The Group Managing Director/CEO, Sahara Energy, Kola Adesina, in this interview with Group Business Editor, SIMEON EBULU, speaks on how to fix electricity in Nigeria, saying pricing is central to ensuring regular power supply to consumers.
what is the required level of power generation needed to guarantee power supply?
In Nigeria, for everybody to have electricity in a stable, regular and productive manner, we are required to generate, transmit and distribute 26,000 megawatts of electricity (Mw). Now, you go into the different alternatives of generating electricity. It is either you want to use renewable – hydro, solar, wind- or the thermal sources.
So in that dimension, the level of hydro you have, what quantum of energy can that hydro generate? What can the thermal plant generate? How many thermal units do you have in the nation? What is inhibiting them from generating their full capacity?
How can you fix those things that need to be fixed for them to generate those 26,000 Mw that you require? If our capacity isn’t up to 26,000Mw, how do we intend to expand capacity,by adding more units to the power plants, or building new plants to augment the gap.
Then you move to transmission. Do you have a transmission infrastructure to evacuate 26,000Mw? Today, the answer of course, is No.
So the question is: How do you rapidly build a transmission infrastructure to take 26,000 Mw from the various generating plants and ,ultimately, take it to the distribution companies. And once you get it to the distribution company, what is it that they require to take it to our various customers?
From the above, you can see the systematic and concentric nature of the requirement for success in the sector. It starts with the customers and ends with the customers.
So, why is it not working?
The lubricant that oils the chain from gas to distribution is tariff, appropriate tariff. The customer must pay for services charged for that chain to continue to work in an unbroken manner.
That is the way it works anywhere else in the world. So, there is a need for an integrated solution where everybody in the value chain truly comes up with their own revenue requirement for success to make it work.
How does the government fit in?
The government’s role really should just be a facilitator and an enabler; that is all. Once a government steps into the pricing of a commodity that is required for the success of that nation, for the prosperity of the nation, from an intervention or subsidy perspective, you introduce a distortion into the system.
Now to cure that distortion requires a lot of work and sacrifices. Price distortion is the reason we are all arguing and blaming one another for the absence of reliable, stable and quality supply. To cure this anomaly, desperate but logical and long-term sustainable measures and solutions are required.
Now, when you look at the United Kingdom (UK), they had the same public sector-driven structure like Nigeria until Margaret Thatcher stepped in. If you recall from history when she pushed the reform agenda, it was a bit of a problem.
The same uproar, the same noise was made by the British, but the woman insisted that she was going to fix it, using reform and privatisation as the cornerstone. Today, electricity supply is better and reliable in the UK; nobody is talking about supply of power anymore.
That is because they went through that transition; it was rough, challenging, but they were able to overcome those teething problems.
Is 26,000Mw what Nigeria needs for 24/7 power supply?
For any nation that truly has the desire to generate, transmit and distribute 26,000Mw, what you should actually be producing is 30,000Mw.
The global best practice is to build redundancies into your plan, that is to build more than the required capacity to cater for breakdown, repairs, exigencies of gas infrastructure, turbines, lines, breakers, sub-stations, feeders and transformers.
Invariably, you recognise real and potential losses and make provisions for this in your master plan. There is something we call the aggregate technical commercial and collection losses. When you generate electricity and you take it from one point to another, you lose some quantity in between.
So, if you don’t generate more than what the system requires, it means that some customers will still suffer lack in that nation. So, what you typically would do from a gas perspective is to ensure that you produce enough gas, daily consumption, daily production of 30,000Mw.
And through the chain, you lose different percentages based on the transmission and distribution infrastructure that is there. With that at the end of the day, everybody, every home, business, industry would have stable electricity in Nigeria.
What then happens if there’s a segment in the society that can’t pay the tariff?
The key question that needs answer is whether the cost of services in the value chain is captured by the set tariff in the regulated model. As we speak, the answer is No. One logical consequence of inappropriate pricing of any commodity is the low quality of service production.
To deal with the ability and capacity to pay, the regulator crafted a model which has different tariff for different categories of customers classified as lighting, residential and industrial. The cornerstone of this model is that large end users pay more by cross-subsidising for those in another category.
Unfortunately, despite their noble intentions, the tariff was not sufficient to meet the cost of energy, neither was it sufficient to meet the service change, or investment required to cure the defects in the network. The net of electricity (value chain) is not working because the revenue required can’t be met by the current tariff.
Because of social and public interest, it was deemed necessary that a Consumer Protection Fund of N100 billion be set aside to cater for end-users – customers with low per capital income where consumption is basic. Sadly, the sector didn’t access the fund in 2013 to the best of my knowledge.
What is your assessment of the current pricing template?
When you blend today with self-generation through diesel, petrol etc, cost reflective tariff is still cheaper. The average cost of self-generation is N80/kwh, while the highest DisCo bill today is approximately N47 on the average.
The tariff structure is scaring away investors as the numbers don’t just add up. In the pricing of electricity, we have a mix of hydro and thermal generation.
Thermal energy is more expensive than hydro but has higher availability ratio than the latter. The hydro is often available in full capacity during the rainy season, whilst the thermal is usually available all year round. Thus, there are different schools of thought on how to blend the two.
One school suggests that the hydro should be sold to low income consumers while the thermal should be for the mid to high income consumers.
But because we run a grid system with a radial technology, it is difficult to distinguish one electron from the other. Nigeria has the largest power market in Africa with the largest potential and opportunities. Fix the fundamentals, electron will flow ceaselessly; investment will follow certainty. The Magodo and Ikeja GRA examples demonstrate service improvements when appropriate tariff is allowed.
You have a situation where over 50 per cent of your customers are not metered and so what they get is estimated billing. How does that estimated billing for instance take account of the period they have not had power supply?
This is a catch question. Do we enable 24/7 electricity supply first, then charge the right price later, or we allow the right tariff to unlock the right investments that produce the right supply situation leading to happiness for all? My take is, as a nation like all other nations, when electricity supply is stable, we should take the bull by the horn by reconstructing the tariff to stimulate investment.
Metering is a measuring device that is enshrined in the capital expenditure plan of all DisCos. When the appropriate tariff is allowed, necessary investments will be unlocked as Return on Investments (RoIs).
A square of expectations, obligations, responsibility and confidence is built when the input and output are directly correlated. The government is keen on building this bridge of trust with aggressive metering programmess of different types being tuned and pushed.
I admonish our dissatisfied customers to kindly tilt towards supporting appropriate pricing of electricity and see whether there wouldn’t be improved services.
The regulators are doing a yeoman’s job in trying to maintain standards, fairness, equity, balance and ensuring that there is no profiteering, with the DisCos being held accountable.
We all can, then, set relevant and well dimensioned performance agreement on which we will all be judged. Metering is a valuable tool in the hands of the DisCos for energy accounting. We align with the need to meter all.
The Federal Government unveiled an intervention for the power sector by Siemens. Did they get the buy-in of the DisCos before that intervention was rolled out?
We are very much aligned with the government in the Siemens intervention. The government is fully aware that there is a huge infrastructure gap and resources are required.
Now, government part-own all these assets because government has 40 per cent stake in the DisCos. So, the solution government has come up with is a very fantastic one. Secondly, there has been ongoing conversation around it.
Government signed a Memorandum of Understanding (MoU) and that MoU is what we are trying to activate. We were meant to be going for a meeting with the Germans on how to close the technical gap, the requirement for equipment and the total end-to-end solution they are offering. So, our own view is that an end-to-end solution makes sense.
We are fully aligned with it, but the conversation is ongoing as we speak. The DisCos are engaged with the government to dimension the critical success factors, cast the end-to-end solution Siemens are offering and ultimately agree to a financing plan.
The truth was that we had ample gas supply and the grid took this power and consumer experience was beautiful. The value chain helped to deliver, but thereafter, the network has had to face either gas shortages, grid restrictions arising from sundry reasons.
To us, the biggest obstacle to power sector development is lack of alignment. The system is misaligned in planning, coordination and execution.
To site a perfect DisCo example in terms of achievement, at Ikeja DisCo, we started our journey with aggregate, technical commercial and collection losses of 49.6 per cent but today we have brought this as low to a historical record of 24.9 per cent.
This is the most aggressive reduction in Africa and probably beyond. Also, we deployed $44million on advanced metering infrastructure into the system by way of technology to make metering and energy management more efficient and accurate.
We were deploying between 300Mwand 350Mw at inception at Ikeja DisCo, but today, we have been able to dispatch between 600Mw and 700Mw.
Invariably, we have doubled our output to our customers and consumers alike. The revenue profile has quadrupled while the corresponding population has gone up significantly too.
While we celebrate this achievement, all we care to give as a company is customer experience that brings energy to life and happiness to all parties concerned.
Are you also going to work with government to hand over the Discos to Siemens?
Government never said that. The government of Nigeria is responsible; they know the implication of such very strange decision.
So, I can say without a doubt that government’s intention is for us to partner with Siemens in closing the technical gap in the system, it is not to hand over.
Siemens doesn’t own, neither do they manage any generation, transmission or distribution asset anywhere in the world. And it is not in their plan; we have had meetings with them. It is not in their plan either to come and take over.
Can you say the DisCos have risen up to the challenge given the population explosion?
I will revert to my value chain comment earlier made. The performance of one is dependent on the performance of the other. The gas supplier can’t lay claim to success without the generation companies readily taking the gas to convert to power which the transmission company must evacuate to the DisCos.
Should anyone drop the baton in this perpetual relay race, there wouldn’t be light? I will give you examples that will depict the daily realities of the sector. At Egbin, we met between 400Mw and 450Mw and available and operable capacity.
We aggressively invested to recover the full capacity of 1,320Mw. If you recall, at the outset of this administration, we were generating and supplying to the grid 1,100Mw.
There is something I need to stress here, which I will want to resonate to everybody. Electricity supply is a value chain and that value chain is not just grammar, it is actually symbolic of what really happens in that chain.
If the gas man shuts his valve and he is supplying no gas, as I am experiencing in my generation side in Port Harcourt; if the gas man says he is not going to give you gas today, everybody in the value chain, either as a GenCo, as a transmission company, or Disco, can’t get power.
You probably would have observed in the last three weeks or so that the electricity has been bad. You know why? It is simply because of the gas constraint. So, when you have gas supply or transmission constraints, having high frequency, energy, for it to flow in an uninterrupted manner, there is a level it needs to operate, which is the equilibrium.
The moment any generation company shuts down, like Egbin that is meant to be doing 1320Mw but is doing about 700Mw, the moment there is a trip in any of the machines and we lose 220Mw, the entire system feels it. You won’t have that equilibrium any more.
Now you are going to have a spike in frequency, once you have a spike in frequency, it means that they have to find a way to quickly rebalance the system to ensure that stability is maintained. And that is why you hear of system collapse.
So, we are deploying more energy, but because of the fact that the population is increasing as well and the infrastructure is decaying arising from the fact that the investment required to make the system work has not been triggered, arising from inappropriate pricing. So, everybody needs to understand how holistic and how joined this entire thing is.
You cannot remove your liver from your kidney and expect to function optimally, it is impossible. But, what we are trying to do is to dismember the heart, the kidney and the liver and still expect optimal performance from the individual; it is not going to happen.
So, that is why I have recommended timelessly that everybody must speak from an integrated perspective without vilification, without ego trips, without insulting anybody, but just stepping back to say, can we truly audit how we got to where we are and what we need to do to fix it. Rather than just go emotional and then shoot everybody down.
Talking about fixing it, I am aware that the DisCo model was brought in from New Delhi. What are those things they have done there that made it to succeed that we are not doing here?
At the point in time when you plant a seed, you don’t see a tree, you don’t even see anything. So, it takes a while. The first thing I am imploring is please understand and be patient with us, empathise with us. We are Nigerians, we are not foreigners, few people can love this country the way we love this country.
We truly paid for these assets, we paid $135 million to acquire these assets.That is not a free money. If we had fixed that money in 2013, we will not have $135 million now. You and I know that we would be richer. So, out of trust, out of faith, out of confidence and believe in the system, we made investment.
Now, the New Delhi model is not a model that just happened over night, it took 13 years for it to transform the society and now it is being celebrated. If you give birth to a child, the child will not make a first class in year one. You have to train that child, expose him or her to the elements of excellence and hope that he will turn out well. That is where we are.
In the last couple of months, the Federal Government, World Bank, African Development Bank (AfDB) etc. have been holding meetings on the Power Sector Recovery Plan and Performance Improvement Plan with each of the DisCos. The essence of the plan is to close the infrastructure gap to ensure steady supply of energy.
It’s all encompassing with regards to the technical, commercial, financial, regulatory/legal and corporate governance structure. Metering is a critical component of this plan. It is instructive to note that renewable/alternatives, Risks Profile and allocation are in this plan.
So, all we want is an alignment. We want an integrated arrangement; we want a unified approach in solving this problem.We are deeply sorry to all our customers in Nigeria for the level of service that they have received yet, it is a journey and not a destination but we are promising that we will most definitely stand on our honour. We will make power available to all those that can pay and those who will pay.
So for our consumers, we are pleading with them to pay for this power. To the gas supplier, we appeal to them to give us more gas, the generation company want to generate more power. To the government, I say please empathise and align with us, we want to succeed, help us.
To the regulator, don’t let us die before our time, our intention is to be in business forever and it is to improve the system. We appreciate President Muhammadu Buhari, Vice PresidentYemi Osinbajo, the National Assembly that they would not promulgate laws that will be inimical to our business survival.
But the way consumers see it is that DisCos are deliberately spurning on the prepaid meter just so that they can continue with the estimated billing to recover cost since you talked about appropriate pricing?
Let me tell you something that our businesses universally work with by way of principle, it is called the going concern principle. As a going concern would, you wouldn’t want to be earning revenue you didn’t work for.
No. That is because really what it does is that it exposes your organisation to the vagaries of staff going against you to steal from your consumer. I want to be able to truly account for the energy I have given you as against the meter I have read and the payment you have made.
When all of them align, then I am in business. But if I am using estimated billing long-term then I am stealing from you. I cannot meter you when the price of the commodity I am selling to you is not covering my cost.
Have you considered the option of allowing these household pay for the meters upfront just like some Discos do? And secondly you talked about funding, what happened to all the interventions from the Central Bank of Nigeria to the power sector?
I need to speak to something very quickly here. A meter is just a calibrator. Now if somebody has a value system issue, he has no integrity, the person can bypass that meter.
Part of the challenges I need to bring to you, we suffer significant energy bypass and energy theft, It is about 41 per cent. Now, you acquire an infrastructure that you deemed would solve your problem of revenue and assure revenue to you.
So, you now have 41 per cent of your customers who are consumers, so they are free riders, they are consuming your power but they are not paying for it. And yet you have meters given to them, but the clever ones have been able to bypass the meter or they are conniving with whoever that gives them the access to electricity.
That simply means that in the pricing of that commodity because of the vigilance and monitoring is required for me to ensure that people that bypass don’t bypass, this is a cost to you the consumer must pay.
When you do the mathematics, you are now asking yourself a question, should we actually meter everybody? Or can we find a middle of the road approach to the customer who can’t pay cost reflective tariff and whose bill every month is so low that buying a meter for that single customer may not make sense? So hence what do we do? We go to the regulator. So, from the economic point, we can meter everybody and we collect our money.
But the social man in us will say okay, are we being fair to somebody who is paying N2,000? Bulk metering may be the solution. Whilst others might advocate cheap meters, we advocate for quality material to give quality service sustainably. Let’s cure the ailment permanently, rather than kick the can down line
What would you say is the way forward?
We can achieve far much as a nation if we apply intelligent coordination of skillsets, experience, expertise, feedback and resources rather crippling what we have.
We must process the vast stores of data and meaningfully analyse them to make decisions rather than relying on emotional knee jerk solutions which over time will waste valuable time and resources. There should be an advocacy for behavioral economics to be used to improve policy
Regulatory interventions should be focused on improving the customer’s access to energy and suppliers’ access to liquidity and sustainability.
We must explore the critical strategic drivers that will create value for everybody.
We hear Nigeria has installed and available capacity of 13,000, can transmit 7,000 but that the Discos can transmit 3,000MW. Why the gap?
Simply, why can’t we transmit the 13,000? Have you seen any electricity system in the world with 45% losses between generation and transmission before?
My point is that we have fundamental challenges we are not addressing but continually looking for scapegoats to blame. Root cause analysis will have shown us the missing links rather than reducing the argument to numbers which don’t add up.
As investors, we naturally will like to sell more to make more. If we are not selling more, as alluded to by different commentators, does that not tell you that there exist a mismatch that needs to be addressed? You sometimes hear of briefcase companies etc that took over the assets.
Before closing out on this question, I need to commend the efforts of the current MD and leadership of TCN, as we have witnessed positive trajectory in transmission projects. But alignment is required across the value chain for there to be light. All that Nigerians want is light, not excuses or stories. We should be allowed to give light to the people.
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