CHALLENGES FACING NESI, SOLUTIONS AND LEGISLATIVE INTERVENTIONS

CHALLENGES FACING THE POWER SECTOR- POSSIBLE SOLUTIONS AND REQUIRED LEGISLATIVE INTERVENTIONS

CHALLENGES SUB-SECTORS AFFECTED PROPOSED SOLUTIONS MY COMMENTS LEGISLATIVE INTERVENTIONS
1. Policy & Governance framework All 1. Rules & Roadmaps to be clear.

2. Policy somersaults to be avoided.

3. Idle gas fields to be concessioned for development by willing generators.

4. Incentive to extend tax holiday to up to 15 years.

5. Exemption from duty on power equipment imported solely for power sector development.

6. Implementation of capital & investment allowance which can be carried forward and used after tax holiday.

7. Ensure a reliable transmission infrastructure that creates a level playing field for efficient and sustained private sector participation in NESI.

Commission a Power System Architect to develop a new electricity master plan for NESI which takes a holistic view of all the sub-sectors related to the generation, transmission, and distribution of electricity in Nigeria and ensures that the challenges facing the power sector today become history. 1. Commission a Power System Architect.

2. Convene an assembly of Nigerian professionals working in the electricity supply industries in developed economies that enjoy uninterrupted power supply such as the UK, USA, Canada, China, Europe etc and seek their support.

3. Follow through with the implementation of recommendations of Power System Architect based on inputs from all stakeholders.

4. Policy intervention required to ensure government subsidises tariff payments for consumers.

 

 

2. Regulatory NERC 1. A reconstitution of NERC to have people who understand power sector issues in key positions.

2. A larger percentage of NERC commissioners should be seasoned Power Systems Engineers.

The yet to be appointed Chairman of NERC should be a seasoned Power Systems Engineer to ensure the power sector recovery programme succeeds.

 

1. Ensure NERC is led by a seasoned Power System Engineer who has worked in a power system that works.

2. Ensure the full independence of the regulator.

3. NERC to enforce regulation that the GenCos should provide spinning reserves for effective frequency control by revision of ancillary services agreements.

4. Ensure that NERC commissioners are appointed or re-appointed before the expiration of the tenure of office of the current set of commissioners to avoid any lacuna in line with the EPSRA 2005.

 

3. Ambiguities in EPSRA All 1. Parameters for competition during post-privatisation stage to be made clearer. (S.25 & S.26)

2. The role of NBET during the transitional & medium term market stages to be clearly defined.

3. The roles of Energy Commission of Nigeria & The Federal Ministry of Power to be clearly defined.

4. Electricity theft – S.94(3) does not directly address electricity theft. There is need for a robust regulation on electricity theft to curb growing collection losses.

5. Licensee tenures – S.71 provides that the maximum term to be issued per licence is a maximum of 10 years which can be extended only for another 5 years at NERC’s discretion where it is in the public interest to do so. This does not encourage long-term investment.

6. Limitation on fines & penalties that can be issued by NERC to deter defaulting operators in the industry to be reviewed.

7. Concurrent powers of Federal & State legislation with respect to electricity generation, transmission and distribution.

8. The centralised and poor transmission network system needs to be Decentralised.

9. Captive power is restrictive to self-generation for self-consumption without the option to sell to a third party as against the industry norm of plants being owned and operated by third party.

The proposed Power System Architecture Project will examine this and more in detail and resolve bottlenecks. 1. Ensure proper delineation of the powers of NERC and the Minister of Power.

2. Avoid multiplicity of roles in NESI such as in NEMSA versus NERC, Ministry of Environment versus Ministry of Power on Renewable Energy etc.

3. Facilitate the comprehensive review of the EPSRA 2005 by the Power System Architect and the implementation of its recommendations.

4. Finance All 1. Funding is required to transit Nigeria from an oil dependent economy to a more diversified one by developing gas-to-power infrastructure.

2. FG to approach donor organizations that are highly vested such as World Bank, IFC, and AFDB to provide support.

1. Expedite confirmation hearings of heads of power sector MDAs.

2. Approval of funding for network development based on the proposition of the Power System Architect.

3. Support for the power sector recovery plan.

4. Adoption of laws and regulations aimed at removing hurdles to the development and financing of power projects.

5. Indebtedness DisCos 1. Address the indebtedness from acquisition loan and CBN intervention capable of impairing DisCos from meeting their obligations in the short term & sourcing new facilities for network investment.

2. Address the inability of DisCos to borrow money from local commercial banks to finance the 2016 tariff deficit has worsened NESI.

3. Address the negative change in the projected macro-economic variables used in the tariff assumption.

4. Whereas CBN provided the agreed financial intervention to NESI, NBET did not raise the required power sector bond to aid financing deficits in 2016 and beyond. NESI will be in perpetual deficit except there is a change in the way the industry is structured.

1. CBN to allow Commercial banks to come together under a lending club deal, aggregate the loan and securitise it with some credit enhancement through Federal Government’s partial or total guarantee.

2. The commercial banks will thereafter sell off the loans off their books as they convert loan to investment.

3. Reduction of interest rate charged by commercial banks relative to the prevailing rate during the time of privatisation.

 

GenCos Debts owed by NBET and Market Operator must be paid to avoid the collapse of the electricity market. This is a “bottomless” pit. Cost will be recurring until the transmission grid is reinforced. Whereas CBN provided the agreed financial intervention to NESI, NBET did not raise the required power sector bond to aid financing deficits in 2016 and beyond. NESI will be in perpetual deficit the way the system is structure
GenCos, TCN, DisCos Rising cost of revenue shortfall & increasing cost of project management threaten the survival of the sector reforms. There is need to find credible solutions that deploy best practices in project management and due diligence.

 

Power System Architect to ensure illiquidity is addressed while deploying Project Management techniques as much as possible.
6. Forex GenCos, TCN, DisCos 1. Most power equipment, especially the long lead items, are sourced from international markets and therefore cost is susceptible to movements in the foreign exchange market.

2. Misalignment of the value chain must be corrected – GenCos’ costs under PPA must be aligned with MYTO

1.      Approve special concessionary rates for operators to source Forex from commercial Banks while creating a Forex stabilization fund.

2.      Approve that power sector operators be given preferential treatment in Forex allocation.

 

7. Gas GenCos 1. Insufficient gas supplies to existing gas fired plants and the over 11000MW of generation capacity in development has to be addressed.

2. Idle gas fields to be allocated to willing generators for development. Such must be for dedicated gas-to-power projects.

3. CPG projects are complex and demand experience, expertise and patience. Therefore, project developers need to be in control from generation through distribution to metering for success.

4. Gas-to-power infrastructure and transportation network grossly inadequate. Investment required for dedicated gas-to-power projects.

5. Off-shore and on-shore gas development by government to be for dedicated gas-to- power generation.

 

1. Changes must be made to the existing out-dated regulatory framework. Such regulations for power and gas must be synchronised and subjected to periodical reviews in line with realities to provide enabling environment to investors.

2. Price of gas to be in naira.

3. Legislation must be in place to fast track network upgrades as well as punishment for vandalism through the courts.

8. Energy Mix GenCos 1. Nigeria should not depend only on gas and hydro but should explore other sources such as solar, wind, nuclear, coal, biogas, waste-to-power, waves and tidal barrages, landfill gas etc.

2. Coal-to-power generation should be encouraged in a way that guarantees sustainability and environmental friendliness.

1. Develop a mechanism for recovery of developing infrastructure needed for power plants to function optimally.

2. Setup Power and Steel funds for developers to access cheap funds.

3. Ensure a multi-decade policy to support a deliberate development of power infrastructure in Nigeria by commissioning a Power System Architect.

4. Facilitate the implementation of an energy policy on renewable and sustainable electricity systems.

5. Encourage research in Energy Systems.

9. Enforcement of Standards & Regulations All 1. Power system must be properly planned, controlled, operated and protected in such a manner that safety of lives and property is ensured.

2. NEMSA staff to be empowered to effectively enforce standards.

10. Human Capital All A large percentage of the Power Sector workforce is retiring soon. A deliberate development and optimal utilization of Nigerian human resources in the sector is key.

 

1. Set up a specialised NVQ for the sector.

2. Set up a University for the Power Sector. Programme to be coordinated by the System Architect.

 

11. Technology All 1. Renewable energy technology and sustainable electricity systems to be aggressively pursued.

2. Research and development in the area of power systems to be given adequate financial support.

12. Technical TCN & DisCos 1. Weak transmission & distribution networks to be revamped.

2. Steady investment in the networks monitored by the output measure technique.

3. Involve PPP, debt financing, contractor financing & project financing.

1. Quick win by establishing regional grids to significantly reduce network losses in the transmission network.

2. System Architect to review the future role of the transmission network in NESI by carrying out a comprehensive study.

3. Implement demand response strategies such as peak shifting, peak shaving, valley filling etc.

4. Implement a range of pricing and incentive/penalty regimes to drive efficiency in NESI.

5. Rural Electrification should be a key part of policy intervention for quick wins.

1. Radically reconfigure the electricity sector by decentralising the weak and dilapidated transmission network for distributed generation solutions nationwide.

2. Facilitate the exit of non-/under-performing operators and the entry of new capable and reputable game changers in NESI.

13. Metering DisCos 1. DisCos are unable to efficiently distribute electricity and collect payment for it hence a third-party funding of customer metering in a transparent NESI is required.

2. Technology to be deployed.

3. under-utilisation of local capacity to be addressed.

4. Create liquidity to attract vendor financing and special purpose vehicle funding such as the pension funds

5. Accurate accounting of every single unit of electricity generated, transmitted and distributed is the most fundamental element of sustainable operations.

 

 

1. If there is no system to recoup their investment, true investors will not approach NESI.

2. Ensure metering sub-sector is profitable for investors.

3. Use of pension funds in the current NESI will lead to painful end to Pensioners. The fundamental issues around inefficiency of the operators must be addressed by the System Architect.

4. Ensure local content is prioritised in the meter acquisition process.

5. Create a sustainable structured payment mechanism.

 

1. Compel DisCos to source meters locally provided technical specifications are met.

2. Promote technological growth of the local metering industry.

3. Facilitate pricing review for meters in a price-resistant market.

14. Non-Technical

·         Meter by-pass

·         Electricity theft

·         Non-payments of electricity bills by MDAs.

·         Collusion by staff of electricity companies with consumers to short-change the system.

·         Vandalism

·         Militancy

·         Poverty

 

DisCos 1. Technology driven solution required.

2. Punishment for stealing electricity to be so severe that it must be a deterrent.

3. Source deduction of payments by MDAs.

 

 

 

 

 

 

 

1. Establish an Health Safety Executive for NESI.

2. Establish a special court for the power sector to ensure immediate trial of defaulters in the power sector.

3. Discourage estimated billing.

4. Resolve the Niger-Delta militancy and the insurgency in the North-East.

5. Resolve issues around the vandalization of critical power infrastructure, right of way and host communities, erosion of towers etc.

 

15. Load rejection

 

TCN & DisCos Load rejection occurs because given gas availability, available generation capacity is greater than the wheeling capacity of both transmission & distribution networks.
16. Cost-Reflective Tariffs (CRT) All 1. The 3 conditions for adjustment in tariffs (inflation, gas price, exchange rate) as specified in licence conditions have taken place without a change in tariff.

2. Power System architect to develop a credible cost reflective tariff adjustment mechanism that will cover cost of operations and production plus adequate ROI so as to attract investment into the sector.

3. CRT must be established transparently and must be based on efficient costs.

1. Power System Architect to implement.

2. The three arms of government to cooperate on this matter and the buy-ins of all key stakeholders, especially the consumers, to be sought ab-initio.

3. Legislative intervention that establishes a power system architect that facilitates/ supports regulatory oversight functions which engenders firm monitoring and performance benchmarking methodology to enhance transparency in the sector, set and monitor KPIs of operators with rewards and penalty used to drive investment in the network by the output measure technique.

4. Guide against financial under-reporting by operators.

1. Co-operation between the three arms of government to implement a credible tariff adjustment mechanism that will be acceptable to the consumers.

2. Ensure NERC is giving full autonomy to bark and to bite erring operators.

3. CRT must be established transparently and based on efficient costs. It must not burden the poor consumers.

4. MYTO tariff design to be reviewed by the Power System Architect in such a way that inherent deficiencies are addressed.

17. Illiquidity All 1. Tariff adjustment

2. Government to settle estimated deficit by MDAs after verification of claims.

3. Treatment of volumetric energy risk.

4. Sacrosanctity of contract and the signing of back-to-back contracts.

5. Interim fund management.

6. Targeted intervention to reduce the operating cost of investors and thereby reduce consumer tariffs.

7. Implementing liquidity & payment solution that recognises that improvement of DisCos operational efficiency is the most viable way for the sustained growth of the NESI

 

 

1. Aggregate Technical, Commercial & Collection losses in NESI means that most of the generated electricity cannot be accounted for once they pass through the networks of wires, transformers and plants.

2. Legacy issues of metering, meter by-pass, estimated billing, corruption, poverty and so on means DisCos have had poor monthly remittances to the bulk electricity trader for the electricity they have received.

3. Massive investment in metering, reduction in network losses, discontinuation of estimated billing, encouraging transparency in the collection and remittance of revenues.

1. Ensure KPIs are set for operators followed by a firm monitoring of performances.

2. Power System Architect to facilitate the development of a national e-payment portal through customers in NESI can pay for services which will be transparent to approved stakeholders.

3. NERC and CBN to mandate all banks to integrate all non-designated accounts by DisCos for energy payments into a common accounting system while prohibiting all cash-based transactions.

4. Facilitate the capitalization of government equity (40%) in the DisCos to address part of the liquidity problems.

 

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