It is difficult to justify the notion that there is inadequacy of generation capacity in Nigeria when the installed capacity of generators amount to 13GW (1GW=1000MW) because the wheeling capacity of the transmission and distribution networks according to the integrated system studies carried out by Siemens as part of the Nigerian Electrification Roadmap (NER) Project hovers around 7GW and 5.2GW respectively. Arguably, it makes no sense to ramp up generation when the value chain is “value restricted”.
Yet, in any business and investment planning, return on investment, return on capital, payback period etc are some of the chief drivers of final investment decisions (FID) and growth. As far as the Nigerian Electricity Supply Industry (NESI) is concerned, there is a dire need to carry out a review of what the actual cost of a unit of electricity is. (A unit of electricity =1kWhr).
This brings to the fore, the need to review the concept of cost reflective tariffs (CRT) in the NESI. Some believe that electricity supply business has to be treated, not as a dividend of democracy such as free health, free education, social wefarism and so on, but as a business with profit-making in view through cost reflective tariffs before we can see appreciable improvements in power supply.
I can tell you for free that no amount of cost reflective tariffs will make power available to Nigerians with the level of aggregate technical, commercial and collection (ATC&C) losses on the power network today.
To support the argument for a CRT, some may point to the premium service agreement made by residents of Magodo, Ikeja GRA and other estates with Ikeja Electricity Distribution Company (IKEDC) in Lagos as a proof that if the pricing is right, say 52 Naira per kWhr, investors will carry out needed investment in the electricity networks and improve the quality and quantity of electricity supply to consumers.
The premium power supply is a preferential service made possible because the defenseless masses of poor customers are being denied power supply. You rob Peter to pay Paul in such scenarios. It is not sustainable.
The main reason a power system exists is customer satisfaction. Whatever makes customers cry in one part while a few benefit, defeats the purpose of a power system.
What will happen if more and more estates and customers demand for premium power? Will the DisCos be able to meet these demand? Surely not. Distribution capacity is not increased. Load is only being shifted while increasing the number of hours of darkness of other customers – the poor!!!
The fallacy in the cost reflectivity of tariff is that none of the proponents can determine what it is. You can’t determine a cost reflective tariff with the level of ATC&C losses we have in the NESI.
In simple terms, a CRT in the manner being touted today is a means to swindle Nigerians the more. The current operators lack technical and financial capacity to turn things around. How much will you give someone who cannot meter his customers for 5 years and invested almost nothing in the same period in the network to revamp it? Let us get other entities that know the subject to handle things.
Once the current owners bought the assets without even seeing them (no thanks to union issues), I knew we entered “one chance”. You don’t even buy a tokunbo car without seeing it. You purchase power assets without knowing the health statuses of the assets to properly ascertain the worth, you lack common business ethics and can never run a power business. It’s as simple as that.
The question then is: what do you prioritise, cost reflective tariffs or improvements in power supply and attendant customer services without damaging the market?
This is a chicken and egg situation and it is a difficult call to make by the Nigerian Electricity Regulatory Commission (NERC) as it is for any power market regulator.
Truth be told, the right pricing is important but what is more important is for the Distribution Companies (DisCos) to provide meters to all consumers so that the actual energy consumed is what is paid for. The way and manner estimated billing is done in the NESI has to be outlawed. Even though there are some consumers who would rather not be metered but tip corrupt electricity workers and or representatives from the billing teams, quite a many want to have their meters so as to pay for the actual electricity they have consumed. “Estimated darkness” (phrase, mine) is by far the greatest fraud of the century and as well a cool business strategy to dehumanize fellow humans.
To change the narrative of the power sector in Nigeria, we need completely new sets of people from outside Nigeria who have worked in the power industry for years to be at the helm of affairs in the generation, transmission and distribution companies.
That is what the Siemens deal as well as FG’s review should aim to achieve. To do so properly, the mistakes made pre-privatization should be avoided. We need to rely more on the inputs from technocrats, especially those who are seasoned power engineers of Nigerian origin, that have physically worked in electricity systems of developed nations. Such individuals will work with their colleagues and other technocrats within the power system in Nigeria to lead us out of troubled waters. This I have termed the Nigerian Power System Architect in one of my previous articles on this blog. As I recommended in November 2013 immediately the assets were sold, a special arrangement of negotiation will have to be made with the current owners using a combination of methods including the output measure technique alongside close monitoring of performance via incentives, rewards and penalties. This is about the only way out for the NESI if the Siemens deal is well implemented.
Also, the federal government (FG), on behalf of the general public, states and local governments, should provide a soft loan to meter all consumers in the NESI from a dedicated financial intervention mechanism to be made by the Central Bank of Nigeria (CBN) or make it part of its financial obligation in lieu of 40% stakeholdership in the DisCos.
Sadly, no problem in Nigerian history will better illustrate the warped logic of celebrating mediocrity over merit and the quota system misnomer than the outcome we have of the NESI.
Engineer Idowu Oyebanjo is a UK trained Power System Engineer.
