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Bounties Of Hope In The NESI

No other idiomatic expression comes to mind to describe the euphoria about to be experienced in the Nigerian Electricity Supply Industry than “after a storm, comes a calm”. The NESI has gone through a difficult, chaotic, and stressful time from the “good old days” of the National Electric Power Authority” to the introduction of the concept of privatization in the 1990s, culminating in the eventual privatization of the moribund vertically integrated power company in November 2013. One of the deficiencies of the Nigerian power privatization exercise which was at the time the most ambitious power sector reform ever pursued on earth was the fact that lawyers, economists and accountants, people who have little or no knowledge of the subject matter, were made to be in charge of a process that is clearly beyond their wits and intellectual capacities. This has led to several u-turns in policies and concepts, which sadly, as unique to a highly inertia industry like the power sector, have long term impacts. The main problem with the Nigerian Power Sector Reform is that appropriate credence was not giving to technical considerations. The financial, and more importantly for a power sector, the technical credibilities of investors were not fully taken into account. Thus, once the list of new owners were published in 2013, and I saw the calibre of companies that won the bids, I predicted that a future arrangement where the Federal Government (FG) goes into a strategic partnership with the major operators – Distribution Companies (DisCos), Generation Companies (GenCos) and Transmission Company of Nigeria (TCN) will take place for us to make aany meaningful progress. In such a partnership, I maintained, industry giants, widely experienced in the business of power generation, transmission and distribution of electricity will have to rebuild the Nigerian power system. How fulfilled I am to witness the Siemens’ deal soldier on seven years after. One of the best things to have happened to the NESI is the arrangement to have Siemens assist in the rebuilding of the power system. What would have been better is to have a competitive approach so that the likes of ABB, GE, Tata, Mitsubishi, Iberdola, Eon, Edf etc, companies who have demonstrable experience of running power utilities, are all involved. We can still do that. To be clear, the arrangement with a foreign technical expertise to build the Nigerian power system should be sustained for upwards of two decades if we do not want to return to “UP NEPA”. This requires that the idea must not be thwarted by a change in administration or government. True to my prediction, a special purpose vehicle (SPV) is about being created by the FG to ensure that even if this administration leaves office in 2023, the successes to be experienced can hopefully be sustained.

This week, the FG has been on salvo declaring an end to estimated billing via a radical mass customer metering campaign, removing the 35% import duty on meters, and introducing service based tariffs (SBT) as a precursor to cost reflective tariffs (CRT) in the NESI. In addition, to ensure the transparency of financial activities, the FG, through the Central Bank of Nigeria (CBN), fired the shot on Deposit Money Banks (DMBs) who are the guarantors of the DisCos, to effectively warehouse the payments for electricity services in the industry in a manner that opacity and accountability can be achieved to reduce the impact of illiquidity on the power sector reform.

Matters Arising

Addressing the problem of illiquidity in the Power Sector.

A major clog in the wheel of foreign direct investment into the Nigerian Power Sector is the lack of a guarantee of return on investment because financial flows do not follow the same line of sight as power flows. Hence, the collection of payments for electricity hitherto handled by the DisCos in a less transparent manner, has to be made open. Also, customers have to be metered. All relevant parties must have visibility of both financial and power flows for a power system to exist.

To tackle the problem, CBN asked Deposit Money Banks to take over the collection of electricity bills from the DisCos just as the FG declared a waiver on the 35% import duty on meters to accelerate customer metering in the NESI. As a matter of fact, the electricity sector should enjoy a waiver on import duty for renewable and non-renewable energy sectors for as long as we don’t have uninterrupted power supply.

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DMBs should be interested in the transparency of collections because they are also affected by illiquidity in the NESI. They should provide the public with the designated account for energy and non-energy related transactions. A deliberate focus on consumer education is required.

DMBs who have guaranteed DisCos will therefore be inextricably linked with the activities of the commercial departments of the DisCos they guarantee going forward.

For The Presidential directive on Mass Metering to work, the Nigerian Electricity Regulatory Commission (NERC) has to develop and enforce a “universal standard” or specification for meter design, construction, configuration, and installation that will be unique to the NESI. It has to find a way to conduct an independent enumeration, using appointed monitors who work independently or in collaboration with the DisCos to gather essential Data of customers in the NESI. The database of customers should never be withheld from Meter Asset Providers (MAPs). The only way MAP can work is to separate its function from DisCos. MAP must be totally independent of the DisCos for the process to succeed. I have recommended, via my articles on this blog, the separation of the distribution (wire) business from the energy services business in the NESI. This will happen eventually. Once the DisCos see that things are tight financially now, they will abandon the licenses or seek for a separation of the wire business from the energy services business. FG must therefore never be afraid to take back any company that wishes to surrender its licence. Poor privatization leads to things like these and we have ticked all the boxes of a failed privatization in the experience of the power industry worldwide. It needn’t have been so. All parties broke the rules, without apportioning blames. When we hit rock bottom, we will have a restart by allowing merit over mediocrity. When you are down, the only way is up. We are probably there!

NEMSA should be a department in NERC or both agencies should find a way to work in harmony.

Introduction of Service Based Tariffs (SBT) in the NESI

As one of the first to advocate and support SBT, it is imperative to emphasise that there will be teething issues and problems which need to be addressed. Different methodologies have to be put in place to ensure the intention is ultimately realized. I think we have to appreciate that power systems engineers are the ones in charge of NERC now and this has to continue for at least fifty years before any tinkering with the leadership structure that brings lawyers, economists and accountants back in affairs. I do not recommend such a backward “return to mediocrity”. Apart from initiating the franchising concept in electricity distribution networks, NERC proposed the SBT innovation as service reflective Tariffs will commence from 1st September, 2020. SBT will only affect customers that live in the areas where their DisCos promise to provide electricity for at least 12 hours per day. Thus, there is need to obtain from the DisCos a list of substations, feeders, distribution transformers (DTs) and customers classified or designated in this category. NERC will need to have remote access to the instantaneous outputs from the DTs, substations and feeders. This way, it is possible to ensure that the DisCos continue to provide electricity supply to other consumers who do not fall in this category.

There has to be a methodology to obtain independent information from consumers from the SBT defined areas regarding power supply status in real time so as to compare this with the inputs from remote monitoring schemes. Creating a benchmark of performance levels as well as having adequate monitoring of progress are mandatory.

For the consumers paying SBT, it is important to determine ab-initio, a mechanism to compensate them for failure of the DisCos to meet the Service Levels Agreements (SLAs) using an incentive/reward/penalty scheme. It has to be made clear to consumers in this category how they will get that compensation. It has to be automated.

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Under this regime, customers that receive power for 12 to 24 hours per day will pay the highest tariff. Therefore, it becomes expedient to obtain the list of those who are metered and unmetered in the category, establish benchmarks and monitor progress towards metering. Thankfully, the plan is that unmetered customers will not pay higher than any metered consumer on the same DT. For customers that receive power for less than 12 hours per day, they will continue to pay their existing tariff. That is, there is no change in tarrifs for this class of consumers on 1st September, 2020. The question then is how do we ensure that they don’t get forgotten and remain in this category “forever”?

Some have argued that the Government is insensitive to the plight of the poor in proposing a discriminatory tariff in the power system. Effectively, this aims to make it possible for the rich in the society to pay more for electricity consumed, relatively speaking. NERC posited that only the wealthy people in the areas enjoying upwards of 12 hours of power supply per day will pay increased tariffs. The relevant questions in my mind include: What about a “poor” person living in the same area? How do you classify “poor” or “wealthy”?

Clearly, SBT will reduce the amount used for endless bailouts and subsidy in the NESI. This savings in subsidy should be added to the consumers assistance fund and used appropriately. As a palliative to those customers who are not in this category by choice, capping on estimated billing must be enforced and just like I recommended in the MAP case, the platform for managing complaints that will arise forthwith should be independent of any operator. This includes the platform for monitoring the payments made by a metered consumer on the same DT, feeder or substation as an unmetered consumer in the same category.

Regardless of the benefits of the SBT, there is the risk of consumers paying for the same number of hours of supply already enjoyed now even after increased tariffs are introduced on 1st of September, 2020. Thus, historical supply pattern should be the benchmark. With service bands already defined, the methodologies I described earlier should be used to determine inter-band movements (positive migration only). DisCos should not move a consumer category from a higher to a lower band at any point in time. A penalty clause may be required to state that the consumers shall pay the tariff for the lower band so moved for the particular month or for so long. Even though the idea is for consumers to ultimately pay for service commensurate to the number of hours of supply they receive, if there is the risk that they have been moved to the band but the DisCos do not meet up the SLA for that band, the penalty clause discussed earlier should be applied.

On a more general note, protection coordination and interface issues have to be resolved for this to be a success. As a minimum, protection settings information on all incoming and outgoing feeders at TCN and Injection Substations are needed to validate claims of maloperations, buck-passing, blame game etc that characterised the past. A fully independent System Operator is required. We also need a task force which will review the success factors of the years from 1960 to 1990 (NEPA in “the good old days”) and the experiences of those who managed the transition to privatization in 2013 so as to be able to get a new roadmap for the power system envisioned by Britain and others who built the Nigerian Power System.

Contributor:

Engr. Idowu Oyebanjo, MD/CEO, Idfon Power Engineering Consultants (iPEC) Limited

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