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| Dr. Sam Amadi |
The Chairman and Chief Executive Officer, Nigerian Electricity Regulatory Commission, Dr. Sam Amadi, in this interview withOKECHUKWU NNODIM, admits that power supply has worsened despite privatisation
What has actually improved since the takeover of the power sector by private investors?
The takeover is a milestone on its own. With the takeover, you now have a sustainable framework for the industry. Before now, there were problems of lack of financiers and poor management. But with the takeover, we’ve found a way to introduce private investors to invest in the power sector and bring more managerial competence that the public sector lacks. So you can say that the takeover marked the transition of public ownership to private ownership.
How has this affected performance?
If you look at it in the short term, not much has improved because there’s capacity constraint. Before the takeover, there was 4,000MW electricity supply, but due to gas shortage and other structural issues, it has dropped to 3,000MW, so there is nothing to celebrate yet. Some people have reported that the handing over was from good to bad. For instance, the NOIPoll reported that the last quarter of 2013 seemed like the worst in terms of power supply in Nigeria. This is because of the constraints in the network.
The new owners who came on board don’t have sufficient financial resources. So now, it looks like the new owners are not able to ensure efficiency in distribution and have limited power to serve their clients. This is because they cannot perform any magic to increase the capacity.
For now they’ve come to a stage where they have less power to trade, and therefore, there is no desirable improvement in terms of power supply that you can trace to the takeover. But there is also no quantity retardation traced to the takeover.
The takeover is a watershed. In one way it could be a problem but government is working hard to make sure everything works out fine. But right now there are some other issues like generation capacity constraint that now manifest as poor service condition in the interim. So considering all these facts, not much has improved as far as the takeover is concerned.
However, if more funds are injected into the distribution network, there will be positive changes.
Why then did government choose to deceive the public by promising that power would improve once the exercise was completed?
Two things are of importance here. Maybe the process was overstated, but the takeover doesn’t necessarily mean that the problems would be solved by private owners coming into the business.
The private owners came in primarily to relieve the government of the responsibility of funding the whole value chain. So you have limited generation companies and you sold them to private owners. You also sold the distribution companies. The NIPP (National Integrated Power Plants) project is not yet on board, so you don’t have new power coming into the system at present.
Therefore, what you are doing is that you are trading with limited power. The saving grace, therefore, will be when the new owners come in with their finances and begin to look at ways of making improvements. This may be by procuring power independently to improve the power available to sell to their customers.
They will also have to sell the power in a more efficient way, improve efficiency in the collection of revenue and reinvest the money in improving network, metering and transformers. There will be improvement in service delivery when this is achieved. But there must be an infusion of power into the system to create the capacity needed for supply to the market. However, the problem we have now is that there is no hope of getting extra power.
The government has sold the assets but the finance for improving the assets has not come. So if you have Geregu at 300MW, you will be running that until you are able to improve it and have power to sell and increase your revenue. The money you realise goes all the way to stabilise investment in your business. This shows that what we must first deal with problems and crises.
As a regulator, are you not perturbed by the prevalent worsening state of power supply in many parts of the country?
I am worried because when power supply drops, incentive to pay reduces and there is a cyclical problem of inefficiency. We are looking for entry points to improve power supply. But truly, except there is an injection of new power to the system, we can’t have improvement.
Gas is a major constraint. Because before now, we used to have about 4,500MW and with that we had a spinning reserve of about 200MW. This means that you can work round the reserves. But when you have lost over 1,000MW, you can’t have enough power to sell. So the challenge in Lagos and some other areas where supply has dropped is how to even create additional power. In fact, I really feel bad about this. Yes, we have oversold the handing over as a panacea, maybe because we had expected people who had enough financial clouts to take over but they did not. An editorial comment said ‘they are missing in action’ – using a proper description. So at this stage now, what the regulator is doing is to manage the scarcity and see if we can get entry points for more power through regeneration.
Don’t you think it is cheating to expect customers to continue to pay the monthly fixed charges of N750 when power supply has worsened?
The fixed charge addresses customers’ connection to the grid. It is a monthly fee of N750 that allows a customer to remain on the grid. You cannot say that because power has not improved, the fixed charge should be removed. But the question now is, how will the utilities recover their fixed costs?
They need to have a fixed charge to recover their fixed cost. The other question is at what point should a consumer who probably doesn’t receive service, stop paying the fixed charge?
Our view is that there is always a point at which we think that a consumer will not continue to pay the fixed charge if the service has totally deteriorated. But in the interim and as long as the customer is still connected to the network, the fixed charge is their own share of the fixed cost of having power.
So the question now is how long will a customer need to be without power before he can stop paying the fixed charge? If for four to five months a customer has not received supply, at that stage they can say that service condition has deteriorated and it will be improper to pay the fixed charge.
The customer can go to the forum office and lay his or her complaint. He can also make a request for the fixed charge to be removed until there is improvement in service condition.
Prepaid meters are expected to counter excessive billing by Discos, but up till now, many customers don’t have these meters. What’s the update on this?
The distribution companies are expected to give meters to their customers. The idea is to encourage customers adopt prepaid meters.
CAPMI is a way of allowing customers who are not using prepaid meters to pre-finance their metering so that they can escape estimation. But we have discovered that many of the new owners, because of the problem of financing meter roll out, are not metering the consumers. And many of them also think that they make more money through estimation.
So we balance this by saying that customers should not be on estimation for too long.
Therefore what I will say is that estimated billing is only allowed for new customers up to certain months after which they ought to have been metered.
People complain that you are overprotecting the power firms and that is why you have not sanctioned any despite the fact that some of them short-change consumers. What’s your take on this?
A newspaper has argued for increased consumer protection, especially as pertaining to estimated billing and this is one of the reasons we gave the companies a deadline for providing meters for all their customers. Now the real question is, are we in a position to enforce this deadline, we can only talk about sanction when we are able to enforce our rules.
But the issue now is that in this industry, we do not have the data and personnel to monitor and sanction defaulters. And before we can sanction the Discos, we need to really know the service rights that we are protecting. Once we are able to determine the service quality we want to protect, then we will be able to sanction non-performers.
Also, customers should be able to report cases of poor quality of service which will now be the basis for holding the service providers accountable. That is why we are putting up a regulation on enforcement.
Once we have the regulation on enforcement, we can now benchmark financial penalties to discourage exploitative tendencies. We want to streamline it so that defaulters will know the fines to pay. The public hearing on this regulation is coming up soon.
What are you doing in terms of increasing customer forum centres?
What we want to do now is to ensure that each distribution company in each of the states has a forum office. This will enable consumers to make complaints at our forum offices. For instance, at the Ikeja Distribution Zone, the forum office for that area will be at the Disco and there will be another one at Eko.
In 2013, government said power generation would hit 10,000MW this year. But recently, you said the target was 7,000MW. Does this mean that the reality on ground is becoming tougher than envisaged?
No, our position for the end of this year was 7,500MW based on the MYTO (Multi Year Tariff Order) if you add all the capacities from the NIPPs. So what we are saying now is that if you benchmark us on what we expect to have before the NIPPs come on board, we are targeting 7,000MW.
But I think now that this target has a lot to do with the amount of gas that goes to the plants, we are working towards having additional megawatts to the NIPPs so as to increase what we have already. However, the regulatory benchmark is to have at least between 7,000MW and 10,000MW by the end of the year.
The Federal Government recently announced to the world that power supply in Nigeria had improved. Shouldn’t the regulator tell the truth about this?
We have to tell the truth and the truth is that the amount of power we say is available is what is available. If we say we are losing power, then that is it. So for government to say power has improved, it might be that the management of power had improved or it might be that the benefit of power had improved.
But if you are looking at the number of hours people get power, then it is contentious and it is not something that you can actually say has improved. We would like to see such an improvement, which is something that we hope to achieve with more megawatts of power and improvement in service delivery.
So if you ask me, I will say we have just successfully completed a very important process in our drive to make the sector what it needs to be in order to perform better. Therefore, I will say we now have potential efficiencies which we need to actualise to get the kind of power supply that is needed.
By saying that the power sector now has the potential to meet national demand, are you confirming the June deadline given to power firms to ensure visible electricity as directed by the Minister of Power?
The minister’s order makes it clear that it is important for the various organisations in the industry to respond accordingly and so by June, certain amount of power should be transmitted efficiently and fully distributed. But what NERC is more concerned about now is to see how we can increase the amount of power available to the companies to sell through the generation company.
How can NERC help with the issue of gas supply knowing that this has been a major constraint on power generation?
We had a meeting with gas suppliers and power generation companies. In that meeting, we wanted to know where the gas would come from to meet the amount of gas needed by the network.
We were able to look at the commercial framework for gas supply. So we are working hard together with the gas suppliers and regulators in order to ensure that our power plants are rightly fed with gas because this has been a major challenge to power supply in Nigeria.
Since the handover to private investors, are there other challenges you may want to explain?
After the sale of the assets, we realised that there were two major kinds of problems in the present privatised market. The first is the problem of consumers in terms of quality of service. There are reports of drop in service quality. Also, there are problems on the part of the new owners which have to do with anxiety and worry about the financial state of the market.
On the issue of service quality, I think there is a little bit of lack of clarity. Yes, maybe in some places they experience shorter power supply or maybe more outages and poor quality of power. But the question is: have they (electricity consumers) compared that experience, maybe with about this time last year?
Some of these problems can be seasonal. We do know that we had severe loss of supply of gas to power recently. As a result of this, in some days, about 1,900 megawatts of power was not utilised because there was no gas to power it.
It might not have happened by this time last year, but it is as a result of many factors. A significant portion of the problem is linked to vandalised pipelines. Also, if you look at the chart, there is a lot of gas going to industries. The amount of gas going to fertiliser plants, cement factories and plastic industries is very high when compared to what is going to power plants and we are looking at this issue critically.
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