INTERVIEW: Raising tariff without quality electricity dangerous for Nigeria — Former NERC boss
Nigeria’s electricity sector has underperformed for decades, with low generation and poor transmission networks. The sector experienced grid collapse twice in August, the sixth time in 2021.
On August 27, the former chairman, Nigerian Electricity Regulatory Commission (NERC), Sam Amadi, took questions on the performance of the sector when he appeared on TVC Business news. PREMIUM TIMES‘ Oge Udegbunam transcribed the interview.
We have been having grid collapse, what could be responsible for it?
Mr Amadi: I guess we need to acknowledge that constant system collapse is a function of grid frailty, it could be for so many reasons, a notable one is that our networks, especially the transmission networks are weak and oftentimes radial but not looped together so the level of reliability that you require to run the network is low. And of course we know that our guys in TCN (Transmission Company of Nigeria) are working hard but essentially we still don’t have the skill of operations and the level of coordination required. One of the things you get when you unbundle the power sector is that you increase coordination problem and that is why technology comes to help, so we are still running on low rudimentary technology and so occasional failures will occur.
Again, there is also a contribution from the distribution network, it is not just the TCN that has problems because the Discos network is also very weak and this rainy season trippings are many, they need to relay some of the lines. What happens is that sometimes the failure of the transmission is triggered by the collapse in the local grid.
Volatility of supply can also affect. We talk about spinning reserves and other redundancies that are in the network, different times they are not enough and so sometimes it can lead to the level of collapse. When it is on a large scale whether it is total collapse or partial collapse it is ultimately the quality of the grid and so for some time we will be talking about more investment in the network, but that also will be dependent on revenue recovery of the discos, on the amount of power you can send to the grid. It also depends also on the metering level and the change management strategy of these discos to protect the revenue cycle and therefore enhance the transmission core capacity to invest and manage a much more reliable grid, back to the federal government plan, the meter roll-out.
All these initiatives are trying to solve a problem from diverse points, it looks like too little oftentimes since it’s being done because really, the collapse, the symptoms, and the underneath causes are widespread and systemic in a way and therefore often times these collapses remind us that we are not anywhere near where we want to be in terms of quantity, change management strategies, policy interventions and general project management.
I want to take us back to the privatisation exercise. Some are still on the process saying it could have been better done, you are an expert, what do you make of that process? And, are we really achieving what we ought to achieve from this process? We are still distributing 4500MW in a country of 200 million people after years of privatisation?
Mr Amadi: Well, I think the debate continues on privatisation and my views are well known and they are that first, if I was to advise, we should not have privatised when we did because of three reasons: the level of regulatory certainty you need to have a post-privatization outcome as shown from what has happened everywhere in the world, a level of regulatory stability.
Unlike other countries, we are privatising from acute shortage, acute scarcity, it is also better to ramp up capacity, to have a market, a tradable quantity. If you have like 80,000 MW, then the notion of a regulatory private market will be more real than academic. Thirdly, the level of risk and decay of our infrastructure and utility before privatisation. It was doubtful if any serious investor with great technical and financial capability would have come to the market.
I think the process was good enough, I think the Bureau of Public Procurement ( BPP) tried to be transparent, but the proposition was wrong, I think we needed to fully corporatise and commercialise. The argument was this: we needed shock therapy, that was the neo-liberal argument spreading abroad, promoting shock therapy: get the utilities into a private hand and private ownership will incentivise efficiency, but that’s not true.
What we should have done is an orderly transition from public ownership to private ownership. First, we build a corporate profile, instill commerciality, and have corporate governance.
For example, until I became NERC chairman, we didn’t have an audit report on NEPA, we did the first audit accounts, we did the first-meter inquiry and until today, there is still no clarity about the customer numbers of the Discos, we don’t have a scientifically verified and bankable customer base. These are critical incidences of commercially viable operations in the world.
We invested so much in private ownership to cure inefficiency. What we should be doing now is to forget that debate and ask what we can do to save that situation. Allow the regulator to play a key role, strengthen the distribution and then policy, leadership, let’s get the utilities to review the tariff and embrace the best corporate practice.
The government, as they are doing now, will have to make a very smart investment in the grid in spite of private ownership, they should also back it up with how they will improve service delivery, so essentially we are back to where we started from. We need to get back to strengthening public policy aspect of the market, strengthen public investment in the market, strengthen regulations, strengthen public supervision and project management.
Essentially, this is not a market that is very fair for the private sector to take all the systemic risk. We don’t need to expect the investors to deal with all the transmission problems to deal with the revenue crisis, to deal with metering. I have argued for metering to become a public service, provide meters for all Nigerians and allow discos to charge them rates that justify production of power.
So, primarily it is arguable if we did the right thing or not. But I think we did the right thing in unbundling and in trying to commercialise the sector, but this is not the right time in my view that we will be privatising when we would have built up competency, proof efficiency, then the real strong hands in the market will come in and we will tactically begin to privatise some value chains and build on experience with each of the phases to make the process better. It is an evolutionary process in moving from industry to market and not the way we did it.
I would like to ask you about the cost-reflective tariff, what do we mean by a cost-reflective tariff?
Mr Amadi: Well, a cost-reflective tariff in my view is both an art and a science. The problem of this industry is not primarily tariff; even if you increase it by 200 per cent, the discos will not significantly improve their revenue because the incentive to bypass to save costs will be high because the people will not get commensurate service.
In my view, allow the regulator to design and define a framework that is bankable and credible. Second, the regulators will be transparent. We are going to have discos give us clear and reliable power. If you create confidence, you will gradually move to a level of tariff that covers the cost of production you improve with that because the idea is not just about the cost, it is about satisfaction.
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You have to incentivise consumers to pay more, and the discos to supply more service. What we are seeing today is that so much focus is on the pricing and not on the quality improvement side. I want to see the two of them together. Allow investors to come in and allow the ones that are there to perform, we should have a tariff structure that encourages consumers to stay on the grid and not to want to steal power or move out of the grid or even sabotage the grid.
I think if we keep inflating prices without taking cognisance of the quality of service delivery, electricity will be very high and people may start opting out of the grid, which will lead to grid collapse, so we have to be careful. The regulator must set up a tariff in a manner that allows power and customer value, and at the same time allows investors to recover the cost in increasing manner.
Nonpayment is another thing that worries the Discos. Do you think we need a total attitudinal change to understand that this is no more government so that we need to support the investors so that they will actualise their gains? What can we do to take advantage of that?
Mr Amadi: Having different prices for customers could be a good point. We focus so much on moralising, but you see, if you get reliable power and you match it to credible communications, I am more in support of an institutional approach.
What are your projections for the sector, how soon do you see it getting better?
Mr Amadi: I think it will get better but we have to do a couple of things. I think the leadership of the sector is weak. At this point, we need to have strong leadership that is also communicating. Gradually we will move to a real market that drives a huge level of policy leap that we want to see. We will make progress but we will need intelligent leadership. The regulator is doing nearly fairly well.
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This post was written by Oge Udegbunam and was first published at www.premiumtimesng.com