Electricity distributors fight back

Electricity distributors

THESE are not the best of times for the power sector. The sector has been swimming in troubled water in the past few months. It was initially between the electricity Distribution Companies (DisCos) and customers, who complain of estimated billing and non-availability of meters.

The crisis degenerated when the Generation Companies (GenCos) accused DisCos of under-remitting the collections they make. The DisCos’ huge debts made it difficult for GenCos to pay their gas suppliers.

Also up in arms against the DisCos is the Power, Works & Housing, Babatunde Raji Fashola. The bone of contention is the failure of the DisCos to the customers, who feel they have been paying for services not enjoyed.

But, the DisCos, being the only one on the power supply value chain with direct link with energy consumers, rose to defend their integrity.

They have served the Federal Government a notice to quit the business once they get refund of their investment, lamenting that they run the assets at a loss.

The DisCos’ position was articulated by the Executive Director of the Association of Nigerian Electricity Distributors (ANED), Mr. Sunday Oduntan.

Oduntan accused the minister of getting his facts wrong be referring to ANED as an unknown entity to the law in the power sector, pointing out that ANED is to DisCos what the Nigerian Bar Association (NBA) is to lawyers.

ANED tackcles minister

Responding to the minister, Oduntan explained: “ANED is just like any other association such as the Nigerian Bar Association (NBA) to which he belongs. In other clime, ANED is equivalent to Energy UK. So, it is very legitimate for people to come together as an association in the interest of the industry that we serve.

“I work for ANED. It was formed by and represents the 11 DisCos and has been in existence for more than three years. So, I represent all the DisCos operators and all their investors. The issue at hand is not about Sunday Oduntan or Fashola. It is about why we don’t have light, what can we do? Besides, we are also customers of some DisCos and what affects my neighbour affects me because they cannot give light to me alone.

“We are in this situation together as Nigerians, so our interest is how to improve the situation in the sector. So, when we responded to the press briefing by the minister of Power, Works & Housing, which he granted on the 9th of July, 2018, our response was robust, objective, straight to the point with facts, figures and statistics.

“However, we were amazed when on the morning of 20th July, 2018, the minister issued a statement where he attacked my person, Mr. Oduntan personally, frontally and viciously and we hope that what we should do is to look at the message and not the messenger.

“I will like to confirm what the minister said that I’m not an investor in any of the DisCos but I’m a customer of a DisCo and a stakeholder in this industry. So, I want to us to concentrate on issues because this is not about Fashola, it is about our country and industry.

“In areas where good things have been done, we commend the government. It is in our interest for this current Government to succeed and we implore politicians not drag the DisCos into politics.”

Domestic, commercial consumers hit

 Noting the importance of collaboration among stakeholders in the power sector, Oduntan emphasised the need to look at the peculiarities of each of the value chain. According to him, even if the minister was unaware, he had taken steps on various occasions to urge people close to the minister to tell of the need to discuss.

He said: “The need for all stakeholders to come together to discuss sincerely, no politics, no deceit, no pride and no grandstanding but humility all through is very important, he noted. What we need is collaboration, the agencies and operators to sit down and also the minister whose major role is policy-making and direction, he is the owner and driver of this car called power sector.

“So, we are ready if he calls for dialogue anywhere any day. We know that our businesses are at risk, anybody who has the credibility to borrow money from a bank to invest in a business such as the power sector, needs to be supported.

“If the DisCos collapse today, many Nigerian banks will collapse with it. When the power entities were being sold, only one of the entities had direct foreign investment, all the other ones borrowed money from Nigerian banks and they have to pay back in dollars.

“The fact is that those who have put their monies in entities like this, they will be the first persons to wish that the system succeeds because the failure of the system means their monies have gone down the drain.

“Remember the transaction was on 30 per cent equity and 70 per cent loan. We borrowed this model from New Delhi in India. We have done it successfully in India, how come our own is like this?”

Describing electricity as a product like any other, Oduntan said: “There is cost of production to it, therefore, it has landing cost. If you look at the cost (or invoices) of production from the gas supplier to GenCos and down to DisCos through NBET, what is passed to DisCos is higher than what the DisCos pass to customers, which means there is a mismatch.

“You buy a product at N80.88 and allowed to sell the same product at an average of N31.56 or at most N32, imagine the gap. This means there is need for alignment because you don’t force things down other people’s throats.

“You cannot pretend that exchange rate is the same today as it was in 2013. There is a huge foreign exchange component in this business. Therefore, for the regulator to take decision, it needs to discuss with the DisCos that face the public.

“The issue of collaboration among the various supply value chain is missing. We are not against the policy of eligible customer but the timing because when the entities were privatised, there were performance agreements that were signed between the government as represented by the BPE and the investors.

“There was agreements government committed to do, which it has not done and there are things the operators committed to do which they have not fully done because those things are conditional upon what the government supposed to do.”

To him, appropriate pricing remained one of such issues. He noted: “That has not be done till date. This means the DisCos’ ability to be efficient is suppressed. Also the issue of eligible customer depends on when and how it was brought in. The way electricity tariff is structure is that the maximum demand customers who pay heavily subsidise the small consumer such as residential customers.

“If another person comes in and takes away the big companies, he has succeeded in taking away the cross-subsidy for the small customers, which means the small consumers have to pay more.”

 

Realities of the power sector 

“It is with much regret that we feel compelled to respond to the significantly distorted picture that has been painted of the electricity distribution companies (DisCo) by the minister of Power, Works and Housing in his press briefing of Monday, July 9th, 2018.

“In good faith and with recognition that the challenges of the Nigerian Electricity Supply Industry (NESI) cannot be turned around based on a culture of misrepresentation, we have declined to rebut previous inaccurate assertions by the Minister and other government functionaries.

“In this instance, it is clear that the objective of that briefing was to demonize the DisCos, who by the structure of NESI, are the faces of a difficult sector.  We are also left wondering whether such demonization of the DisCos is camouflage for the absence of the effective policy leadership that is desired for implementing the enabling environment that is necessary for the viability and sustainability of NESI?

“We recognise that we are on the crux of a political season, in which all manner of advantage is being sought by political contenders, we however, do not want to be used as the whipping dog to advance other people’s agenda.

“Our members, the DisCos, are not politicians, even though they distribute a product that is of great importance to politicians, in view of the needs of their constituents.

“Our constituency, which consists of customers, employees, bankers, vendors and investors, has a greater interest in improved service delivery than the adoption of cheap theatrics and propaganda for political advantage.

“We take our service delivery obligations to our customers seriously, with total commitment to improving the quality of the electricity distribution experience to them, as well as meeting the performance obligations of the agreement that we have with the Bureau for Public Enterprises (BPE).

“This is more so as the commercial success of our investments is intrinsically tied to the quality of our service delivery. Thus, it is important that our customers not suffer from any false impressions of an abrogation of our total commitment to providing them with an improved electricity supply experience, however, promoted by persons who have a different agenda.

“Consequently, we believe that it is critically important that we provide both clarification and information as to the issues of misrepresentation indicated in the minister’s press briefing.”

Oduntan noted that  the privatisation of the Power Holding Company of Nigeria (PHCN) successor companies was based on the government’s acknowledgment it was the only way to attract investment and increase in power supply in a sector that was moribund and famous for its inefficiencies.

The government was to remove the commercial risk of non-payment of power invoices to the power developers by guaranteeing payment for the delivery of energy by NBET, based on a tariff structure that covers the cost of all the stakeholders along the value chain.

He said the arrangement was expected to serve as a catalyst that would drive both an increase in energy and create a commercial framework that allows the parties to recover their cost of doing business.

Oduntan noted: “After this first stage was stabilized, the result of this would have been an evolution of the market into a contract-driven market, in which the DisCos are able to buy energy directly from power generating companies (GenCos), creating bilateral contracts, a phase also known as the Transitional Electricity Market (TEM). “This is a desired outcome for all the operators in the sector. Unfortunately, the evolution into TEM was truncated  by politically-induced regulatory restrictions and actions (removal of collection losses, freezing of the tariff  for R2 residential class for 18 months, non-payment of N100 billion subsidy for 2013 and 2014, under-recovery of required revenue, non-implementation of minor and major tariff reviews, all manner of politically induced regulatory orders, etc.) that have resulted in the inability of the DisCos to recover the cost of the energy that they supply, preventing  their ability to enter into contracts to directly purchase energy from GenCos.

“Like any commercial transaction, such contracts must be based on prices that are mutually sustainable for the contracting parties. As an example, how is a DisCo, which today has an average tariff to customers of N32/kWh instead of N45/kWh be expected to contract for bilateral power for which it would pay N100/kWh for?

“The major reason adduced by the government and the regulator for this situation, so far, has been the need to manage the implications of appropriate pricing on the populace and the government.

“Therefore, in an environment of significantly limited supply, the determination that the DisCos are unwilling to maximise the supply of electricity to their customers for some nefarious reasons is counter-intuitive.

“The only product DisCos have to sell to make revenue is electricity, therefore the more power DisCos sell, the more revenue they make. The only reason a DisCo would not take more energy is due to the impact of the revenue shortfall in the industry which limits the available capital available to invest to take the power.

“To continue to prevent DisCos to receive the allowable revenue needed to run the sector effectively and turn around and accuse them of not investing in the sector is disingenuous.

“This is, principally, the reason DisCos cannot contract directly with the GenCos, the minister’s position is inconsistent with the facts. Indeed, the various interferences in the past fourfour years have simply created a continuous shifting of the goal post.”

The ANED spokesman stated that the metering gap, a major concern for customers and DisCos, has become a politicised issue.

Metering, he said, will significantly reduce collection losses and improves customers’ willingness to pay, pointing out that metering is a performance requirement for DisCos, who have shown commitment to meter their customers.

He decried the minister’s directive to NERC to cancel the Credited Advance Payment Metering Implementation (CAPMI) initiative, which made meters available to consumers.

Oduntan said: “Unfortunately, the currently identified approximately 4.1 million meter gap is a legacy of 62 years of government underinvestment and PHCN inefficiency.

“This gap continues to grow, as DisCos enumerate and identify their customers, convert illegal consumers into customers, replace non-functional and aged meters and make new connections.

“The gap not only exceeds the 1.7 million metering obligation specified in the DisCos’ performance agreement (out of which the DisCos have delivered 88 per cent of their metering obligation) and the 2.7 million metering gap at the handover of the DisCos but exceeds the allowance for total capital expenditure (CAPEX) of N305 billion, for 11 DisCos, over five years, for all metering, network expansion, rehabilitation and replacement of transformers, injection stations, among others, when compared with an estimated N299 billion required to address the gap. In simple terms, the cost of comprehensive metering, currently, simply dwarfs the ability of the current tariff to accommodate same.  It means that the already artificially suppressed tariff cannot accommodate the cost without an increase.

“With the farming out of the responsibility of metering to third party vendors under the Meter Asset Provider (MAP) regulation enacted by NERC, it is our hope that the challenges of estimated billing will be minimised for our customers over time.

“Indeed, the minister is right in his assertion that the failures in the volume of energy is not the fault of the DisCos but a product of the vandalism of gas pipelines that are operated by the Nigerian Gas Company (NGC) and the grid instability and frequent system collapses caused by the Transmission Company of Nigeria (TCN), both wholly government-owned entities.”

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