Recent pronuncement of the Honorable Minister of Power, Engr. Saleh Mamman, has further thrown the Nigeria Power Sector into disarray, creating more confusion for Nigerians.

The Honorable Minister of Power, while adressing the Federal Executive Council Meeting, had mentioned that they have already submitted a Memo to the Executive Council on the take over of the electricity Distribution Companies by Siemens, a German Electrical Vendor.

The Honorable Minister of Power had also stated with confidence at the Federal Executive Council Meeting that Nigeria generates 13,000 MW, Transmit 7, 000MW, but that the Electricity Distribution Companies are only distributing 3, 000MW.

Responding to the Minister, The Association of Nigeria Electricity Distributors, ANED, in a statement signed by Barrister Sunday Oduntan, took up the issue one by one, addressing and making clarifications, in bid to clear the air on the brewing storm.

Barrister Oduntan revealed that “the peak generation ever recorded in Nigeria is 5,375 MW, of which only 4,303 MW of energy was wheeled or transmitted by TCN to the DisCos”. Further, TCN has never wheeled or transmitted energy above 4,557 MW nor matched its transmission to any of the generation peaks to date”.  Therefore, making references to TCN’s ability to transmitting  “…7,000 to Discos…” is inaccurate and misleading.

The Special Assistant to the Minister of Power on Media and Communications, Aaron Artmas, had heard tried, in another Press Statement, to clarify the Statement made by the Minister, but could not douse the ripple effect of the report made by the Minister, Engr. Saleh Mamman, a situation that led to the Association coming up with their Press Statement

Find  Below, the full Press Statement as released by ANED

ANED PRESS STATEMENT

Last week, via various news media, we were, once again, presented with another situation in which our electricity distribution (DisCo) sub-sector was put up for public vilification and denouncement on information that is, largely, not reflective of the reality or complexity of the Nigerian Electricity Supply Industry (NESI) value chain.  The statements or comments behind this recent media exercise were attributed to Mr. Saleh Mamman, the Honourable Minister of Power, speaking to journalists after the Federal Executive Council (FEC) meeting.

As the face of the NESI market, responsible for direct interface with the public and for collecting of all monies due to the different players in the sector, we readily acknowledge both the inefficiencies that our sub-sector continues to experience and the pervasive dissatisfaction of our customers with same.  We will continue to strive to do better.  However, it is also important that our customers, specifically, and Nigerian citizens, in general, be accurately and well informed as to the challenges, facts and constraints of the NESI value chain, as necessary for us to, collectively, devise strategies and solutions that will get us to the envisioned improved supply of, and service delivery of electricity.  The following information is provided for clarification of some of the statements or comments that have been attributed to the Honourable Minister of Power via various national newspapers on February 20th, 2020.

 

  • “Nigeria currently generates 13,000 megawatts of electricity, it transmits 7,000 to Discos while the distribution companies can only distribute 3,000 megawatts to end users.”

A review of the daily power reports published by the Transmission Company of Nigeria (TCN)’s National Control Centre (NCC), government entities, would indicate that the peak generation ever recorded in Nigeria is 5,375 MW, of which only 4,303 MW of energy was wheeled or transmitted by TCN to the DisCos.  A further review, historically, would indicate that TCN has never wheeled or transmitted energy above 4,557 MW nor matched its transmission to any of the generation peaks to date.  As such, references to TCN’s ability to transmitting  “…7,000 to Discos…” is inaccurate and misleading.  TCN’s attestations of a transmission capacity of 8,100 MW is based on nothing more than a computer simulation and not tested, proven or practical capacity.

As a matter of fact, the recent Siemens “Electrification Roadmap for Nigeria” report, May 7th, 2019 states “Today, power distribution by the Discos’s to end-customers is limited by power infeed from TCN.”   The same report also states that the capacity of the “last mile,” DisCo capacity, “…is about twice as high as the peak supply delivered by TCN to the respective distribution utilities (where the peak was 5.2 GW across all Nigeria in 2018).”

Additionally, a System Adequacy report authored by TCN’s Market Operator (July 2017), stated that, “Transmission constraints frequently limited the power flows in the network.”

Per the Nigerian Electricity Regulatory Commission (NERC), in its December 2019 TCN Minor Review Order stated that “…whereas the CAPEX provided to TCN in MYTO-2015 Order was to support the evacuation of the average projected generation of 5,465MW in 2016 to 10,493MW in 2019, actual average generation remained between 3,500MW to 4,OOOMW during the same period.”

“Maximum Available Capacity to Date,” for generation, indicated in the NCC report on the date (February 20, 2020) of the Honourable Minister’s comments was 7,652.2 MW.  Thus, raising a question as to the basis for the Honourable Minister’s reference to 13,000 MW of generation.  Indeed, of the available generation capacity, 1,500 MW continues to be constrained by lack of gas, given that twenty-five (25) out of twenty-eight (28) generating plants are thermal plants that are fuelled by gas.  Grid and hydro issues provide additional constraints to generation availability.

In simple terms, the DisCos can only deliver the energy that is transmitted or wheeled to them by TCN, based on the amount generated.  Of greater importance is the need, at a minimum, for a realignment of gas, generation, transmission and distribution capacities, that will provide the country with a level of consistent power supply. Any unsupported or inaccurate information amounts to deviation from this minimum and needless distraction from issues of sectoral urgency.

 

  • “That is what we are saying. Government cannot continue to subsidise because what they are doing is that they collect 3,000 megawatts and pay for only 1,000 megawatts. That is 15 percent of what they are collecting. So, government is the one completing the payment.”

To date, the DisCos have not received any subsidy from the federal government.  References to the N1.7 trillion in subsidies paid by the government are associated with payments that have been made to the generating and gas supply companies, under the Payment Assurance Guarantees (PAG) initiative and the Nigerian Electricity Market Stabilization Fund (NEMSF).

PAG is, principally, a result of government regulatory and policy interventionist initiatives that have resulted in the inability of the NESI value chain to recover the cost of doing business based, primarily, on tariffs that are non-cost reflective – an unmet critical commitment of the privatisation of the electricity distribution companies.  As a matter of fact, NERC’s December 2019 Minor Review Order specifies federal government debt to the DisCos (correspondingly, the rest of the NESI value chain), due to tariff shortfalls, of N1.728 trillion.  DisCo’s liability to NESI, due to market shortfalls, is N81 billion.  Significantly, government Ministries, Departments and Agencies (MDA) owe the DisCos in excess of N100 billion, for energy consumed but not paid for – a federal government commitment, yet again, unmet under the privatisation agreement and MYTO-2015.

Under the NEMSF N210 billion initiative, of the N189.1 billion that has been disbursed, the DisCos have only received N49.89 billion or 26.3%.  Importantly, this is money owed to the DisCos by the consumers, due to the non-cost reflective tariff of MYTO 2.0 and the government’s failure to inject the associated N100 billion in subsidies, a commitment under the privatisation agreements.  Interestingly, the rest of the NEMSF disbursement of N139.21 or 73.7% is comprised of the Power Holding Company of Nigeria (PHCN)’s legacy gas and energy supply liabilities that should have resided with the Nigerian Electricity Liability Management Company (NELMCO).  Unfortunately, these liabilities now constitute an encumbrance on the DisCos’ financial books, limiting or precluding their ability to access the financing that is critical for capital investment and injection of efficiency in the distribution of electricity –  another violation of a privatisation commitment which required that the DisCos have debt-free financial books that would enable them access debt funding for their operations.

A review of DisCo performance would indicate that the DisCos have improved their collection efficiency, from 2017 (57.89%) to a high of 74.5% (Quarter 4, 2019), in spite of the issues of lack of access to financing and the related limited capital investment, as well the artificially suppressed electricity tariff.  However, a discussion about DisCo remittances and collection efficiency would be incomplete without reference to regulatory and government policy inconsistencies and interventions that have distorted the ability of NESI to evolve organically.

 

  • “The federal government is considering a proposal to take over power supply from the distribution companies (Discos) and hand them over to a German firm, Siemens”

While we note that there has since been a retraction by the Ministry of Power, it is regrettable that the stated proposal further promotes a perception that the Nigerian government does not respect sanctity of contract, a requirement for any investment in the country – particularly, for the cheap foreign capital that is required for the massive capital expenditure needs of NESI.  A related note is the greater uncertainty associated with threats of renationalization and reversal of privatisation objectives.

The DisCo investors have executed agreements with the Bureau for Public Enterprises (BPE), the federal government’s representative agency under the privatisation.  These agreements specify the terms and conditions under which both parties shall accomplish the objectives of the privatisation, as well as a framework of commitments necessary for the DisCos to achieve their performance targets.  Unfortunately, as indicated above, the commitments of the government remain unmet.  As such, we believe that the focus should be on how to utilize the agreement’s remedial framework to address the deficiencies that currently exist in the electricity distribution sub-sector, rather than the adoption of knee-jerk initiatives that send signals that would result in potential adverse outcomes for the larger Nigerian economy.

It is also important to point out the following – a. Siemens is an electricity equipment manufacturer and not a utility operator. Seeking to hand the DisCos to Siemens is akin to asking the pharmaceutical drug manufacturer to treat the patient as a doctor; and b. In view of the fact that the DisCos majority shareholders are mostly Nigerian investors funded by Nigerian banks, is it the government’s intention to send the message that Nigeria is closed for business to local investors, thereby encouraging capital flight and killing home-grown solutions to our economic problems?

 

In conclusion, the solutions to the problems of NESI are found in a collaborative and partnering framework and environment.  Pronouncements that are misleading or misrepresentative of the complicated challenges of the power sector will not lead to the increased power supply that is necessary to grow our economy, create jobs, increase fiscal revenues and improve quality of life for Nigerian citizens.  The DisCos, while recognizing their inefficiencies, continue to believe that decades of historical sectoral underinvestment and inefficiencies of the government-owned PHCN can only be reversed if the enabling investment environment is promoted.  And such an environment can only exist if there is regulatory and policy consistency, transparency, collaboration and respect for contract.  Thus, we stand in partnership with the federal government, in a holistic and comprehensive implementation of its Power Sector Reform Plan (PSRP) policy.

Barr. Sunday Oduntan
Executive Director, Research & Advocacy
ANED
February, 2020