Managing Expectations in Nigeria’s Emerging Electricity Market

No Comments » January 6th, 2014 posted by // Categories: Energy Development Project


Managing Expectations in Nigeria’s Emerging Electricity Market

07 Jan 2014

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Chineme Okafor writes that ongoing reforms in Nigeria’s electricity supply industry, particularly the privatisation of successor generation and distribution companies created from the unbundling of the defunct Power Holding Company of Nigeria (PHCN), have thrown up challenges that could make or mar the new electricity market.

When the federal government handed over successor generation and distribution companies created from the unbundling of the Power Holding Company of Nigeria (PHCN) to their new core investors on November 1, 2013, many Nigerians had described the development as a watershed in the country’s electricity supply industry.

Expectations of Nigerians
The event, last year, ensured that the reform process, which started years back with several governments and various shades of man-made challenges, would grant Nigerians from all walks of life, the opportunity to think again of the possibilities of quality and reliable electricity supply system.

Their hopes and expectations stemmed from the almost limitless opportunities that could emerge from a private sector managed electricity industry in view of the often resourceful management bearing that private investors bring into the economy, more so, the electricity sector which is widely considered an indispensable stimulant to economic growth and prosperity.

Almost every Nigerian had reasons to equate the economic prospects of a functional electricity sector with what happened in the country’s libralised telecommunication sector that immensely opened up the country’s economy and by extension, the socio-economic status of her citizens. Indeed, Nigerians had reasons to buy into the power sector liberalisation programmes, following the repulsive management and operational attitudes of PHCN under government’s ownership and quasi-supervision.

But it was not just the everyday Nigerians that had expectations from the privatised electricity industry as stakeholders and investors who participated in the acquisition of the utility companies, on their part expected certain conditions to have been met chiefly by the government upon their assumption of ownership of their acquired electricity assets.

Admitted that these expectations might have come so lofty or perhaps out of sync with extant realities in the industry such as possible shortages in gas supply to thermal electricity generation companies, which make up a larger percentage of the country’s generation sources, stumpy transmission wheeling capacity and transmission loses, shortfall in revenue generation with regards to the collection capacities of distribution companies as well as the distribution coverage of the distribution companies, but the burden of striking a beneficial balance for the sector has to be met.

One of the many characters of a truly liberalised market is that consumers will mostly pay for services consumed and provided while service providers strive for quality operations to boost revenue generation and capacity expansion. This is expected to play out in the emerging power sector with an impartial arbiter managing interplaying reactions in the market.

Role of NERC
Sitting in-between these two active expectant classes is the Nigerian Electricity Regulatory Commission (NERC), which holds the statutory responsibility of chiefly stabilising behaviours of participants in the country’s electricity market, amongst other responsibilities, through its various legally recognised regulatory tools.
As the sector regulator, NERC’s proactive management of expectations in the emerging electricity market has been considered by industry experts to be deeply vital in stabilising the pace of upgrade and expansion of the markets’ capacities to meet the expectations of the various classes of its stakeholders.

This regulatory cum mediatory role was acknowledged by the Chairman of NERC, Dr. Sam Amadi who stated in one of the various meetings convened by the commission to resolve extant teething challenges that the intention of the regulator was to effectively manage expectations in the new electricity sector.

Operational Challenges
Shortly after they took over operations of the acquired PHCN assets, the new investors came up with complaints of various operational challenges. The core investors had argued that reality checks on the power systems revealed that they acquired a system that was “upside down” whereas delivery expectations from them was very high.

One of the investors who spoke on the issue was the Managing Director of Kano Electricity Distribution Company, Dr. Jamil Gwamna who picked holes in the market rules, particularly the Multi Year Tariff Order (MYTO).

Gwamna said, “In terms of complying with rules especially those in MYTO, the reality on the ground in Kano Disco is that all the assumptions in the MYTO model have been turned upside down.”  Specifically, he noted that load allocation to Kano was so bad at only about 40megawatts (MW) to cover Kano, Jigawa and Katsina states, with only about 20MW for the Niger Republic.

“How on earth will I make money? We are not even near the assumption of MYTO because MYTO say I should be allocated eight per cent of the total generation capacity, which means if the generation is 2000MW, Kano should be allocated at least 160MW. Our allocation was 80MW and out of that 25MW is going to Niger Republic. So I think these are serious issues which we have found on the ground and they should be addressed urgently, Gwamna regrettably stated last month.
Similarly, the Managing Director of Benin Distribution Company, Funke Osibodu had noted there were issues with payment of electricity after the take -over, as consumers claimed they were not to pay bills until January.

“There is confusion in the public and we have to as a group address the confusion in the public. For instance, the public believe that they are not supposed to pay their bills until January, they believe that the debt they owed before should be written off and that they should stand in front of you and collect free meters, Osibodu said.
She also observed that the feeling nationwide was that the new investors do not know what they are doing. “The public now believe that when they don’t have power, the new owners do not know what they are doing when in reality it is because of lack of gas,” Osibodu added.

Managing the Challenges
Interestingly, NERC has enunciated its expectations from stakeholders in the emerging power sector to include, strict adherence to industry codes and regulations, such as the grid, distribution and metering codes, market rules, methodology in MYTO, the tariff orders for 2012 as well as regulations on embedded generation, bulk power procurement and of course connection charges methodology.

On the issue of market rules, the commission said operators are expected to as a matter of obligation comply with market rules during the interim electricity market period leading to the Transitional Electricity Market (TEM). The commission also expects the distribution companies to meet up with their baseline revenue remittance, respect the collection accounts escrow arrangement and agreements on loss reduction and metering.

In addition, the distribution companies are also expected to establish standard Customer Care Units (CCUs) within the reach of electricity customers, ensure effective customer complaints redress mechanism, deploy effective customer relationship systems, and establish accurate customer numbers, as well as embark on sustained and effective customer enlightenment and engagement.

NERC  would also impress it on the generation and transmission companies to amongst other market obligations, maintain stable electricity generation; keep up with their maintenance logs; promptly clear extant faults; conduct system studies and establish baseline Aggregate Technical Commercial and Collection (ATC&C) figures, besides establishing supervisory control and data acquisition (SCADA) systems as well as geographic information systems (GIS).

Managing expectations in the Nigerian Electricity Supply Industry (NESI), no doubt, comes with challenges that will ultimately determine the pathway for NESI.  Therefore, strict adherence to statutory measures provided by NERC remains the key to effective handling of challenges in the new electricity industry.


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