Transparency, efficiency still an issue in power sector three years after privatisation
A cursory look at the power sector three years after privatisation shows that aside from the hydra headed monster of poor plant maintenance, lack of adequate spare parts and vandalism of electric utilities, there are the bigger challenges of adverse macro-economic changes (devaluation of the Naira and inflation), gas pipeline vandalism, limited gas supply, regulatory uncertainty, lack of respect for contract sanctity and government policy inconsistency.
Analysts observe that despite private investment into the power sector, issues with collection, transmission, gas supply among others have limited the impact that private sector would have had in the sector. They further opine that current state of the Nigerian economy demands drastic, urgent and unconventional actions.
The critical and foundational problem of lack of electrical power can be solved by addressing the problem of gas production as 80 percent of current and future power generation is based on gas fired power plants.
Recent findings indicate that in the last ten months, revenue shortfalls of N25 million a month have been a critical issue for power companies. This is a significant amount of money and this is leading to a situation where DISCOs are unable to pay back to NBET and NBET is unable to pay the GENCOs.
Reports show that GENCOs are asking for a debt of about N146 billion and these are just the GENCOs that where privatised. There are also issues with NIPP and the IPP that were run by Shell and the likes which the government owes about N90 billion.
Power companies and current realities
In a recent document presented by Association of Electricity distribution companies (ANED) it was disclosed that DISCOs have made progress in reducing Technical and Commercial losses even with the limited capitalisation; improved billing systems; improved ICT and GIS infrastructure; set up call centres addressing over 2 million queries from customer.
Other progress recorded according to the association indicate that they have reduced downtime due to improved network maintenance and upgrades; recruited thousands skilled personnel, significant grid metering achieved.
Correspondingly, the GENCOs have made significant capital investments towards capacity enhancements, with specific examples of Egbin, Geregu and Ughelli power plants, resulting in increased generation.
According to Sunday Oduntan, executive director, research and advocacy, Association of Electricity Distribution Companies (ANED), “a lot more needs to be done and we will continue to strive towards ensuring that we surpass the requirements of our performance agreements.
Oduntan however observed that as long as the same fundamental issues and challenges exist in the power sector, there are no miracles to seeking the turnaround that we all desire. No investor will invest in a sector that returns, approximately, 50 kobo of every Naira of energy that is delivered.
The ANED spoke person further observed that despite government promises to power companies in 2013 when the deal was signed, current realities indicate a sharp contrast adding that these have adversely impacted the liquidity situation in industry.
He pointed out that government have failed to honour any of its commitments to investors as the issues of improvement in gas supply have not materialised because pipeline vandalisation have constantly resulted in an average of 50 percent reduction in generation, for the period of May, June and July.
Huge gaps in gas to power projection
Dada Thomas, Chief Executive Officer of Frontier Oil Limited identified vandalisation of oil and gas facilities, sector illiquidity, price and securitisation as challenges stifling the progress of the projection.
He also disclosed that inadequate and dilapidated power transmission and gas distribution infrastructure, low economic returns for gas projects and lack of access to gas reserves by those willing to develop them have further strained the process of achieving progress.
Thomas maintains that the DISCOs are primarily responsible for the illiquidity in the Gas-to-Power sector. According to him, “They are not metering properly and are therefore not collecting their revenues efficiently as demonstrated earlier”.
“They have continued the odious practice of estimated billing and they are not doing the things they contracted to do when they took over the franchises they bought. They argue that they are not getting enough electricity to sell, that the electricity tariff is not cost reflective and consumers are stealing power and as such are not making enough money to pay their loans let alone fund additional capital investments”. He said.
The energy expert is of the view that as long as the DISCOs are insolvent or not making enough money, they cannot invest in meters and the upgrade of distribution infrastructure. The money they are making is barely enough to service their loans and the banks are no longer willing to lend money to the Power sector especially the DISCOs.
Ayodele Oni, an energy expert in a recent article wrote that the alarming increase in vandalism of gas pipelines in the past 5-6 months within the oil rich Niger-Delta region of Nigeria which general serves as the transit region for a large portion of the pipelines have in way helped the process of achieving the required boost in the power sector.
Oni observed that the devastating attacks on the oil and gas installations and infrastructure have led to a further drop in power generation as a direct consequence of gas supply constraints. Thus, the federal government is considering a virtual pipeline system, to reduce reliance on the physical gas pipeline system.
According to him, “there are also calls for the consideration of gas swap arrangements to reduce the incidence of failure by certain international oil corporations to fulfill their domestic gas supply obligations particularly where same relate to the power sector such that poor infrastructure (such as the non/weak integration of the Eastern and Western Gas Pipelines System) would no longer be a good excuse not to fulfill these obligations”.
He further noted that the push for virtual pipelines has increased in the last 3 months and those relating to swap arrangements/policies too, are on the increase and a number of foreign investors are indeed considering the idea of the virtue pipeline system and are looking to come into Nigeria to provide support to industries and productive activities which rely on gas.
Specifically, the power sector is expected to be a prime beneficiary of this idea if the private sector, together with the support of the government, sees this through.
“Whilst the private sector seeks to invest in same, government does need to provide an enabling environment through good policies and incentives (fiscal and otherwise), improved road networks and a robust rail system together with proper planning. Government also needs to think through the swap arrangements properly before enforcing same”. He added.
KELECHI EWUZIE