The Managing Director of Egbin Power Plc, Mr. Dallas Peavey said the company may shut down operations due to a N110 billion debt owed it by the Federal Government (FG). He said the company was owing gas suppliers, technical partners, and commercial banks. A shut down of the plant would inevitably mean that parts of Nigeria would be in darkness, as Egbin Plc is the largest power generating plant in the country.
Nigeria’s power issues are complex. At the heart of it all is a flawed privatization programme. Buyers of the privatized assets paid for them in dollars without being able to conduct due diligence on the assets, however, revenue from the assets is in Naira. Some investors did better by using dollar loans obtained from Nigerian banks. A depreciation in the Naira means they would have to pay much more to meet repayment schedules. Gas supplies are also priced in dollars.
Egbin Plc is disadvantaged by the devaluation on the twin fronts of dollar denominated loans and gas supplies which are both priced in USD. Distribution companies (Discos), which make payment to the generating companies, are under paying because of Nigerians refusing to pay for power.
Power sector challenges
Nigerians have refused to pay for power because it is epileptic while electricity bills are estimated for most customers. A metering programme by Discos has largely stalled due to huge costs of acquiring meters. At an average cost of N50, 000 per meter, metering 2million customers alone could cost N100 billion. Discos can’t don’t have the money to fund such a cost and even if they could shareholders won’t approve because tariffs are not cost reflective. A move to increase electricity tariffs has been opposed by the National Assembly, as well as by a court order.
Ironically, a recent tariff increase introduced last year has not led to an increase in payment by customers nor has it led to an increase metering.
The transmission grid, which is government owned, claims to have also improved on its wheeling capabilities. They claim they can now transmit about 6MW of electricity matching Nigeria’s installed capacity. Unfortunately, these improvements amount to nothing for the simple reason that the discos are unwilling to take on more power that they can’t bill let alone collect.
What is the way forward?
The World Bank has put forward a N700b facility for the Nigerian Bulk Electricity Company to guarantee payment to gas suppliers, the guys at the extreme end of the value chain. The government believes gas suppliers are the most critical piece of the value chain. Once these guys close their taps, generators can’t generate power and there is nothing to wheel to the Discos. It’s a first and critical step towards solving the power problems. Unfortunately, it could all amount to nothing if the challenges at the further end of the value chain is not resolved.
History shows more power doesn’t always translate to more money in the bank for Discos. Customers will more enjoy light but will cringe at paying once they see their electricity bills skyrocket. After all power is still seen by many as a social good, rather than a commercial product made to be paid for at cost reflective rates.
So, if the gas tap remains on and power is generated and wheeled at optimum capacity, discos will still need to get their customers to pay the bills as well as meter them. Which brings us back to funding and introducing cost reflective tariffs.
Where is the regulator in all this?
The Nigerian Electricity Regulatory Commission (NERC) shares a huge part of this blame. Regulations are old and not market friendly. In Nigeria, the only penalty for not paying your bills is to get disconnected. NERC also allows customers owe for three months before they can be disconnected by discos. The former NERC chairman is loathed by the industry for being more of a social activist than a market reformer. Incidentally, NERC is yet to get a replacement for him. The last person nominated by the Buhari administration declined the offer as he wasn’t even notified ahead of time by the government.
Key to solving this problem
The entire sector appears to be a huge mess now. Yet, it’s a problem that can’t be wished away. Perhaps, the sooner Nigerians realise fixing the sector starts from paying their bills the more progress we could all likely see. One quick way to achieve this could be to change that age-old perception about power. It’s not a social good.
Discos should be held accountable to pay for power received and adopt a fair estimated and fair billing methodology. This brings us back to the consumers. Once Nigerians learn to pay for power consumed no matter how small, it will trigger the cash flow investors need to see to trigger the confidence required to invest even more power.
Solutions in a nutshell.
- Install Market driven NERC
- Secure long term funding from world Bank to finance sector shortfalls.
- Update electricity regulations and amend power laws. Make them for market friendly and punitive for power theft and nonpayment of electricity bills
- Commit Discos towards fair estimated billing methodology and medium term metering plan
- Enforce ATC&C loss reduction pathway agreed with discos.
- Customers start paying 100% of their bills 100%
- Make electricity tariff more cost reflective
As Milton Friedman once remarked
“The great virtue of a free market system is that it does not care what color people are; it does not care what their religion is; it only cares whether they can produce something you want to buy. It is the most effective system we have discovered to enable people who hate one another to deal with one another and help one another.”
Allow the markets work and maybe we may finally solve Nigeria’s power problems
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