Tariff hike & band A controversy: N4T gas debt, vandalism, energy theft make power supply crisis worse — Adegbemle
…Speaks on metering gap and poor communication from FG
The latest subsidy removal in Nigeria’s power sector and the categorization of consumers into different bands were unprecedented.
However, in this interview with Udeme Akpan, Energy Editor, Adetayo Adegbemle, Executive Director, PowerUp Nigeria, spoke on a wide range of issues, including factors fuelling low generation, transmission, distribution, and pricing as well as options that could be adopted to resolve problems in the sector.
What is the current state of power generation, transmission, and distribution in Nigeria?
This is a very broad question, with each sub-sector facing peculiar challenges, but the thread holding all of them together is money.
Due to huge debts to gas suppliers, and associated gas constraints, our generation has been hovering between 3, 500MW and 3, 900MW. Despite the Transition Company of Nigeria, TCN, publishing several commissioning, we are yet to see the effect of the huge spending on the Transmission Grid.
Distribution, of course, is restricted to distributing what gets to them, which is never adequate to go around. They are also faced with other challenges, which include the inability to raise the required funds to Meter Customers, improve their distribution network, and reduce technical, commercial, and collection losses. Like I said earlier, it is the same finance that is holding them all together.
Why has it been impossible for GenCos, TCN, and DisCos to invest adequate resources and build the required capacity to generate, transmit, and distribute power to consumers many years after privatization?
This, again, brings to the fore the issue of money. I think inappropriate pricing of electricity, or what we call subsidy, is one factor to blame for this.
If you own a bakery, and you sell your bread, but never make enough to cater for raw materials like the flour used in baking bread, butter and other needed materials, it won’t take long before you reduce the quality of the bread to enable companies to break even, then at some point, you won’t even be able to afford to buy the flour to bake the bread again. At that point, you lose interest in expanding your operations.
This same simple analogy applies to the power sector. You will recall that between early January and mid-March of this year, the state of the power sector degraded drastically. This is because Generating Companies’ indebtedness to gas suppliers had gone up to N4 trillion, and Gas suppliers had withdrawn their supplies.
Yes! N4 trillion debt. No investor will invest more money when there is no clear path to cost recovery. So, it is important that we first look at appropriate pricing for electricity to be able to attract needed investments.
What are the current band classifications, subsidy removal, and new tariffs all about?
This is another interesting question in that the bands are already four years old. They were introduced in 2020 along with the Service Based Tariffs, which says locations with advanced infrastructure and that can deliver more energy to consumers should be allowed to do so, and the consumers pay a tariff that reflects the hours, or bands, they receive and enjoy.
So, Band A with a minimum of 20 hours daily power supplies was introduced as the Premium band. Other locations within the country can not enjoy as much energy because of weaker and inadequate infrastructure. They are also divided into Bands.
So we have Band A which enjoys between 20 and 24 hours per day, Band B gets between 16 and 19 hours per day, Band C gets between 12 and 15 hours, Band D which gets 8 and 12 hours, and Band E gets a minimum of 4hours per day. There is Band E in some locations as well, depending on the ability to get power to these places.
When you look at it the kind of infrastructure in places like Maitama, Ikoyi, Surulere, Jos, and Asokoro cannot be compared with infrastructure in places like Mowe, Ibafo, Ologuneru, and a lot of newly developed sites.
So, what the new tariff implies is that subsidy has now been withdrawn from Band A Customers, accounting for 15% of total customers on the grid. Let me also say that this subsidy removal affects only those in Band A. So, if you are not on Band A, you are not affected by the new tariff.
Who are those classified under band A, and why are they expected to pay more for electricity?
As I said earlier, one of the major factors that determine these bands is the quality of infrastructure in these areas; another is the volume of high consumption of energy in these areas.
One thing that is also common with these locations is that they are mostly affluent and high-income areas of society, and they represent a disproportionately high share of energy consumed relative to their share of the customer population.
We have major industries also covered. Many of the maximum demand users (industries and productive users of electricity) are covered under Band A feeders, thereby catalyzing industry as a vehicle for economic development.
This increased energy supply to these feeders will reduce their net energy spend because otherwise, they would have to depend on diesel generating sets, which cost more than two times that of grid energy per kWh.
Does it mean that other bands will not have sufficient power supply?
This is not the design, and this is not the case. Recall that, as I said earlier, the Band A customers already account for 40% of the energy generated already.
The regulators, too, in the meeting with Civil Society Organizations and Community Based Organizations, promised to keep monitoring supplies to other bands to make sure they were not short-changed.
Why are many households and businesses under Band A unable to have up to 20 hours minimum supply?
I can not speak to this because we do not have evidence of this. Many people do not even know what Bands they belong to. It is this subsidy removal from Band A customers that has awakened the interest of many Nigerians to it. I am also aware that the Regulatory Commission is holding regular situation briefings with DisCos as well.
What measures have been put in place by NERC to protect customers whose rights have been denied or threatened?
The Commission in the meeting with CSOs and CBOs on Monday explained steps they have put in place, and you may be permitted to highlight these. The tariff review is anchored on guaranteed service delivery to the customers; only feeders with historical compliance with the service level are covered in Band A.
DisCos are mandated to set up a rapid response team to ensure effective service delivery on the committed minimum hours of supply to each service band commencing with Band A feeders. Where a DisCo fails to meet the committed service level of a feeder for consecutive seven (7) days, the feeder shall be automatically downgraded to the recorded level of quality of supply.
How severe are vandalism, illegal connection, and energy theft problems in the sector?
Vandalism, illegal connections, and energy theft are huge challenges to the power sector everywhere in the world, but the case of Nigeria is beyond explanation.
You will find the high and influential and the not-so-rich people engaging in energy theft. Vandalism of power infrastructure is rife. As we speak, there are no power supplies to Yobe State because of Vandalism; even the Federal Capital is not exempted.
There is a need to have strong legislation against energy theft and vandalism of power infrastructure. Security operatives also need to be aware of this national infrastructure, and everyone should be vigilant to protect this infrastructure.
You should be able to speak out if you have a neighbour with an illegal connection, and so on. Many DisCos also have whistleblowing policies to encourage speaking out when you see such economic sabotage.
What other issues and problems abound in the power sector, and how can they be tackled?
We still have a huge metering gap unfilled, and this is one of the reasons many Nigerians are kicking against the removal of this subsidy. But I understand that the Commission is working on the liberalization of Metering. I would have recommended what I called Meter Franchising. It is more like the present Meter Assets Providers, but in this case, investors can take up a Feeder on a Franchise and install Meters to every Customer on the Feeder. They can recoup their money via recharge. The Commission can also chart a cost recovery for such investment.
We still do not have a policy direction from the Ministry of Power. This is overdue and does not speak to the seriousness and emergency the sector deserves. Of all the spending in the Transmission Grid, we are yet to see the impact on the wheeling capacity of the grid.
What advice do you have for the government, operators, and consumers?
The government must sensitize its people in the government’s policy direction, and I think this government is not doing enough of this. By now, jingles should have been playing all over the country, explaining this to the people. This reminds me of what happened immediately in the aftermath of privatization in 2013. So many messages were run, and it was left to individuals like us to try and set the narrative right. The government should not let this happen again.
I would also say that the government should take the lead in educating Nigerians on energy conservation, and Nigerians should practice conservation as well. We hope that the operators will be able to meet up with the service level agreement they signed up to.
(Vanguard)
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The latest subsidy removal in Nigeria’s power sector and the categorization of consumers into different bands were unprecedented.
However, in this interview with Udeme Akpan, Energy Editor, Adetayo Adegbemle, Executive Director, PowerUp Nigeria, spoke on a wide range of issues, including factors fuelling low generation, transmission, distribution, and pricing as well as options that could be adopted to resolve problems in the sector.
What is the current state of power generation, transmission, and distribution in Nigeria?
This is a very broad question, with each sub-sector facing peculiar challenges, but the thread holding all of them together is money.
Due to huge debts to gas suppliers, and associated gas constraints, our generation has been hovering between 3, 500MW and 3, 900MW. Despite the Transition Company of Nigeria, TCN, publishing several commissioning, we are yet to see the effect of the huge spending on the Transmission Grid.
Distribution, of course, is restricted to distributing what gets to them, which is never adequate to go around. They are also faced with other challenges, which include the inability to raise the required funds to Meter Customers, improve their distribution network, and reduce technical, commercial, and collection losses. Like I said earlier, it is the same finance that is holding them all together.
Why has it been impossible for GenCos, TCN, and DisCos to invest adequate resources and build the required capacity to generate, transmit, and distribute power to consumers many years after privatization?
This, again, brings to the fore the issue of money. I think inappropriate pricing of electricity, or what we call subsidy, is one factor to blame for this.
If you own a bakery, and you sell your bread, but never make enough to cater for raw materials like the flour used in baking bread, butter and other needed materials, it won’t take long before you reduce the quality of the bread to enable companies to break even, then at some point, you won’t even be able to afford to buy the flour to bake the bread again. At that point, you lose interest in expanding your operations.
This same simple analogy applies to the power sector. You will recall that between early January and mid-March of this year, the state of the power sector degraded drastically. This is because Generating Companies’ indebtedness to gas suppliers had gone up to N4 trillion, and Gas suppliers had withdrawn their supplies.
Yes! N4 trillion debt. No investor will invest more money when there is no clear path to cost recovery. So, it is important that we first look at appropriate pricing for electricity to be able to attract needed investments.
What are the current band classifications, subsidy removal, and new tariffs all about?
This is another interesting question in that the bands are already four years old. They were introduced in 2020 along with the Service Based Tariffs, which says locations with advanced infrastructure and that can deliver more energy to consumers should be allowed to do so, and the consumers pay a tariff that reflects the hours, or bands, they receive and enjoy.
So, Band A with a minimum of 20 hours daily power supplies was introduced as the Premium band. Other locations within the country can not enjoy as much energy because of weaker and inadequate infrastructure. They are also divided into Bands.
So we have Band A which enjoys between 20 and 24 hours per day, Band B gets between 16 and 19 hours per day, Band C gets between 12 and 15 hours, Band D which gets 8 and 12 hours, and Band E gets a minimum of 4hours per day. There is Band E in some locations as well, depending on the ability to get power to these places.
When you look at it the kind of infrastructure in places like Maitama, Ikoyi, Surulere, Jos, and Asokoro cannot be compared with infrastructure in places like Mowe, Ibafo, Ologuneru, and a lot of newly developed sites.
So, what the new tariff implies is that subsidy has now been withdrawn from Band A Customers, accounting for 15% of total customers on the grid. Let me also say that this subsidy removal affects only those in Band A. So, if you are not on Band A, you are not affected by the new tariff.
Who are those classified under band A, and why are they expected to pay more for electricity?
As I said earlier, one of the major factors that determine these bands is the quality of infrastructure in these areas; another is the volume of high consumption of energy in these areas.
One thing that is also common with these locations is that they are mostly affluent and high-income areas of society, and they represent a disproportionately high share of energy consumed relative to their share of the customer population.
We have major industries also covered. Many of the maximum demand users (industries and productive users of electricity) are covered under Band A feeders, thereby catalyzing industry as a vehicle for economic development.
This increased energy supply to these feeders will reduce their net energy spend because otherwise, they would have to depend on diesel generating sets, which cost more than two times that of grid energy per kWh.
Does it mean that other bands will not have sufficient power supply?
This is not the design, and this is not the case. Recall that, as I said earlier, the Band A customers already account for 40% of the energy generated already.
The regulators, too, in the meeting with Civil Society Organizations and Community Based Organizations, promised to keep monitoring supplies to other bands to make sure they were not short-changed.
Why are many households and businesses under Band A unable to have up to 20 hours minimum supply?
I can not speak to this because we do not have evidence of this. Many people do not even know what Bands they belong to. It is this subsidy removal from Band A customers that has awakened the interest of many Nigerians to it. I am also aware that the Regulatory Commission is holding regular situation briefings with DisCos as well.
What measures have been put in place by NERC to protect customers whose rights have been denied or threatened?
The Commission in the meeting with CSOs and CBOs on Monday explained steps they have put in place, and you may be permitted to highlight these. The tariff review is anchored on guaranteed service delivery to the customers; only feeders with historical compliance with the service level are covered in Band A.
DisCos are mandated to set up a rapid response team to ensure effective service delivery on the committed minimum hours of supply to each service band commencing with Band A feeders. Where a DisCo fails to meet the committed service level of a feeder for consecutive seven (7) days, the feeder shall be automatically downgraded to the recorded level of quality of supply.
How severe are vandalism, illegal connection, and energy theft problems in the sector?
Vandalism, illegal connections, and energy theft are huge challenges to the power sector everywhere in the world, but the case of Nigeria is beyond explanation.
You will find the high and influential and the not-so-rich people engaging in energy theft. Vandalism of power infrastructure is rife. As we speak, there are no power supplies to Yobe State because of Vandalism; even the Federal Capital is not exempted.
There is a need to have strong legislation against energy theft and vandalism of power infrastructure. Security operatives also need to be aware of this national infrastructure, and everyone should be vigilant to protect this infrastructure.
You should be able to speak out if you have a neighbour with an illegal connection, and so on. Many DisCos also have whistleblowing policies to encourage speaking out when you see such economic sabotage.
What other issues and problems abound in the power sector, and how can they be tackled?
We still have a huge metering gap unfilled, and this is one of the reasons many Nigerians are kicking against the removal of this subsidy. But I understand that the Commission is working on the liberalization of Metering. I would have recommended what I called Meter Franchising. It is more like the present Meter Assets Providers, but in this case, investors can take up a Feeder on a Franchise and install Meters to every Customer on the Feeder. They can recoup their money via recharge. The Commission can also chart a cost recovery for such investment.
We still do not have a policy direction from the Ministry of Power. This is overdue and does not speak to the seriousness and emergency the sector deserves. Of all the spending in the Transmission Grid, we are yet to see the impact on the wheeling capacity of the grid.
What advice do you have for the government, operators, and consumers?
The government must sensitize its people in the government’s policy direction, and I think this government is not doing enough of this. By now, jingles should have been playing all over the country, explaining this to the people. This reminds me of what happened immediately in the aftermath of privatization in 2013. So many messages were run, and it was left to individuals like us to try and set the narrative right. The government should not let this happen again.
I would also say that the government should take the lead in educating Nigerians on energy conservation, and Nigerians should practice conservation as well. We hope that the operators will be able to meet up with the service level agreement they signed up to.
(Vanguard)
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