Transition plans for new power owners inadequate – Amadi

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Transition plans for new power owners inadequate – Amadi

DECEMBER 29, 2013 BY OKECHUKWU NNODIM LEAVE A COMMENT
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The Chairman and Chief Executive Officer, Nigerian Electricity Regulatory Commission, Dr. Sam Amadi, speaks withOKECHUKWU NNODIM on the post-privatisation challenges of the power sector, among other issues

 Since the handover of the successor companies of the defunct Power Holding Company of Nigeria to private investors in November, what have been the major challenges facing the sector?

After the handover, there are two major problems found with the privatised market. The first has to do with complaints from consumers in terms of quality of service. There are reports of drop in the quality of service. Also, there are problems on the part of the new owners which have to do with anxiety about the financial state of the market.

On the issue of quality of service, I think there is a bit of lack of clarity here. Some people may have experienced shorter power supply or more outages. These problems can be seasonal. For instance, there was a severe loss in gas supply to power plants recently. As a result of this, about 1,900 megawatts of electricity could not be utilised. The problem is linked to vandalised pipelines.

Also, the amount of gas going to fertiliser plants, cement factories and plastic industries is very high; while the amount of gas being supplied to the power sector is low. Two reasons are responsible for this.

 What are these reasons?

One of them is that industries are paying about three to four dollars per unit, depending on the measurement. But the supply aggregation price for gas to power plants is about one dollar per unit and it is going to two dollar by January. So, there is the tendency by the gas suppliers to supply more to the industries that pay higher for the product.

So, if you don’t have enough gas and your pipelines are vandalised, then your output will drop drastically. If you have the capacity of 5,000MW to 6,000MW and about 2,000MW are being constrained because of gas, then you will basically have a limited amount of power to give out.

There is also the spinning reserve problem. We used to have a spinning reserve of about 200MW. What the spinning reserve does is like what the reserved fuel does in a car. It keeps the car moving until you refuel. The spinning reserve is now empty. If you don’t have spinning reserve, when the light goes off, there is a big problem; lack of spinning reserve leads to a system collapse.

 The new owners complained a lot when they came onboard; what was responsible for this?

There were no enough transition plans by the new owners before the handover. Because of the issues with labour, the new owners did not get to know their network well. It was a hostile reception. The environment before the entry was acrimonious.

The problem was also compounded by the mode of privatisation. This has to do with the financial strength. So, we had expected them to acquire the assets with their shares corresponding to the amount of equity they have. Unfortunately, many of these assets were acquired with debts. They borrowed from Nigerian financial institutions, which was not convenient for them because of the interest rates charged by some of the institutions. The money was paid in August and the takeover was in November. So, apart from the agitations for interest, by the time they took over, the term for the loan servicing was due and that put pressure on the investors.

That informed all these run around and complaints that the market would collapse and this was because of the mismatch. But some of them are picking up, for instance the Ikeja and Eko DISCOs.  When we saw the performance of the private GENCOs, we had to benchmark it and we told them that they could not perform less. The whole idea of selling the network is to improve it. We can’t sell and expect it to go below average of government’s expectation. We expect it to go higher. As the losses are being reduced and things get proper, maybe we can expect them to quickly meet their commitment in terms of loss reduction. So, what we’ve done is to manage the expectations and push the investors to meet the demands of the consumers. I think the worse is over. Things have started picking up now. But we shall keep on watching and directing them aright.

What did you do to manage this situation?

We had a lot of concerns when the new owners came in. The consumers were calling and were worried. The new owners too came into the market a bit frightened. There was so much talk about losses with the Multi Year Tariff Order. With that kind of mindset initially, we became worried. But I think we did very well because of the supposed alignment between MYTO and the actual losses level. We agreed that the full regime of MYTO might not operate in the interim; and we came up with an interim rule that allowed for settlement. At the end of the day, they unanimously approved the interim rule and one of the chief executive officers came to me and said that it was wonderful. He said for the first time with what they had collected, they could actually pay salaries. For instance, the Yola DISCO did not remit any money for about two years. It even requested for N200m before the handover to settle salaries every month. But the good news is that Yola DISCO has remitted about N29m for the first time, and it didn’t ask for any money again.

 Are you saying that the electricity market is now financially strong?

I think the issue about the financial validity of this market has been resolved largely by NERC’s intervention and we have been very pragmatic about it. The first job of a regulator is to give hope and that was what we did. We’ve tried to calm the panicky CEOs. This period was the most testing; but you need to keep calm and infuse confidence and calmness into the market. A market could be volatile and that volatility is as a result of the perception of the uncertainties and losses which might not even occur. Therefore, the leadership of the regulator is about giving people assurance; you keep the ball in the air. Don’t let it drop and you try to make people get to work. I think we have achieved some success. We have tried to solve the problems.

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