The issues that starve Nigerian Electricity Supply Industry (NESI) of adequate energy supply are becoming complex. Is the regulator helpless? JOHN OFIKHENUA asks.
There is a cry for help by Nigerian Electricity Supply Industry (NESI) value chain operators. Will the Nigerian Electricity Regulatory Commission (NERC) come to their aid?
Electricity distribution companies (DisCos) want NERC to intervene over non-adherence to power purchase agreement.
The Generation Companies (GenCos) asked the commission to come to their aid over what they called arbitrary 0.75 per cent administrative charge that the Nigerian Electricity Bulk Trading (NBET) Company slammed on them.
The Transmission Company of Nigeria (TCN) has issues with the power distributors. Yet, there has been no policy pronouncement from the regulator.
The question of why the operations of the 11 privatised electricity distribution companies (DisCos)) are still far from optimum performance does not have a straightforward answer.
The success of the operation of the electricity market is predicated on the strength of the entire value chain.
This is why an isolated analysis of the DisCos cannot be plausible as the entire value chain ought to have a very watertight relationship.
In other words, the three value chains: generation, transmission and distribution are interdependent to the extent that the strength and weakness of one of the sub-sections rob off on the others.
This was the position of the representative of the Sunday Odutan, who discussed the power supply enigma with The Nation on phone last week.
Being the Executive Director, Research and Advocacy of Association of Nigerian Electricity Distributors (ANED), which is the umbrella body of the DisCos, he has become the mouthpiece of the 11 private power firms collectively, except Yola Electricity Distribution Company that its management reverted to the Federal Government.
He explained that this is so because the operation of the sector is a chain.
The ANED spokesman, therefore, sought the technical and commercial realignment of the entire power sector to manifest its efforts to the consumers.
His words: “There is the need of an alignment of the value chain: technical and commercial alignments. If there is problem with generation, it will affect distribution. If there is a problem with transmission it will affect distribution. Performance of one is dependent on the performance of the other. That is why it is called a value chain.
“The problem of the sector, which include the DisCos, is that there is no alignment. They need to align the value chain. There should be commercial and technical alignment. Technical alignment results when you are generating 10,000mw, you must be able to transmit 10,000 megawatts. You must be able to distribute 10,000mw. Then the commercial alignment is when you are buying electricity at this price, you must not be forced to sell below the cost. That is commercial alignment.”
Odutan, who signed the publication picked holes in capacity figures that the TCN was showcasing.
He said: “1. Maximum energy ever transmitted or wheeled by TCN is 4,557mw (even with a peak generation of 5,375mw February 7, (2019) with its tested wheeling capacity of 5,500mw.
“2. TCN’s claimed transmission capacity increase based on a simulation of 8,000mw remains exactly that, a computer simulation with no real-life application.
“3. 2,000mw of the available generation of 7,652.6mw remains constrained, largely because of lack of gas, given that 25 out of our 28 power generation plants are fueled by gas, as well as transmission and hydro constraints.
“4.Electricity distribution capacity has been determined as 11,000MW (Siemens May, 2019 Electrification Roadmap for Nigeria Report).”
The company’s General Manager, Public Affairs, Mrs. Ndidi Mba said that ANED twisted the National Grid Data and statistics, subtly inferring that there is no load rejection by Discos and that TCN has not been able to deliver the volume of power demanded daily by each Disco.
She said: “ANED is deliberately out to deceive the good people of Nigeria with misanalysis of a simple data set.”
Citing an example with the Kano Electricity Distribution Company (Kano Disco), Mbah pointed out that the Disco, on August 22, 2019, Kano Disco nominated to take 310.60MW while the MYTO allocation to Kano Disco was 359.38MW. She pointed out that Multi-Year Tariff Order (MYTO) allocation is a percentage of electricity on the grid that is made available to all the Discos. Discos’ day head nomination is what the Discos say they can off-take out of the MYTO allocation for the next day, while actual consumption is what they eventually take from the available MYTO allocation at the TCN/Disco interface points.
The TCN put it to the association that “For Kano Disco, even though it is nominated to take 310.60MW, it was able to actually off-take only 154.17MW, leaving a total of 205.21MW representing 57.10 per cent of MYTO allocation to it unutilised.
“On the same day, Kaduna Disco on the other hand, requested 280.00MW while MYTO allocation to them was 359.38MW, but the Disco actually collected only 166.52MW from TCN substations, leaving 192.86MW equivalent to 53.66 per cent of MYTO allocation unutilised.”
The challenges that the NESI is grappling with are not limited to the blame game between the TCN and the DisCos.
The electricity Generation Companies (GenCos) have their own issues impeding their operations. Forty per cent of the power generation capacity has been shut down. With the low demand from the DisCos and TCN’s weak capacity to wheel the available energy, it is obvious that the GenCos are limited to the capacity of the two other value chains.
With the shutdown of some of the hydro plants in Kanji and Jebba which Mainstream Energy Solution Limited operates and the Shiroro Hydroelectric that is operated by North South Power Limited, the energy generators are at the mercy of whatever decision the TCN and DisCos take since Eligible Customer regulation that ought to have relieved them is yet to take its root firmly. There is a third force within the government circle that is conniving with some operators to thwart the policy that should have allowed the Gencos to bypass the DisCos to supply energy to the customers.
Only last week, the NERC directed that owing to the forecast of the Nigerian Metrological Agency that there will be ravaging flooding resulting from long duration of rainfall this year, the three hydro stations “must run” compulsorily. The commission explained that a major consequence of this meteorological event on the operations of the three hydropower stations (i.e. Jebba, Kainji and Shiroro) has been high rate of reservoir fill-up which poses extreme environmental risks to lives/property downstream from the plants that could result in submerging entire villages along the riverbanks.
According to NERC, the increasing cost of wholesale energy to distribution licensees in NESI is attributable to the generation mix of dispatched energy. It mandated the firms to operate the plants immediately or in the event of any deviation or non-compliance with the terms of the order, the NERC mandated the SO to compulsorily submit detailed written justification to the Commission within 48 hours.
Besides, the thermal GenCos, at the weekend, raised the alarm threatening to declare a force majeure.
Addressing reporters in Abuja, under the umbrella of Association of Power Generation Companies (APGC), the Executive Director, Joy Ogaji, revealed that the NBET informed the GenCos on a new policy that requires the payment of 0.75 per cent charge on each of their transactions.
According to her, the NEBET claimed that the directive is an order from the presidency.
She also revealed that the NBET has made the payment of the charges a condition precedent to the release of the N600 billion.
The said “0.75 per cent administrative charge is compulsory as it is a Condition Precedent (CP) for GenCos to access the N600 billion the Federal Government has approved for immediate payment to gas suppliers and GenCos.”
In a press conference that she entitled “NBET slams GenCos with 0.75 per cent unregulated administrative charge,” Ogaji described the role of the NBET in the electricity market as a credit worthy off taker created to incentivise private investment in power and act as the buffer to the GenCos.
She said with this renewed confidence for investors and the promise to provide incentives and the needed comfort by bearing the off-take market and default risks such as liquidity/payment risks, the GenCos invested in the power sector and are, above all odds, keeping to the terms of their contract, generating power in anticipation of the 100 per cent payment promised in the Transition Electricity Market (TEM).
She recalled that the Federal Government, in its magnanimity, intervened to ameliorate the plight of the GenCos by introducing various instruments to partially pay GenCos for energy delivered while capacities not utilised but made available was unaccounted for. The Federal Government, according to the APGC spokesperson, has once again stepped up and approved the N600 billion as a short term intervention to pay for energy generated and delivered while it resolves the issues faced by other critical players in the NESI .
Ogaji revealed that in order to assess this fund, GenCos are faced with a bullish behaviour from an agency that is supposed to be representing/protecting their interest.
In previous situations, they were threatened to sign various obnoxious agreements (Security Trust Deed and PPA Activation agreements or such documents) before they are paid, she alleged.
The APGC said NBET, on September 13, 2019 issued a letter to individual thermal GenCos directing them to obtain, as a matter of urgency, their respective board approvals or resolutions, bequeathing responsibility for payment of gas and transportation to the respective supply companies for an administrative charge of 0.75 per cent.
Ogaji said the letter gave each GenCo three working days ultimatum to respond with the board resolution i.e. September 18, 2019 or face non-payment of energy invoices.
“It should be noted that NBET, like other market participants, is a licensee of NERC and as such is expected to understand that in a regulated market, every expense/cost must be backed by a regulatory approval for effective computation of the market tariffs.
“The generation companies are not aware that such approvals have been issued by NERC nor is there any policy directive to this effect.
“The fact that NBET is placing the extortionist 0.75 per cent ‘administrative charge’ on GenCos who are already convulsing in the NESI, is an aberration on the duty of care placed on NBET.”
The APGC noted that NBET, therefore, needs to come out clean and make known where and when a stakeholders meeting, involving all parties such as the Regulator (NERC), NBET, Gas suppliers and GenCos held to discuss and explore the intricacies of such multi-party transaction before issuing such a directive.
According to the body, with the introduction of “an additional burden of 0.75 per cent to GenCos, gas invoices payments implies that NBET is looking to rake in a windfall of not less than N2.7 billion as its administrative fees for a service of only collating and submitting invoices to the Central Bank of Nigeria (CBN) that, in effect, makes the payment to GenCos and the gas parties.”
The GenCos are worried that, according to Ogaji, if NBET is allowed to carry on with this shenanigan for services that are nothing more than being a “delivery truck” since Market Operator (MO) does the major work of preparing the invoices and settlement statement for NBET to pass same to CBN for payment. She noted that NBET, acting only as a “conveyor belt” or “agent” of GenCos funds, is currently paid 2.5 per cent of the total market payments.
She insisted that the NBET does not have the moral right to receive 100 per cent of its service charge from the Market Operator (MO) while it does virtually nothing to enable GenCos receive their invoices in full.
To her, what is expected of NBET, as the obligor for the GenCos, is to come up with viable strategies to make the GenCos whole and not to be creating a gaping hole in their limited finances.
While soliciting government’s intervention, she said: “We will be strongly recommending to the government and other key stakeholders that the administration of the GenCos finances reverts back to the Market Operator (MO) while NBET focuses on engagements with new entrants or intending power project developers.
“In addition, if NBET gets its way in executing its planned action, it will set in motion a significant precedent that any entity can take up the role of a regulator in the NESI, giving directive without the relevant stakeholder engagement and regulatory (NERC) approval.”
Ogaji submitted that as it stands, the relationship between the GenCos and other markets participants and agencies of government is progressively becoming a master-slave or master-servant relationship; GenCos being the slaves or servants.
She said: “It’s unfathomable that any going concern gets paid only 15 per cent of its invoices and yet is expected to perform within the requirement of the performance and other relevant market agreements entered into. The time may just be right for GenCos to declare force majeure and release themselves of all market obligations. Surely, GenCos will remain blameless for taking such actions.”
Meanwhile, the NBET Managing Director, Dr. Marilyn Amobi, who The Nation asked to respond to the GenCos claim, said via a text message that “I don’t know what Joy Ogaji is talking about.
“NBET deals with generation companies and has never dealt with Joy Ogaji and her association.”
NERC noted that it was probing the discrepancy between energy received as reported.
It is yet to make public its findings.
Observers believe the challenges will remain until the regulator acts, lest the NESI collapses under its watch.