Hon. Minister of Power, Works & Housing, Mr Babatunde Fashola, SAN delivering a lecture on the topic, “Power Sector Reforms – Challenges and the Way Forward,” at the Department of Economics 2017 Distinguished Public Lecture Series held at the J.F Ade Ajayi Auditorium (Former Main Auditorium), University of Lagos, on Thursday 13th July 2017.

But while the transmission is being upgraded the last mile of the value chain, which is the distribution end, must be ready to accept and distribute the power.

For the record, there are 11 Distribution Companies namely:
a. – Kaduna Distribution Company
b. – Kano Distribution Company
c. – Yola Distribution Company
d. – Jos Distribution Company
e. – Abuja Distribution Company
f. – Ibadan Distribution Company
g. – Ikeja Distribution Company
h. – Eko Distribution Company
i. – Benin Distribution Company
j. – Port Harcourt Distribution Company
k. – Enugu Distribution Company

Many of them inherited old distribution assets like feeders, Transformers, Ring main units and conductors (the lines) to mention a few.

If you are observant you will see falling, bending, misaligned poles and wires in your streets and neighbourhoods.

They don’t look as organised as those you see abroad.

These are the old assets sold to theDisCos which must be upgraded, repaired and replaced over time in order to be able to effectively distribute power (received from the Transmission Company) to your offices, schools, shops and homes.

Therefore, the Transmission Company is a service provider to theDisCo, who is the customer just as theDisCo is the service provider to you and I who are customers.

Therefore, if any one of them is inefficient, you and I don’t get power or it is unreliable.

You will have heard of load rejection and be wondering why what is not enough is being rejected.

Each DisCohas a fixed % of the total amount allocated to it and theDisCothen nominates the area within their business area where they want TCN (the transmission) to send power.

Disco % of total allocated in MYTO2
Abuja 11.5%
Benin 9%
Enugu 9%
Eko 11%
Ibadan 13%
Ikeja 15%
Jos 5.5%
Kaduna 8%
Kano 8%
Port Harcourt 6.5%
Yola 3.5%

Normally as a business they will nominate supply to places where customers are paying and where their equipment is working.

In places where collection is difficult or equipment is not functioning, they will refuse to energise their power intake or are unableto do so. This is what is called load rejection.

What then happens is that the Control Centre tells the GenCosto reduce their power production because if it is not taken, it results in high frequency which can damage the generating unit, create loss of power, and sometimes result in Gridcollapse depending on how severe the outage is.

The problems came on the Horizon as Gas is improving and Rains arearriving to increase power production on Thermal and Hydro plants.

Eligible Customer

This is why I have exercised the power conferred on me by the Act to declare what is called “Eligible Customer”.

What this simply means is that certain classes of consumers that consume a lot of energy like factories, hotels, state governments or local government secretariats, whose DisCos have poor distribution equipment, can apply to NERC for eligibility tobuildthe distribution facility that the DisCo cannot or refuses to build, and then take their power direct from the GenCo.

Clearly the purpose is to increase serviceand accessto power and we have already received a number of requests; however the power is not cheap.

The cost of building the distribution asset means that it comes at a premium, but offers access to more realistic power, which is cheaper than self-generation and diesel, which is between N60-N70 per kw/h.

The success of this initiative offers many prospects for success:

a. Competition by small GenCos
b. Response by DisCos to upgrade their equipment
c. Disaggregated tariff paid by eligible customers who are high end consumers without materially adversely affecting regular domestic consumers, (whose tariff can only be changed by a major tariff review which I will explain) and creating an opportunity for cross-subsidization. (Rich and heavy consumers bear some of the cost of the poor and small consumers.)

Tariff

This is as best as I can attempt to summarize the value chainand what we are doing. There are of course more technical issues that time and the forum do not permit or compel. However, we must all recognize and accept that tariff is a cost that we must all pay to keep the value chain viable as a business.

It is measured by meters (which I will come to) but every consumer must pay. It is a criminal offence in Nigeria and all over the civilized world to use public electricity and not pay for it.

Tariff is not fixed by the Minister. I have no such power. Tariff is proposed by the DisCos after consultation with their customers, and then approved by NERC (the Nigerian Electric Regulatory Commission) during a major Tarrif review.

The process of determining tariff takes into consideration the amount of power (4,500 MV in 2015) the number of consumers on record who will pay it (6,000,000), the cost of producing and transporting power, operating cost of the operators, exchange rate, inflation and interest rate; and the tariff for each class of consumer is determined.

The classes of consumers are R1, R2, R3 and MD. The tariff of each class is different in their DisCo while the tariff of R2, R3 and M are different from DisCo to DisCo.

It is only R1 that has a fixed tariff of N4 per/kwh across all DisCos and it was not changed in the last tariff review.

I spoke about a major tariff review; there is also minor tariff review.

The 2015 tariff review gave us a 10-year tariff that should be declining as the sector stabilizes.

It provides for a major review after 5 years, and minor reviews every 6 (SIX) months to keep the market abreast of the economic realities of foreign exchange, gas price, and inflation changes.

If we want to experience reliable electricity, we must accept the reality of tariffs and possible upward or downward reviews.

We must stop going to court to get injunctions to stop tariff reviews. We don’t do so, when exchange rate, inflation and prices of other commodities change. (The Court of Appeal has reversed the decision of the Federal High Court which stopped the implementation of the last tariff review).

What we must insist on, is the provision of meters, so that we can monitor and control what we consume.

Government must also not interfere with the power of the regulator when it fixes tariff in the way the last administration ordered a reversal of tariff in order to win electoral votes in 2014.

It created a massive debt for Nigeria, because while the Government ordered a reversal of Tariff, it did not reduce Exchange Rate, Interest Rate , cost of wages or cost of gas and other inputs necessary to produce power.

Why should Nigeria carry a debt created by an individual’s electoral ambition?

This is what the Buhariadministration has to contend with.

It might interest members of the public to know that most if not all the oil & gas producing communities where there is electricity connection do not pay for power, somebody is carrying that cost.

It is worsened by the fact that the light bulbs are on during the day and I am told in some communities that they are never switched off. This is waste. What is wasted will never be enough.

Meters

One of the omissions of the privatization carried out by the last administration was lack of compulsory metering before the privatization.

This is compounded by an inaccurate consumer projection of 6 million households, without a consumer audit. These are the problems the Buhari government is now trying to fix with the Power Sector Recovery Program, which I will discuss later.

What the public must know about meters are:

a. Meters are measuring and safety equipment that must be tested by NEMSA before they can be used.
b. Different classes of consumers require different types of meters: Single and multiple phases to ensure that your meter matches your consumption.
c. Meters by the same manufacturers are calibrated for each DisCo use, such that you cannot use a meter calibrated for IkejaDisCo in EkoDisCo without Re-calibration.
d. Meters cannot be installed without visit to the home for audit assessment.
e. DisCos liquidity problem makes it difficult for them to access credit to order and supply meters. One DisCo requires over N20B to meter.
f. The consumer base does not capture all those who consume power, and without meters, the DisCos aggregate power distributed to a destination and estimate the bill for the known consumer who is perhaps paying for the neighbour who is not known or is stealing energy; (whistle blowing for energy theft is a civic responsibility)
g. Those who are resisting the installation of meters and assaulting DisCo staff who seek to install meters must stop it. It is a criminal offence.
h. N37 Billion meter contract
The government of Nigeria had in 2003 (14 years ago) issued a contract for the supply of 3 million meters to NEPA/PHCN
That contract was not performed until the privatization was concluded in 2013, and was inherited by the Buhari government as a court case in which a judgment of N119Billion had been signed against government. We have worked to get the case out ofcourt , negotiate the judgement and go back to the N37Billion contract to see how many meters it can now provide, and how to install them. We are still finalising the terms of agreement.

Gas supply

Although we get power from Hydro and we plan more from solar and coal, I cannot conclude this speech without speaking a little about gas which is managed by the Ministry of Petroleum Resources but which is the fuel for 26 (TWENTY-SIX) plants out of the29 (TWENTY-NINE) power plants in the country.

2016 was a particularly difficult year for our gas fired turbines because there were at least 16 major gas pipeline attackswith explosions, between February and May of 2016.

This is why we did not experience stability until August when the rains came and we could rely on the Hydros, whose capacity had been upgraded.

Those pipelines are gradually now being repaired as a result of relative peace secured by initiatives of the President, Vice President, Minister of Petroleum Resources, Governors and other stakeholders.

Power Sector Recovery Programme (PSRP)

Without a doubt the privatisation of power is the way to go.

Admittedly it has not yet delivered the kind of results we were all made to expect, for some of the reasons I have stated; political interference, liquidity, metering, debts, governance, technical capacity of operators and the political dishonesty with which Nigerians expectation were raised to the sky.

But I have no doubt at all, having studied the privatization of Brazil, Mexico, India, South-Africa and China (who went through some or all of our current challenges), that reliable electricity will happen in Nigeria.

It is not an event, it is a journey marked by positive trends that have occurred and will occur as the right solutions are deployed to challenges.

This is what the Power Sector Reform Program (PSRP) seeks to achieve.

Because of the current transition challenges, some people have called for the cancellation of the privatization, but such a course of action (which I do not support) has consequences: –

a. Government will be breaching its own contract in the same way we cancelled the privatization of refineries in 2007 and will send a negative investment signal that we do not respect agreements;
b. Government will have to refund in dollars, all the monies paid by the DisCos and GenCos most of which have been spent on almost 50,000 workers of PHCN who had to be paid;
c. Government will now have to re-employ those or other workers back to operate the assets and again increase salary and pension costs, when our recurrent cost is above 70% of budget today.

Instead of doing these, Government believes that the lapses in the privatization can be re-engineered, retrofitted or reformed to deliver.

The PSRP is therefore a set of policies and actions aimed at restoring credibility, liquidity, transparency, efficiency, good governance and improved service delivery to the power sector.

The PSRP is meant to implement and deliver the power component of the Economic Recovery & Growth Plan (ERGP) of the Buhari Government and it is already being implemented.

a. N701 Billion NBET payment assurance programme
b. Metering plan (already discussed)
c. Constitution of Boards of Agencies for Governance (NERC); Rural Electrification Agency (REA)
d. Change of Government Representatives in DisCos
e. Procurement and Capital Requirement Guidelines for Discos by NERC
f. Energy mix, already done to achieve diversity of energy sources and energy security
g. Tariff Computation Reform
h. Communication and Advocacy
i. Technical capacity and equipment upgrade by DisCos for loss restriction
j. Legislation to restore and punish energy theft and damage to power assets

Ladies and Gentlemen, these are some of the challenges the power sector faces and the way forward as formulated by the Buhari Government in order to reform the power sector for efficient delivery.

As youwill have seen, manyif not all of themare man made.

Thereforeif men and womencreate problems , only men and womencansolvethem.

You and I therefore have criticalroles to play , and I have signed up to playmyown.

Have you ?

Thank you for your attention.

Being the text of the lecture delivered by theMinister Of Power, Works And Housing, Mr Babatunde Raji Fashola, at The Department Of Economics 2017 Public Lecture Series, University Of Lagos, On Thursday 13th July 2017