purchase Agreement.
NBET sells the power to the DISCOs for onward distribution to consumers under the terms of a sales contract known as “vesting agreement”.
While the DISCOs were reportedly sold power worth N1.08trillion between January 2017 and December 2018, they were only able to pay back N301.3billion (28 per cent), with some DISCOs performing worse at nine or 10 per cent.
Speaking on: Developing an effective and stable regulatory framework for Nigeria’s electricity sector, Lessons Learnt from the United Kingdom, Cohen, who is Howard Kennedy LLP Partner/Energy Head, said a holistic approach was needed for the sector’s reform.
While he admitted that Nigeria’s power sector has made remarkable progress in the past nine years, he said much more still needed to be done.
On the sector’s privatisation, Cohen said it only works when market signals are robust enough to attract investment and expertise of new sector entrants, which he said seems to be missing in Nigeria’s situation.
“Foreign direct investment into Nigeria’s power sector has not been significant to date,” he said.
The energy expert said the privatisation of the GENCOs and DISCOs were largely financed with debt from banks, with most of the equity from core investors.
According to him, other factors such as cash shortfalls in the sector, low DISCO payments, insufficient gas supply to power the existing and expected generation and a weak electricity transmission grid have continued to affect the transition of the sector.
He said a major financial constraint of the GENCOs is occasioned by the poor remittance of the DISCOs, whose current NBET debt stands at about N778.7 billion.
To address some of the issues, Cohen suggested that the Federal Government should negotiate the transfer of certain DISCOs to public ownership.
DISCOs that remain privately owned, he said, must be supported by government in seeking an investment programme backed by a development finance institution (DFI).
He also harped on the need for DISCOs to seek ways of minimising and better managing their costs, increasing transparency, and separating distribution from supply.
On NBET, Cohen it should be properly capitalised and supported financially to ensure payments are made to the GENCOs on time and in full.
Cohen noted that there are many opportunities in off-grid power solutions but advised that they should not replace the national grid.
“It is critical that the development of Nigeria’s power sector is integrated and collaborative to ensure long lasting results that will provide a transformational impact on the wider Nigerian economy,” he said.
Idigbe: new strategies needed
Punuka Attorneys and Solicitors Managing Partner Mrs Elizabeth Idigbe believes that the sector would need new ideas and strategies if it must serve as catalyst for development.
She emphasised that the sector is faced with problems of losses from energy theft and insufficient end users tariffs.
This, she said, results in significant cash deficits across the power sector value chain and reduced investment participation.
“The lack of constant electricity supply has driven businesses to rely on expensive and highly polluting off-grid self-generation alternatives.
“This has culminated in increased business overhead and reduced bottom line and inevitably increased cost of living and dampening of the socio-economic standards of individuals,” she said.
Idigbe noted Nigeria prioritised the power sector infrastructure in the Economic and Recovery growth Plan and the Nigerian Electricity Supply Industry (NESI), investing $3billion.
Despite the huge investments, however, the numerous challenges remain unsolved, she said.
“It is presumable that the growth of the electricity supply system is threatened as lack of liquidity in the sector has meant that it is still micro-managed by the government through increased government guarantees for privately funded investment,” Idigbe said.
Such practice, she added, negates the desire to facilitate a competitive private sector led electricity market.
Stakeholders’ views
Participants maintained that until consumers pay the right tariff for unit of energy, the challenge would continue to impede the sector’s progress.
To the DISCOs, consumers pay far less for energy sold to them, while the government’s support in form of subsidy is inadequate.
While the experts agreed that some progress have been made, they are of the view that the reforms will not be effective unless the key structural issues are resolved.
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