THE NEW WORLD ORDER OF WOMEN’S EMANCIPATION

The world is undergoing a change of civilization and most people are yet to grapple with the wind of change. For many reasons, chief among which is economic, Women have stopped being home builders only. They are now working outside the home and in some cases, are bread winners. There are great women who both work at home and secularly. They are to be commended. To be honest they are so gifted. They can be many things at a time – mother, nurse, doctor, psychologist, cook, cleaner, carer, economists, accountant, technologist, student, wife, etc.

Yet, this is not in line with the creator’s design for her. She is not wired to do this nor is this the definition of her role and will ultimately lead to tragicomedies. Women’s emancipation is what it is touted as and it will be the order of things from now to the extent that 50 years from today, it will be the norm if this wicked system remains.

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ON FG’S PLANNED DEMAND FOR TRANSPARENCY FROM DISCOS

By Idowu Oyebanjo

The Federal Government has announced plans to escrow and beam its searchlight into the revenue accounts of the operations of the DisCos due to poor monthly remittances. Although DisCos have condemned the move, this is a good step in the right direction. To address the problems of NESI, a holistic view of every aspect of the multi-faceted problems plaguing it is required with a view to solving them in a coordinated manner. One of the major problems in the Nigerian Electricity Supply Industry (NESI) today is the potential for illiquidity. In simple terms, this arises when DisCos declare, whether truthfully or otherwise, that they have not collected enough money from consumers of electricity and so are unable to make full payments to the bulk electricity trader, NBET, for electricity received. This has the potential to always create illiquidity in NESI because their remittances should have been used to pay all key stakeholders in the industry including but not limited to GenCos, TCN, Gas providers, market operator, NERC, NBET etc. The solutions to address this anomaly include a massive investment in customer metering, reduction in network losses, preventing electricity theft and collusion of staff of electricity companies with consumers to defraud the industry, discontinuation of estimated billing, and ensuring that revenues collected by DisCos in behalf of NESI is transparent to all key stakeholders, and not least the Federal Government which still owns 40% of DisCos. The government has chosen to implement the last of the aforementioned solutions but the DisCos have frowned at the move. Thus a critical review of the position of DisCos is in order.

Reacting to the planned move by the Federal Government, Discos, under the aegis of the Association of Nigerian Electricity Distributors (ANED) have spoken against the move in clear but illogical terms. ANED has argued that the move is tantamount to a re-nationalisation of the DisCos. This is true but that is what is required to salvage the current situation. If the DisCos cannot invest in the network, and will require government bail-out, then the government (and any lender for that matter) will like to have a transparent view of the revenues collected for accountability, probity and possible repayment of loans in the form of bail-out funds. Furthermore, ANED has posited that this move will send the wrong signals to local and international investors but this is far from the truth. Rather, the opposite will be the case. True investors appreciate transparency and will see the seriousness of the administration in maintaining a financially healthy power market and they will be drawn to NESI once the market stabilises to replace the present crop of “investors” who lack the technical cum financial muscle to pull this through. Rather than see this as an effort to ensure the survival of NESI, ANED has said the move will prevent the “injection of the cheap and sorely needed capital that is critical to the rehabilitation and improvement of electricity infrastructure”. However, it has to be stated that it was the continued lack of investment in the network by the so called investors (they are not) since they took over the national assets that has prompted this move by the Federal Government in an attempt to save the industry. Ideally, DisCos should find the money to invest in the network.

Finally, ANED has argued that this kind of move has not been implemented in the communications sector. Perhaps there is need to remind the association that the operators in the communications industry have not asked for unfounded bail-outs and they are largely regulated by means of competition which differs from the regulation of monopolies which is what DisCos are.

The Federal Government is right to demand transparency from DisCos and this is part of regulating the privatised monopoly. It should never be construed as an intrusion if there is nothing to hide. This will bring sanity and improve the financial health of the industry. Yet, there are methods to achieve this kind of regulation for it not to be seen as intrusive even by the DisCos.

Idowu Oyebanjo MNSE CEng MIET

Eligible Customers in NESI – Part 2 SWOT Analysis

By Idowu Oyebanjo

Opportunities

The expectation is that large industrial consumers of electricity, Manufacturers Association of Nigeria (MAN), Industrial clusters, Business and Energy parks, Distributed Generators including renewable generation from solar, tidal and wind energy will be the immediate beneficiaries of the proposed scheme. More production firms can now opt for procurement of electricity directly from independent power plants (IPPs) in industrial clusters. Ultimately, this will lead to the creation of more jobs for Nigerians and the reduction of wholesale electricity prices, and other goods and services. The manufacturing industry is expected to pick-up as we witness the return of most companies that left our shores, abandoning Nigeria for neighbouring countries due to intermittent supply of electricity. In addition, domestic customers who live in the neighbourhood of customers that meet the eligibility criterion will benefit, hopefully, from the improved quality of electricity supply that should result from this move.

Where applicable, DisCos to a large extent will still have to design, install, maintain and operate the network through which eligible customers in relevant categories procure electricity from generators. This means customers who can afford it will pay DisCos for direct connection to the electricity grid. This will inevitably gravitate towards the independent electricity distribution networks ownership already provided for by the EPSR Act. Opportunity now exists for interested investors to set up independent distribution network companies, obtain licencees from NERC and provide efficient and reliable customer-centric service within NESI.

The main income stream of DisCos are from connection and distribution network use of system charges. As both still apply the way the scheme is designed for certain categories of customers, there is potentially no significant loss in revenue to DisCos as power still flows through their networks. DisCos will suffer loss of revenue where independent networks are installed. To this end, the declaration already provided for financial incentives to DisCos if they experience any drop in income as a result of implementing the scheme is apt. This has the potential for disagreement as it will be difficult to determine, inter-alia, the value of income that would have accrued to DisCos but for the declaration.

From service provision point of view, there will be opportunities for competent independent connections providers, consultancy services, and companies that can handle the delivery of turn-key Engineering, Procurement and Construction (EPC) power projects. In this regard, the compilation of a register of certified providers of services in a national electricity register is necessary. This is an opportunity to strengthen the Nigerian Content act of the power sector as enshrined in NERC regulations to ensure the targeted localization of the industry. The mistake of the oil industry must not be repeated in the power sector.

Opportunity now exists for GenCos to sell more power from their hitherto constrained capacity and obtain better return on investment in NESI at lower financial risk as power will be supplied to credit-worthy off-takers at a much higher economies of scale through bulk purchase of electricity. This has the potential to enhance their long-term business development strategies. They will also be able to make up their dwindling revenues and hopefully be in a better position to make payments to gas suppliers as and when due.

As the power network becomes more complex, so does the importance of Health and Safety within NESI. With a poor history of safety, there is an urgent need for a Health and Safety Executive body which will have the powers to investigate and prosecute licensees in NESI found to be culpable of neglect for not putting in place measures so far as is reasonably practicable to prevent danger of electrical hazards to its staff and to the general public. Technocrats with demonstrable knowledge and experience in power system planning, design, operation, control, protection and management will be most invaluable in helping to ensure the effective implementation of this policy directive and stable development of NESI.

Threats

The threats emanating from the declaration of eligible customers depend on which hat one wears. For example, the scheme, when fully implemented will create competition in the distribution of electricity. The DisCos will argue against the timing of the declaration quoting section 24, sub-sections 2 and 3 of EPSRA that the pre-requisites for the declaration of eligible customers have not been met. These pre-conditions have regards to the degree of privatisation that has occurred, the existence of sufficiently large number of competitive entities, adequate metering of all consumers, availability of communication and information technology infrastructure required for the smooth operation of a modern electricity market. The maximum demand customers, many of whom constitute the bulk of eligible customers, represent the main sources of revenue to the DisCos. If such large consumers such as industrial, commercial and clusters of both within the DisCos’ franchise area sign up to bilateral arrangement for the procurement of electricity via the transmission network and or directly from generators, DisCos will lose a reliable source of steady income stream. Congruent to this is the fact that the reduced tariffs paid by residential consumers is as a result of the higher income stream DisCos derive from these same larger power consumers. Thus, this declaration may lead to an increase in tariff regimes for residential consumers, who are already disenfranchised and frustrated by the goings on in the electricity sector. The potential for protests and rejection of hikes in tariffs by residential consumers, organised labour and members of the National Assembly is very high.

The transmission and distribution networks as they are today will not be able to deliver on this policy except significant investment is made towards their upgrade. Significant network losses mean that eligible customers in certain categories will suffer from poor service delivery and this has the potential for illiquidity since power supplied by generators will not reach eligible consumers. Also, the transmission and distribution network operators may collapse under the weight of financial penalty for failure to meet service level guarantees when imposed.

GenCos in supplying eligible customers will face further competition from existing captive power plants, independent power producers and DisCos that encourage the connection of distributed generators to their network, the stiff competition of which consumers will be the ultimate beneficiaries.

Absence of infrastructure for revenue collection and transparent disbursement to relevant stakeholders in a way different from the status quo will spell doom for this policy directive and therefore, a more sophisticated and technology dependent approach is required. If generators are unable to secure payment guarantees from eligible customers or service level delivery is not attained, the potential for illiquidity will persist.

In view of antecedents, potential investors will be seeking to understand how NERC will go about the actual implementation of this policy with regards to sacrosanctity of contracts with DisCos, the establishment of new bilateral contracts between eligible customers and generators, mechanisms for revenue collection, tariffs and pricing of electricity supply to eligible customers, the impact of policy on the revenue stream of DisCos, potential policy summersault due to unforeseen reaction of DisCos, the creation of service level agreements that incentivise good performance but at the same time punish failures to honour guarantees.

Other issues requiring attention include matters of route through which new electricity infrastructure will travel and the attendant way leaves, easement or land use, the cost of building the network connecting eligible customers especially directly to generators, safety issues when running parallel networks with possibility of multiple earthing and increase in electrocution, ability to manage, operate, maintain, and protect the network, Interactivity issues and customer apportionment factor for relevant categories of eligible customers etc.

There is also the possibility to frustrate the scheme if the same DisCos with their ineptitude and inefficiency are asked to develop the infrastructure for the direct connection of eligible customers to GenCos and or distributed generators since the core of skills and expertise in-country resides with them. It would be better to allow new but qualified investors to create competition with the DisCos in building required network capacity for eligible customers where applicable.

…concluded.

Idowu Oyebanjo MNSE CEng MIET

Eligibile Customer Declaration in NESI -Part 1 SWOT Analysis

By Idowu Oyebanjo

The declaration of eligible customers prior to the prevalence of conditions precedent as stated in the contract between FG and DisCos became inevitable because the DisCos have not been transparent with remittances of monies collected from consumers thereby worsening the illiquidity crisis in the electricity market within the Nigerian Electricity Supply Industry (NESI). In addition, DisCos have failed to invest in customer metering and the reduction of aggregate technical, commercial and collection losses as required by their distribution licencees. Federal Government (FG) has therefore invoked the eligibility customer clause according to section 27 of the Electric Power Sector Reform Act (EPSRA) 2005 under Ministerial directives. One can easily understand the FG trying to preserve the health of the sector. However, the initial reaction of the DisCos may be to cry foul. This may not be necessary as some of the transactions will still go through DisCos and TCN. It is therefore in order to evaluate the Strengths, Weaknesses, Opportunities and Threats in FG’s decision to allow GenCos to sell electricity “directly” to four categories of customers with average monthly consumption of 2MW and connected to the medium and high voltage segments of the electricity network. This in my opinion should be described as customers with minimum Authorised Supply Capacity (ASC) of 2MVA. This is equivalent to a consumption of 100 Amperes (unit of current) at 11kV.

Strengths

By declaring the eligible customers, Nigeria’s privatisation addresses the myth around subjecting a “natural monopoly” to economic regulation rather than competition in a privatised electricity supply industry by deepening competition in the electricity market of natural monopolies. Such competition or liberalisation will force the existing 11 DisCos to improve their operational efficiency and customer service. This will become a reference wherever matters of electricity regulation are being discussed in the world of power systems.

The advent of Distributed Generation and bringing of generation close to consumers will help to improve the liquidity of the electricity market and achieve the desired reduction in network losses more quickly if the scheme is properly implemented.

Overall, the declaration of eligible customers and full liberalisation offer many benefits to NESI, address some of the causes of the liquidity issues bedeviling the industry, re-establish confidence in NESI, send the right signals to potential investors, will create jobs in an improved manufacturing sector and therefore the economy, introduce competition in demand side as well as in distribution of electricity, improve operational efficiency, reduce network losses, encourage customer friendly operations, introduce innovation, end the era of unnecessary bailout funds and hopefully reduce cost of wholesale electricity in the long term.

Weaknesses

The main reasons for the inability of the DisCos to perform have not been tackled. They are technically and financially bankrupt. As it stands, government will need to fund metering of consumers and network infrastructural development by DisCos or wait for them to return the Asset to BPE for fresh investors with technical cum financial capability to take over the operation of the assets. Also, the government-owned TCN network is the Achilles heel of the electricity value chain. In the last three years of privatisation, investment in transmission and distribution infrastructure has not been made to facilitate the uptake of stranded generation capacity. In its current state, the transmission network is capable of wheeling a maximum of between 4,600 – 5,500 MW of electricity. Thus, this policy directive by government has the potential for the privatisation or concessioning of the transmission network to qualified investors. There are also the lingering issues of cost–reflective tariffs and base-line network losses which I must say are difficult to resolve.

Gas-to-Power initiatives in Nigeria need increased attention and dedication to ensure adequate investment in gas infrastructure is in place to deliver gas to thermal power plants dotted around the country without which there can be no increase in the quantum of electricity to be supplied to eligible customers. In addition, the incessant cases of vandalization of gas pipelines for economic sabotage has to be addressed by going to the root of the matter, meeting the yearnings and aspirations of agitators and stakeholders, accelerating the passage of the bill to out-law gas flaring and consideration of other alternatives such as mini-LNG, LPG, CNG for gas-to-power schemes.

Eligible customers are located in widely separated geographical areas, and more importantly, at considerable distance from existing GenCos. Thus, except independent power plants are sited near aggregated clusters of consumers, the scheme will be difficult to implement. It must be emphasised heretofore that implementation will have to commence gradually and in clusters in various parts of the nation for the positive impact to be felt. This aligns with our earlier proposition that regional network development along with distributed generation schemes provide the fastest means of ensuring incremental, stable and uninterrupted power supply in Nigeria.

 

…to be continued

Idowu Oyebanjo MNSE CEng MIET

MORE DEATHS FROM ELECTROCUTION UNLESS

MORE DEATHS DUE TO ELECTROCUTION IN NIGERIA UNLESS…….

BY IDOWU OYEBANJO

Electrocution is basically death caused by an electric shock. While this is not a favoured topic, it is important to expose the facts about the Nigerian Power System and the high potential that it possesses to cause more deaths due to electrocution in the short to medium term if things are done improperly as they are now.

One of the anti-climax of not having stable electricity for over 50 years now in Nigeria is the fact that one did not hear so much of deaths due to electric shock from electrical appliances or devices. This is mainly because there was no “light”. With the recent increase in availability of gas to power stations, and the attendant availability of electricity supply, the weakness of the power system will come to the fore and more electrical safety accidents are bound to occur. Unfortunately, because electricity is a good servant but a bad master, the fatal results of not following electrical principles in the design, operation, maintenance and control of the power system is death by electrocution! In the last few weeks alone, we have had the death of a staff of one of the electricity companies while he was carrying out his day to day activities on a power line. But more recently, the case of Oluchi Anekwe, a 3rd year student at the University of Lagos has reinforced the calls by experts for a holistic review of the operation of the Nigerian Power System.

The minimum current a human can feel depends on the current type viz Alternating Current (AC) or Direct Current (DC) and the frequency for AC systems. If this current is high enough, it can cause tissue damage and ventricular fibrillation of the heart which leads to cardiac arrest. The potential seriousness of an electric shock depends on the path of the body the current passes. It is most dangerous if a path through the heart is established. Other possible consequences of electric shocks include but not limited to deep skin burns, nervous breakdown, micro and macroshocks to mention but a few.

The only way to reverse the current trend is to allow technically intensive review of the running of the Nigerian Power System. Specifications and policies guiding the operation, control, protection and maintenance of power system plants need to be developed for use in the Nigerian Electricity Supply Industry. These guidelines must be enforced in such a way that if any company is found in breach of it, the penalty or consequence must be very severe. There is therefore an urgent need for an Health & Safety Executive (HSE) body for the power system. The HSE must be very powerful with the powers to jail and fine erring individuals or companies found wanting.

To prevent deaths from electrocution, significant attention has to be placed on power system protection. From fuses to relays, adequate protection must be available for any power circuit or plant to minimise the risk of electric shock or death to personnel or individuals in the vicinity of or in close contact with power system plants. Protection settings have to be determined for the entire power network and the coordination of grading stages for all items on the network is a must.

RESTRUCTURE NERC NOW

RESTRUCTURE NERC NOW

SPEAKING FOR POWER SYSTEM ENGINEERS IN THE NIGERIAN POWER SECTOR

Power System Engineers have always maintained that the gains of the privatisation process cannot be felt except if conscious effort is made to involve qualified Power Systems experts to lead the course. The most recent addition to this urgent call or advise to a nation in darkness is the one from Engineer Otis Anyaeji, the current president and council chairman of the Nigerian Society of Engineers on why and how NERC should be restructured. Engineer Otis Anyaeji, in his interview with Tajudeen Suleiman in this month’s TELL Magazine on why and how the government should restructure NERC has this to say:

“They just have to appoint an Engineer as Chairman, an Engineer each to regulate generation, transmission, system operation, distribution and marketing. That is to say, five of the commissioners must be Engineers while the other two can come from support services” – I cannot express it better!

One should praise the courage and devotion towards the revamping of the electricity industry in Nigeria by Lawyers and Economists who tried their best in the last ten years as Commissioners of NERC. However, they should have known that Law is in no way relevant to the management of electricity business especially one that is in the kind of chaos the NESI is. Advanced economies whose models are copied hook, line and sinker, have had stable electricity for decades before toying with Lawyers and Economists to manage electricity business. When did we lose our collective senses? Only Power System Engineers who know their onions can save NESI, of course with a few lawyers and economists just for mere guidance. Power System is a unique field. The greatest damage done was to put Lawyers and Economists as Commissioners in numbers greater than Power Engineers, because, try as you may, you will move in circles. There will be no electricity. It is a career that some have spent their years to pursue, how easily can it then be replaced by those who pursued a different career running away from the almighty equations of physics and mathematics back in the days. I can say with full authority and confidence that “n” years down the line, this will be the path Nigeria will toll before electricity becomes available, and even at that, this will take many years – Transformers take time to manufacture, cables, overhead lines and switchgears take time to design, build, install etc. Most developed nations are now rebuilding their aged electrical networks and so manufacturers of electrical equipment needed by Nigeria have been oversubscribed with orders from China, UK, US, Canada etc. So who will manufacture for us let alone when the people in charge do not know what we need?

A Lawyer can ask what the manufacture of Transformer has to do with the regulation of the electricity business but a Power System Engineer will not especially when the regulatory asset base (RAB) is used in price regulation and determination of tariff increment.

I make bold to say that the industrialised economies themselves now regret the step they have taken in the power system field to allow Lawyers and Economists to take the lead in a field that is largely technical. As I have maintained over the last ten years, Nigeria cannot copy those who already have stable electricity systems in their approach towards privatisation (which is what was done, and I can understand why). Merit dictates that a square peg must not be put in a round hole. I agree that the problems in NESI are multi faceted and will therefore need a team from all the disciplines affected. What Power Systems Engineers insist on is that the team of “multi-disciplinary leadership” must be led by Power Systems Engineers if we must stop going round in circles. I am sure these Lawyers and Economists would have been in meetings and some of our technical terms or jargons are used and those in charge of setting policies and tariffs that will affect a whole nation will not have a clue. At best, they will accept whatever the fake consultants from anywhere tell them is right and thus put the nation at risk of confusion, policy somersaults, protests and annual deficit running into billions of Naira. For example, if anyone says they derived baseline technical, commercial and collection (aggregate system) losses without access to the network of transformers, cables, switchgears and associated data, a Power System Engineer will reject his submission because of knowledge. That way alone, NERC commissioners in the last ten years have set the “baseline” for inflicting eternal financial pain on poor Nigerians except something is done to make Power System Engineers to arrest the situation. Again, this is just as Power Engineers will not understand legal and financial issues as much as they would. When something is true, it remains truth regardless of sentiments. Power System is a unique field. To illustrate, if you want to invest in a Hospital project, you will need a “multi-disciplinary team” but you will always need to depend on medical experts to tell you what to buy and why.

I must be quick to say though that the regulation of electricity business is largely a difficult task even in developed economies. Yet, I feel a great sense of duty as a qualified Power Systems Engineer at that, to state categorically that the singular step of assigning non-Power System Engineers to lead the technically intensive Electricity Project is the Achilles Heel of the nascent privatisation and this is because of the position we are in the development of the power network, not because of the quality, and pedigree of Lawyers, Economists, Accountants and others whom Engineer Otis referred to as providers of support services.

Remember, it is quite difficult for Power System Engineers to watch a whole country remain in perpetual darkness and worse still, watch the country head in the wrong direction without at least stating the facts. I know Engineer Otis is my predecessor, but I am happy to put on records for posterity sake, that we actually advised the nation when it mattered the most!

NERC has to admit it created a wrong market. I wrote an article to explain why the market should not be established in February 2014. It does pain us when no one listens to technical and superior knowledge which is what matters in power systems. Please read the article and maybe NERC will find reasons to suspend that market now. It will continue to lead to recurrent shortfall like the 187 billion Naira inherited in 2015 alone!!!

 

AS NERC INTRODUCES NEW ELECTRICITY TARIFFS IN NIGERIA

By Idowu Oyebanjo

The much talked about increase in electricity tariffs became operational with effect from 1st of February 2016. As consumers brace up for the new tariff regime, there are issues worth noting which will determine the sustainability of the power reform process.

The main focus on the issue of cost reflectivity has been the Distribution Companies (Discos) because they act as the conduit pipe for the collection of monies to be shared by all the stakeholders involved in the provision of energy for the generation, transmission and distribution of electricity to consumers. In effect, they are the cash boxes of the entire electricity value chain. Although 25% of collected revenue is theirs to keep, 60% goes to the generating companies (Gencos), 11% to the Transmission Company of Nigeria (TCN), while the remaining 4% goes to other stakeholders like NERC, NBET etc.

One of the main issue is that the cost reflective tariff is hinged on a recent performance agreement reached between Discos and NERC. Given that the new Commissioners for NERC have not been appointed, albeit a care-taker committee of career officers have been running the show, it is clear that the enforcement of the service level agreements (SLAs) in the performance as agreed will lag behind. There should be a tracking of performance right from the word Go!

But the Discos cannot perform any miracles at all. The investment to be made is huge and will take many years before the overall impact can be felt. They cannot fix the technical losses in the wires and transformers from the monthly bills collected from unimpressed consumers who are likely to display a recalcitrant attitude towards the payment of their bills. At the moment, Discos have huge debts to finance as many of the technical partners have left for lack of liquidity in the sector even after two years. The current 187 billion naira deficit is a case in point. This deficit has the potential to be recurrent year after year if power system engineers are not allowed to lead the privatisation process. Economists and Lawyers will never have a clue. Technically speaking, the contract between a Disco with the federal government is no longer valid once the technical partner has abandoned the partnership. Don’t forget the sale of government’s asset was based, in part, on the technical capability of the so call “technical partner”. Nigeria needs to get it right this time having wasted so much resources on the power sector reform of which time is the most invaluable.

It must be stated that an earlier performance to invest in the network and reduce losses was made by these same companies with BPE at the time of privatisation in 2013. We were told back then that any core investor that fails to deliver the promised service level agreements would lose their investment and will only be paid one US dollar in return. The problem however is that there was no credible baseline loss data to determine the existing loss levels and their can’t be. Without credible baseline data, it is difficult to measure the performance of Discos. There is need to involve power system engineers who know their onions now. otherwise, the nation will grope in darkness for much longer.

Apart from this, the entire electricity chain faces daunting operational and financial challenges that the defunct NEPA and PHCN faced and so nothing new will happen except a different approach is deployed. Mind you, this will also take time. Some of these challenges include but not limited to insufficient supply of energy, poor network infrastructure, lack of maintenance, largely untrained man-power, poor customer data, external funding constraints arising from poor credit histories etc.

 

The current economic climate and the low morale in Nigerian Electricity Supply Industry (NESI) means consumers are reluctant to accept the increase in tariff. It is looking more likely as each day passes, that Banks will begin to lay off their staff in huge numbers following the implementation of different reforms in the Banking sector the rate of change of which we cannot keep pace with nowadays. Since the Discos could not assess external funding, Nigerian Banks have invested depositors funds in the sector without full understanding of the woes of the power sector -jumping the gun! Put succinctly, it is the same money of the poor consumers that have been invested in the collapsed power sector, and the same consumers are now required to fund the rebuilding of it. This is double jeopardy! Significant long term capital investment is required in the NESI now. Short-term borrowing will further exacerbate the financial and operational challenges noted earlier. In this regard, the stabilisation funds from CBN is apt. But without monitoring the judicious use of funds, this too will be considered an exercise in futility in the next few years.

Another issue is that majority of customers (up to 60%) have no meter. Even at that, metering alone does not solve the problems associated with collection losses. Discos will have to address electricity theft, revenue collection inefficiencies, lack of accurate customer database, cash theft by staff, and so on.

One of the most difficult conundrums for experts is the economic regulation of power systems in the face of technical challenges. Customers look at electricity tariffs from the eye of availability of supply and so it is difficult to accept any increase in tariffs without enjoying stable or even appreciable improvement in supply beforehand. Customers will show their grievances by means of protests and as lawmakers threaten a show down with NERC on this matter, your guess is as good as mine as to what will happen in the next few days.

It is my opinion that the privatisation of the NESI will be redefined in a unique way as the government may have to buy back the holdings under the operatorship of the same Discos! Revenue short falls will continue to increase in the short term and going blindly ahead with the implementation of an electricity market is foolish. This is good news as NBET can be scrapped meanwhile especially now that there is a downturn in the price of oil – Funny times ahead.

 

Idowu Oyebanjo is a power system engineer from the UK

A SWOT ANALYSIS OF THE NEW ELECTRICITY TARIFF IN NIGERIA (Part 2)

By Idowu Oyebanjo

The Opportunities

Localisation of services

In the last few years, there has been increased agitation for localisation of services in the power sector especially in the local manufacture of smart meters. Local manufacturers of meters now have an opportunity to showcase their capability under the local content initiative. This will lead to the creation of jobs and business opportunities as marketers of electricity recharge cards or vouchers just as experienced in the Telecommunication sector will spring up along with companies involved in metering and customer billing systems. A critical element that will hold NESI in good steer is the need for a global procurement strategy or culture where stakeholders leverage on the volume of purchase to reduce cost. In the atmosphere of cuts, this will serve the industry well. This can start now. As Discos seek to purchase meters in bulk, they should negotiate a fair deal in view of the number of meters they will have to purchase. Consultants and service providers will not be left out as installation, operation, and required maintenance services for meters procured will be sourced. Generally speaking, there is need to establish the Joint Qualification System (JQS) and register of suitably pre-qualified practitioners to provide these services by the Nigerian Content Joint Consultative forum.

Other potential opportunities include but not limited to the provision of Demand Side Response and Distributed Energy Resources (DERs), pursuit of revenue protection initiatives by Discos, energy efficiency and energy conservation (as those who waste electricity will now conserve it and therefore contribute to increased availability of power elsewhere on the network), increased network operational efficiency, phased introduction of feed-in-tariffs (as consumers deploy renewable generation on their roofs), increased penetration of embedded generation with the attendant reduction in network losses and accelerated increase in availability of electricity supply.

The Threats

Reconstitution of NERC

The act which established NERC does not provide for the absence of a regulator and even though this has been violated in the past, it is important to urgently appoint new NERC commissioners to oversee the affairs of NESI. As can be seen from the foregoing, there is an urgent need to reconstitute the regulator to have more technocrats than lawyers, economists and Accountants who are, by the way, also required. Role specific training needs to be provided as necessary. The regulator has to be able to bark and bite!!!

Holding Discos Accountable

In allowing Discos to pass their costs to consumers, the government through NERC has asked for certain service level agreements (SLAs) from the Discos. It is very important that the regulator is able to demand accountability from them going forward. NERC needs to set KPIs to be monitored and enforced. This, in the very least will include the distribution code which they have signed to as part of their licence conditions. NERC can use incentives and penalties to drive the development of NESI and make the privatisation process a success providing the desired model for other soon to be privatised public utilities, as well as the rest of Africa – An Opportunity for Nigeria to show leadership!

Absence of a customer-friendly regulatory regime

The whole purpose of an electric power system is to provide electricity to consumers. A power system is only effective if the consumers are happy and satisfied with the level of service received. Hence, a key measure of success of the privatisation process is the level of customer satisfaction over time. NERC should develop an interim and long term customer engagement and charging mechanisms such as the long run incremental cost model accounting for network utilisation factors, contingency analysis, peak demand and so on. NERC to further monitor investment in loss reduction strategies to ensure consumers are not short-changed for longer than necessary.

Absence of an Ombudsman for the Power Sector

An Ombudsman for the power sector is urgently required to accelerate judicial activities related to activities such as electricity theft and electrocution due to safety and regulatory breaches within NESI so as to bring to book any key stakeholder found wanting or culpable of actions that have the potential to disrupt the nascent privatisation of the NESI.

Government’s Body Language

In the recent past, Nigeria already built up a negative history of one government reversing sales of assets and public utilities sold to private investors by their predecessor. Hence, investors are generally jittery about putting their monies in Nigeria. This negative image can be gradually repaired by the government’s body language and actions. In this regard, government needs to provide unfettered assurance and guarantee that it has no intention to truncate the privatisation process so that Discos can begin to invest in customer metering and the much needed network reinforcement that will yield increased availability of stable electricity supply.

Diversified Energy portfolio

The world is a global village and with key players in the energy sector looking for alternative forms of energy, the reform process will suffer major setbacks without the diversification of the portfolio of energy sources for power generation. There is much to be gained from the international community by way of finance and foreign direct investment if the government increases the portfolio of energy sources to be tapped for electricity generation. For example, government could include, as part of the voluntary emissions reduction targets to address “climate change”, the reduction from the losses within the Nigerian power and gas network. Using the baseline values recorded in NESI, it is easy to attract funding from promises made by developed economies to assist developing nations to adapt to the effect of the so called climate change. Government can do more in the home front to encourage the increased deployment of diverse energy resources for generation of electricity especially for micro grid applications – off grid solar, hydro, coal etc. 55% of Nigerians who are yet to be connected to the grid can therefore have it without recourse to the national grid. A quick win!!!

Transmission Network

As generation increases, the weakness of the Nigerian power transmission network will be revealed. Hence, it is better to accelerate the revamping of the ailing transmission and distribution networks at a rate that is commensurate with the growth in aggregate installed generation capacity. This means there is need to conclude the identified transmission projects that will ensure that the country’s transmission capacity is at all times greater than the aggregate connected generation capacity. Project management must be deployed. Network re-configuration as a full-mesh with significant levels of automation will help.

Security of Lives and Infrastructure

There is no gain saying that there can be no significant development of NESI if attention is not giving to security of lives, power equipment, gas pipelines and power network infrastructure.

This article conccludes.

Idowu Oyebanjo CEng MNSE MIET

 

A SWOT ANALYSIS OF THE NEW ELECTRICITY TARIFF IN NIGERIA (Part 1)

By Idowu Oyebanjo

The Nigerian Electricity Regulatory Commission (NERC) has finally succumbed to pressure from investors in the Nigerian Electricity Supply Industry (NESI) to increase the tariff regime in the absence of steady power supply and at a time of economic downturn. Consumers, organised labour and affected stakeholders have expressed dissatisfaction. As painful as this may appear, it is suffice to examine the Strengths, Weaknesses, Opportunities and Threats inherent in the increased tariff structure planned for the 1st of February 2016.

The Strengths

Government’s Responsiveness and Support

In every regulated electricity business, the price of electricity as a commodity needs to be cost-reflective. This among other requirements means that price must cover the cost of efficient delivery of electricity through the value chain. Before now, the price or electricity tariff in Nigeria is one of the lowest in the world and one of the lowest in West Africa. Electricity as a commodity is produced worldwide following roughly the same process so cost should within reasonable limits be reflective and comparable. The usual dilemma in a regulated business is the requirement for government, by means of the regulator, to seek to be fair to all stakeholders especially consumers, while maintaining a fair profit margin for investors. This is generally a conflicting role. However, the government showed leadership in trying to accede to the plight of the investors by setting new guidelines that will enable increased availability of supply albeit with increase in tariffs to large consumers.

Most Nigerians are exempted from the increased tariffs

The increased tariff regime exempts consumers in the R1 and R2 categories who make up the largest number of residential consumers (albeit for six months only) whose consumption of electricity is strictly for non-commercial, but regular day-to-day home use. Most homes, and therefore the bulk of workers and citizens, are therefore unaffected for now. However, it must be stated that consumers who engage in commercial activities either in their residence or in a separate facility along with industrial consumers who consume a significant amount of electricity (high end users) have been directly targeted by the increased tariffs.

Estimated bill & Fixed charges to be history

Abolition of fixed rate that is charged consumers whether electricity is consumed or not is a welcomed development. This of course varies from place-to-place but it is about 750 Naira on the average. Also, Discos have been mandated to meter all customers so that consumers will only pay for electricity they have used. Consumers can technically insist on settling payments only if they have meters. Estimated billing should become history!!!

This of course will force all distributors to aggressively pursue the metering issue (if NERC performs its duty). It is a blessing in disguise as estimated bills through the hitherto dubious estimate regime forced most consumers into the illegal theft of electricity in conveyance. This has fostered large scale corruption in the power sector from consumers to staff of electricity companies who collude to short change their employers. This move is expected to block the massive leakage in electricity described as commercial and collection losses.

 

A more customer-friendly dispute resolution strategy.

In the meanwhile, there will continue to be disputes over electricity bills. The good news is that the dispute resolution process has been revised to be more customer-friendly and consumers need to be aware of this. Unlike before where the consumer is expected to continue to pay both disputed and future bills whilst the dispute resolution process is on-going, the new dispute resolution mechanism allows the consumer to continue to use electricity until the resolution of contested electricity bill. So they cannot be disconnected unfairly. This will force the distributors to improve in their customer engagement obligations. Customer-friendly initiatives like this will make consumers experience better customer service.

The Weaknesses

NERC misled and disgraced the nation

A significant portion for the charges paid by consumers is the cost for losses. Therefore one expects that the baseline values to be used would be determined as accurately as possible. However, in arriving at the charging methodology used for the Multi-Year Tariff Order (MYTO), NERC got it all wrong. Baseline levels of losses were wrongly determined leading to over/under estimation of charges to consumers. This is what happens when you put square pegs in round holes – Try hard as you may, it won’t fit. How long do we want to experience policy somersaults before we hear the cry of power system engineers that electricity is not a commodity like in economics? Someone who lacks understanding of power systems was responsible and accepted on behalf of the nation the baseline levels, ruined the image of the nation, and extorted consumers for many years. NERC is culpable in this national embarrassment as Lawyers and economists will never be in position to regulate electricity business. They do not understand power systems (and rightly so), and do not understand the reports provided by consultants who carry out studies for them anyway – Can we say again that to realise appreciable development in NESI today, there is an urgent need to put technocrats in charge of regulation. Copying industrialised economies in their models of power system regulation is not bad in itself, but doing so without knowing why they do things is foolhardy! They already have stable electricity for decades so they can afford Lawyers and Economists to toy with their power industry plus they have consultants who were formerly technocrats in the industry in the many decades leading up to the privatisation of the electricity supply industry. Their situation is different from Nigeria that i believe is going to witness the rebuilding of her network. Apart from this, there are thousands of experienced practitioners in their power industry who work with the distribution and transmission network operators who will challenge and contribute to the regulatory objectives set by the economic regulators in these countries. Again, there is a shortage of relevant skills in NESI to provide this check and balance.

NERC & Policy Somersaults

NERC realised too little too late. After waking up from its slumber, NERC suddenly realised consumers have been milked dry for over 5 years, removed this element of the tariff (losses) and that disrupted the serenity of the system which made Discos to declare a force majeure with the potential to truncate the privatisation process. This kind of policy somersault send wrong signals and drive away investors. NERC & the government need to provide a clear message of assurance to Discos that there is no plan to truncate the on-going power sector reform. This must be supported by a form of guarantee that will be enough to make Discos to begin investing in the network. At the minute, they are not!

Distribution Companies (Discos) presented fresh baseline values for losses

The new administration took immediate action to set matters right by asking the Discos to submit their own fresh calculations of baseline loss levels and power flow studies were carried out. The pertinent questions are: Who validates the accuracy? Same regulator? Same consultants? There is an urgent need to make available the methodology used by the Discos in arriving at their values and their cost profiles. Also, NERC needs to request each Disco to publish its strategy for loss reduction while it continues to monitor (year-on-year) actual reduction in estimated losses. It is highly likely that if the fresh baseline values have been wrongly determined, then we will keep going round in circles and there is a potential for under/over estimation of charges to consumers forcing a return to status quo ante. This has to be avoided. The likelihood is high because to determine losses, each distributor would have to have accurate data about consumers and their metered consumption, transformers, lines, cables, substations, network demand, network imbalance (NPS causes network losses), power factor, system operation and control. The subject is fairly complex, and certainly beyond the understanding of the general engineer apart from Power System Engineers who know their onions.

There is an urgent need to establish the basis for assumptions on electricity costs that is consistent with the overall power sector reform road map by ensuring that Discos develop a robust and accurate means of measuring and reporting distribution network losses. Also, discrepancies in reported losses by Discos will cause a distorted view of the power sector reform in Nigeria in the wider electricity supply industry. This has potential impact on the government- nationally and internationally.

NERC – Better late than never

NERC whose primary function is the protection of the consumers has left the matter till the end of its statutory 5-year tenure in office. This looks as if intentionally calculated to cause chaos in the system and therefore perpetuate the elongation of their term or services. Only time will tell! More than that, the increased tariffs came at a time when the regulator has been involved in the scandal of over bloated and outlandish severance payments to its commissioners which is currently under investigation by the National Assembly. With most consumers having no meters to ensure that they pay for what they have used, the possibility of a looming sack of workers in the Banking sector, and the fact that the benefits of privatisation since November 2013 is yet to be felt in terms of availability of supply, this increase in tariff came, saw, and conquered Nigerians!

To be continued………

 

Idowu Oyebanjo is a Power System Professional from the UK

 

ON THE JUST CONCLUDED WEST AFRICAN POWER INDUSTRY CONVENTION 2015

MATTERS ARISING (PART 2)  – IDOWU OYEBANJO

The event was a sure delight and the organizers, SPintelligent, did a good job but the most regrettable part was the conspicuous absence of representatives of NERC, the industry regulator, and members of the newly formed Nigerian Electricity Consumers’ forum. To say the least, this was disappointing as most of the discussions centred-on and around matters relating to these two entities. However, it was nice to have other key stakeholders like NBET, CBN, local Banks, the Ministry of Power and representatives from network operators. A major drawback of the privatisation process according to fresh claims by the  investors is the fact that they were unable to have access to the asset before taking ownership. This simply means they were unprepared for the job. No one will invest huge amount of money in a business of this scale (going by the amount of money they had to pay) and not insist on carrying out due diligence. This is why the process is facing many challenges from network delivery point of view. Discos especially have claimed that the network asset are largely dilapidated than they ever imagined and the inherited staff lack requisite skills and attitude to turn the situation around. Enough of rhetorics! we must say. Government no-doubt will have to provide intervention as recommended in part 1 of these series. A key highlight was the acceptance by the network operators of responsibility of failing to meter customers who have paid for such under the CAPMI scheme. It is important for all customers to be metered in line with earlier suggestions. The networks need rejigging to be able to consolidate the gains of the reform process. As we speak, even if we have increased generation, the transmission network is unable to carry the electricity produced successfully. Technically speaking, this leaves no room for discussions around cost reflective tariff (CRT). Representatives of TCN lamented the spate of bureaucracy and cutting of “transmission” budget by the National Assembly as the root cause of the problem. In general, inefficiency, corruption and lack of skilled manpower have made it practically impossible to improve the net transmission capacity of TCN network in the last 2 decades. In this regard, Dr Reuben Okeke, DG NAPTIN, reiterated that the structured training program within the former PHCN was stopped 22 years ago until government revamped the department in 2009 by establishing NAPTIN, the national power training institution. However, some of the trained personnel from NAPTIN are yet to be given employment by network operators. Speaking on what the DISCOs in particular can do before asking for increases in tariffs, Engr Okeke opined that much more needs to be done in the way of addressing technical losses. Discos need to replace feeder pillars which currently dissipate significant amount of losses , embark on significant investment in technical loss reduction and general network reconductoring. Speaking at the technical workshop entitled “localisation and capacity building of the power sector workforce”, he praised the achievement of NAPTIN but expressed concern that the Nigerian 20GW project requires at least 6,550 engineers and over 12,000 artisans to be trained. Government, he noted, has provided support by means of the sure-p programme but a lot more still needs to be done by all stakeholders including individuals who benefit from training, companies looking for skilled staff, network operators, and other training organizations, especially with regards to payment of tuition for trainees.

A key discussion at the event was the issue of cost reflective tariff (CRT) and this was brilliantly anchored by Dolapo Kukoyi, a leading commercial solicitor with significant experience in the legal aspects of the developments within the Nigerian power sector reform. She agreed that the issue is no doubt contentious as key stakeholders disagree on what a cost reflective tariff for electricity should be. Power experts reiterated the need for transparency and accountability in the process for determining CRT. What are the basic elements considered in arriving at the cost?, What is the actual cost or price of gas?, What is government’s policy on coal and energy mix for power and how can this affect the interpretation of a CRT?, What impact does operations and maintenance costs, age and depreciation of assets have on CRT? There are lots of questions to be answered. In general, conference delegates agreed that the subject of tariff needs to be well understood by all stakeholders. I will be providing insight on this in separate articles. It was found that the discussions around CRT held with investors by BPE was hazy and at best inconclusive as the country hurried into the privatisation of the sector. This is a lesson for other developing nations to avoid this kind of hullabaloo. For example, consideration was given to an aggregate technical, collection and commercial (ATC&C) losses of 30% in the reform process whereas investors now claim on receipt of assets that losses could be well above 50%. The question is how have they arrived at this value and how are we to be convinced that this is not an attempt to ask for an increase in tariff willy-nilly? A more worrisome question is when will they ask for another increase in tariff or another “cost reflective tariff” if this subject is not robustly tackled?

The initial optimism shared by network operators in the power sector relating to CRT with the revision of the Multi-Year Tariff Order (MYTO) – 2 was doused by the reversal of decision by NERC early March 2015. This left network operators with great uneasiness as customers who have been at the receiving end of increased costs for no electricity consumed since and before privatisation remained in confusion. Banks and lenders on the other hand are not comfortable with such trends and will as a minimum like to know how costs are determined. They will want to have a cost regime that reflects flexibility and simplicity, that can be modelled financially with the ability to respond favourably to micro and macroeconomic shocks in the larger financial market. Also, they will like to see major reviews provided for every 5 years with bi-annual reviews of tariff regime. The inconsistency on the part of the regulator with regards to  5 or 10 or 15-year tariff path is causing a crisis of confidence in investors who may be left with no option soon than declaring a force majeure. Already, the liquidity problem in NESI will mean the electricity market will remain grounded. The disbursement of the Nigerian electricity facility stabilisation fund of 213 Billion naira commenced but now stopped by CBN was to address this shortfall but it was only in part able to alleviate cost of legacy gas debts owed to Gas providers, and monies owed Discos by government ministries, departments and agencies (MDAs). The general consensus was that MDAs in particular need to change from the culture of not paying for electricity consumed if the power reform process will make any sense. The position of network operators is that they are running out of cash flow and the business is clearly not profitable in the short term. While one feel great pity for their situation, it confirms however that these guys are not investors but opportunists as proper investors look at profit over the long term. The lacuna already created by the incompetent and shoddy manner of privatisation of the electricity network of the largest economy in Africa will be with us for a long time to come.

As a summary, it is believed that Discos can do more with the current tariff if they meter all customers, collect payments of outstanding debts from MDAs, operate more efficiently, reduce staff and overhead costs and proof their credibility to investors.

Sincere gratitude to the organisers and sponsors of WAPIC 2015 as we look forward to an equally rewarding experience at the 13th edition in the future.

Idowu Oyebanjo MNSE CEng MIET