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Will multiple regulators shock power sector to life?

The Nigerian power sector is characterised by mostly private business operations and pockets of public support agencies. This has been the case since November 1, 2013 when the sector was privatised and about 17 firms comprising 11 Distribution Companies (DisCos) and six Generation Companies (GenCos) that were part of the defunct Power Holding Company of Nigeria (PHCN), were handed over to private investors.

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At the point of privatising the power sector, assets worth over N300bn were committed into the hands of private investors and managers by about 80 per cent. This was with the vision of having a transformed sector where electricity supply would be available for a minimum of 18 hours within the first five years, industry watchers had projected in 2013.

To ensure that the sector was well coordinated in the various aspects of the three key value chains – generation, transmission and distribution, the federal government made modalities for checks and controls of the industry players by creating a regulator-the Nigerian Electricity Regulatory Commission (NERC). 

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NERC, the umpire

The Nigerian Electricity Regulatory Commission (NERC) is the sole umpire of the power sector, given its power from the Electric Power Sector Reform Act 2005 (EPSRA). The commission had operated from 2005 at a time when the National Electric Power Authority (NEPA) was turned to PHCN.

Regulatory decisions were to be taken by a board made up of seven commissioners picked by the presidency and approved by the Senate.

Spanning nearly 13 years of its existence, NERC created key instruments in the Nigerian electricity market. These instruments include many rules and regulations, methodology, codes and orders guiding operations in the sector. Popular among these are the Multi Year Tariff Order (MYTO) setting the price of electricity for wholesale and  consumption; grid code,  market rule, license terms, with the recent being the Eligible Customer Regulation and Meter Asset Providers (MAP) regulation.        

NERC has licensed over 100 companies in the electricity supply industry, consisting of those in the value chain and others providing ancillary services like metering.

But NERC, which ought to be independent, is not the sole master in the sector. Industry sources have argued that due to the slow pace in covering so much ground in regulation fussed with inconsistent government policies, other agencies have crept in to take crumbs of quasi-regulation.    

To salvage the aspect of technical enforcement, NERC in 2015 appointed 14 technical inspectors to monitor performances and compliance with extant market rules by electricity firms but it was late already, as a new technical agency had emerged.

NBET, payment guarantor

Preparatory to the privatisation in 2013, the Nigerian Bulk Electricity Trading Plc (NBET) was created to guarantee payment for electricity generation to the GenCos by the DisCos. NBET drives this through the Power Purchase Agreements (PPAs) and sells to the DisCos through vesting contracts.

Among its roles is that while NERC watches, NBET says it promotes a contracts-based market that allocates risks efficiently to parties responsible for them.

It also formulates and does advisory on polices for efficient system settlement and least possible cost incentives for maintaining the transportation network within its acceptable energy, frequency responses and voltage tolerances.

It was supposed to nurse the industry in the interim of the privatisation until when the Transitional Electricity Market (TEM) was declared and the market became strong. However, TEM was declared in 2015, NBET remained and payments from the DisCos to the GenCos for generated electricity have nose-dived. 

Is NEMSA enforcing technical standards?

The Nigerian Electricity Management Services Agency (NEMSA) was established by the NEMSA Act No.6 of 2015 to carry out the functions of enforcement of technical standards and regulations.

Others include technical inspection, testing and certification of electrical installations, meters and instruments to ensure safety in the industry and save lives and property.

What role does market operator, TCN play?

The Operator of the Nigerian Electricity Market (ONEM) is a business unit of the Transmission Company of Nigeria (TCN), a licensee of NERC. Yet, it collects service and ancillary charges from which NERC gets 1.5 per cent to run its operations. Thus, a funding source for NERC – the regulator is still subject to control its licensee.  

Before 2015, ONEM, also called Market Operator (MO), collects energy payment from the DisCos on behalf of the GenCos while NBET acts as a guarantor where there is shortfall due to what the DisCos call collection losses (inability to collect monies equivalent to power supplied to all its customers (end-users).

Interagency wrangling changed that and MO now collects only ancillary service charges from the operators (DisCos, GenCos and TCN) while NBET collects bulk energy payments.

BPE – the privatisation marketer

The Bureau of Public Enterprises (BPE) is an inter-ministerial agency directly under the Presidency. However, because it executed the sales of the power sector assets, it signed key agreements with the private firms and represents the government in the board of the DisCos where government still retains 40 per cent equity.

One of these agreements is the Service Level Agreement (SLA) that mandates them to improve the networks and reduce power losses significantly in five years which ends by October 2018. Thus, the private operators are also answerable to the BPE to some extent other than NERC, which only watched during the privatisation period.

Gains of having multiple pruning agencies

Although it would be said that there are multiple agencies in the power sector, Nigerians could count possible positive outcomes of these in the past five years.

Promoting safe use of electricity

In the days of PHCN, there were electricity accidents, some of which led to the death (electrocution) of staff and some end users but they were hardly held responsible. Since privatisation, NERC had taken more action on penalising DisCos, mostly where such incidences occurred.

Compensation worth N15 million and more had been paid respectively by DisCos through NERC’s orders to deceased families along with compelled treatment of victims in Abuja and Lagos, among others.

NEMSA started keeping records of accidents in the industry, recording over 200 of such since 2015. It also does ranking of the firms on those that have the safest networks per month. The rating is visible to financiers and industry watchers and has ensured the operators become aware of the danger it poses to the operational reputation.

Financial intervention

For the first time, the operators got a N213 billion loan from the Central Bank of Nigeria (CBN) due to the presence of regulations and regulatory documents. The GenCos also got guarantee of N701bn from NBET to raise their monthly invoice payment from the mere 30 per cent the DisCos are remitting to about 80 per cent so they can have more liquidity to generate more power for consumption. 

Options for power supply, service improvement

With the eligible customer rule, more customers can now buy power directly from GenCos other than the DisCos. The Meter Assets Providers (MAP), although yet to start, will ensure more meters are rolled out from October 2018, just like the Credited Advance Payment for Metering Initiative (CAPMI) that ended in 2016 when customers bought more meters to curb exploitative estimated billing from the DisCos.

Clogs in the wheel

While the conditions are said to be improving, there are hurdles that have been caused by the existence of multiple regulators. The major one is the rift it has created between and among agencies. 

The most recent is a rift between NERC and BPE over the suspension of Ibadan DisCo for diverting N6bn from the CBN loan it got. While NERC suspended the private firm on June 19, 2018, BPE wrote to NERC seeking the suspension cancellation on June 20.

Daily Trust learnt that NERC ignored the request while the DisCo went to secure a court injunction annulling the suspension till October. However, NERC has insisted that the DisCo remains suspended.

MO and NBET had their fair share after infighting over who pays what and to whom. The payment for bulk energy was finally taken from MO and given to NBET while MO retains collection of ancillary charges from DisCos since 2015.

NERC and NEMSA, at inception, had issues on who was in charge of technical inspection. NERC claimed to be in charge but the technical capacity was lacking. However, NEMSA has said it is not a technical regulator but ‘enforcing technical standards’ to save lives and property.

There is the System Operator (SO), another business unit of TCN which controls the national grid. In its own way, it forces the DisCos and GenCos to comply with rules without consultations, some stakeholders have claimed. For instance, the Executive Secretary, Association of Power Generation Companies (APGC), Dr. Joy Ogaji, had raised alarm that vulgar abuse was part of how SO exerts its rules on GenCos and had threatened court action.

The Association of Nigerian Electricity Distributors (ANED) representing the 11 DisCos has always traded blames with SO on what is termed load shedding (rationing). ANED claims SO dumps power for them where it is not economically viable while SO (TCN) claims the DisCos lack capacity to evacuate power. With this bickering, end users have been deprived of an average of 1,000 megawatts (MW) daily in several months.

 

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