By Dirisu Yakubu,
Abuja, FCT
The recent declaration of the eligible customers in the Nigerian Electricity Market by the Minister of Power, Works and Housing, Mr. Babatunde Raji Fashola has received the backing of the Association of Power Generation Companies (APGC).
The association penultimate Thursday described the declaration as a strategic step to improving efficiency and competition, thereby enhancing quality of service delivery in the generation and distribution sub-sectors.
The declaration of eligible customers, it would be recalled, came as a response to the clarion call through pressures from consumers worried about the inability of Distribution Companies (DisCos) to fulfil their obligations to the public as well as the need to promote retail competition in the market.
Executive Secretary of APGC, Joy Ogaji while briefing energy correspondents recently on the development stated that the declaration would help liberalize the sector and free it from the exclusive preserve of a privileged few whose performances in the first places, leave much to be desired.
“With stranded generation capacity in the electricity market and poor market liquidity, declaration of eligible customers is the brilliant way to liberate the electricity sector from the current monopoly by some underperforming companies. This policy directive will lead to increased energy generated/available and expand generation capacity as Generation Companies (GenCos) would potentially ramp their generation capacity to provide supply to eligible customers, thereby addressing issues bothering on financial viability of the electricity supply value chain, which is the main and immediate challenge confronting Nigerians from enjoying the benefits of the Power Sector Reforms,” Mrs. Ogaji said.
The declaration of eligible customers aligns with the provisions of an Act of Parliament, the Electric Power Sector Reform (EPSR) Act 2005, the legal framework of the power sector.
Although, there have been voices of dissent over the development, relevant industrial Acts have shown that Fashola’s action falls within the ambit of the law.
The National Electricity Power Policy (NEPP) 2001 and the EPSR Act 2005 provides for the development of Nigeria electricity market with wholesale competition and recommendation to assist in monopoly control and cost adjustment, where necessary.
The declaration pursuant to Section 24, Subsection 2 and 3 of the Act, according to Ogaji, “does not portend that the market is competitive but rather the declaration is intended to initiate a competitive market as stipulated in Section 24 (3) of the Act.”
Subsection of the ESPR Act states that “The Minister shall present to the President and the National Council on Privatization and the National Assembly , each report submitted by the Commission under subsection (2) of this section and when the Minister, in consultation with the President and the National Council on Privatization is satisfied that the electricity market in Nigeria has developed to the point where a more competitive market ought to be established pursuant to section 26 of this Act, having regard to the criteria described in subsections (a), (b) and (c) of subsection (2) of this section, the Minister shall issue a declaration that a more competitive electricity market is to be initiated.”
It is noteworthy to stress here for the sake of emphasis that section 26 (1) of the EPSR Act does not imply that competition should be fully entrenched before the declaration but that “the declaration initiates, commences, heralds, starts, begins, originates, inaugurates and launches the process of market competition.”
Section 24 (2) of the EPSR Act makes provision for pre-conditions for the readiness of the Nigeria Electricity Supply Industry for a more competitive market, some of which are;
-The degree of privatization that has taken place,
-The existence of sufficiently large number of potential competitive entities; and
-The existence of other pre-conditions, including necessary metering and information technology infrastructure, required for the operation of a more competitive electricity market.
Ogaji noted that alignment with the law is what led to break up of the defunct Nigeria Electricity Power Authority (NEPA), and its eventual privatization.
She stated on behalf of APGC: “In adherence to the provisions of the Act, the end of the monopoly of NEPA has been facilitated and completed with the framework and guidelines for its privatization through the eventual formation of companies to take over the functions, assets, liabilities and staff in a bid to make the electricity market more competitive with seven generation companies, one transmission company and eleven distribution companies-an arrangement expected to encourage private sector investment particularly in generation and distribution.”
A lot has happened since the privatization and handing over of generation and distribution assets few years ago. For instance, on November 1st, 2013, peak demand load forecast which stood at 12, 800 MW with available generation capacity of 5, 000MW and a average daily generation of 3, 500MW to 4, 0000MW has culminated to the present demand forecast of 17, 720 MW with available generation of 8, 000MW, with an unchanged daily generation of 3, 500 MW to 4, 000MW.
So, what is responsible for the huge gap in these figures in a little over three years period? APGC cited big gap in metering connected grid and suppressed load, more than three years after privatization.
“The implication” the association notes, “is that transmission and distribution infrastructures are yet to be put in place to take stranded generation capacity from the generating companies who are willing to sell power to suppressed load centres desperately in need and willing to buy power,” the association explained.
More than three years after privatization, the 11 DisCos have enjoyed the monopoly of bulk power purchase; yet unable to distribute and account properly for power purchased and distributed while GenCos that are potentially competitive entities, wait desperately to sell more power as well as end users willing to buy more power for residential, commercial and industrial use. What this means in simple terms is that DisCos have been unable to evacuate power generated for distribution to those in need.
The declaration therefore does not in any way paint a picture of worry or uncertainty about the future. The immediate positive takeaway now is that GenCos can now sell power to suppressed load centres, thus making up dwindling revenue to pay their gas suppliers. Customers on the other hand can now synergize by pooling their resources together to be classified as ‘eligible customers.’ This translates to investment in metering, transformers, power lines and electrical switchgears.
On the expected gains of the declaration, Ogaji had this to say. “The declaration portends several benefits for the sector as it will also address some of the liquidity and revenue shortfall in the sector as guaranteed cash flow will definitely boost the morale for potential investors in the areas of gas field development, power generation capacity and also in the manufacturing industry with assurance of constant power supply to meet production demand,” she noted, adding that competition would also rub off on the sector as a result of the declaration.
“Eligibility will furthermore introduce competition on the demand side and complete the liberalization of Nigeria Electricity Supply Industry (NESI) and improve efficiency, bringing about greater pressure for efficiency on the suppliers. In addition, the presence of retailers, or the mere possibility of future competition, will force existing distributors to establish appropriate customer services and commercial divisions, promote national economic development through supplying of electricity to the productive sectors of the economy, thereby supporting economies of scale through bulk purchase of power,” Ogaji added.
Additionally, the declaration is expected to lead to reduction of technical and non-technical losses for bulk High Voltage supply in the NESI, reduced financial risks by supplying credit worthy eligible consumers, bring about increased attention to consumers, confers on consumers’ liberty to choose energy supplier, ensures efficient electricity market as well as stimulate investment in the sector.
Equally significant is the fact that the declaration will send a great signal that the energy sector is gradually evolving towards full retail competition, thereby ensuring a reduction of financial risk through the supplying of services to credit worthy eligible consumers.
On the part of the DisCos, they can obtain additional power as eligible customers. The increased competition is expected to propel them to improve on service delivery in the short-term and reduce losses.
The dissenting voices notwithstanding, the association argues that the declaration of eligible customers would create a willing sellers and willing buyers situation, thus engendering a market striving towards effective demand. The impact will be creation around the clock jobs with sufficient power provided to eligible customers who are willing to increase production. The direct effect of this will be a working and stabilized economy that the nation has been craving for.
While this policy initiative is capable of turning around service delivery and ensures return on investment, what is most important is its implementation as industry stakeholders agree that the trouble in the power sector has not been much of a lack of innovative policies than the will to implement same. It is left to be seen where this declaration would leave the sector in the years ahead.
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