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Monday, July 22, 2024

Why We Now Have Electricity – NERC [INTERVIEW]

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Sam Amadi is the chairman, Nigerian Electricity Regulatory Commission (NERC). In this interview with PEMBI DAVID-STEPHEN and PAUL CHIAMA, he speaks of the recent successes made in the power reform initiative, the challenges in the power sector and what Nigerians should expect from the sector, among other issues.

It has been observed that power supply seems to have improved lately, why is there “light” now?

Well, we are happy that we are seeing increase in capacity even though we are not satisfied with what we have. We need to do a lot more than we have done and we hope to do more. But essentially, we have light because, one; it is a combination of several activities we have taken especially towards the end of last year. We had meetings with Nigerian National Petroleum Corporation (NNPC). We thought that we have done everything we could do in terms of general regulatory framework but what was missing was project management; closer effective look at the detailing of the electricity market.

So, we started the Chief Executive Officers (CEOs)’ meeting, a regular meeting of all the CEOs in the electricity market. It involves the CEOs of every electricity generation, distribution and transmission companies, including government institutes like the Bureau of Public Enterprises, bulk traders, special taskforce on power and NERC. We meet every second Wednesday of the month. The meeting, which is our innovation, is an idea to move away from the bill picture and get down to problem solved.

At the meeting every month, we flag all the issues that people in the field have contributed. We flag all the issues that the CEOs of these companies have raised. So, at each of those meetings, we sit down, pay closer attention to these problems and provide solutions to them.

Therefore, what you are seeing is partly as a result of the success of those meetings because initially, we were more concerned with regulations. But now, since last year, we are now saying, ‘let’s now sit back and look at how these regulations are working’.

So, we discovered, for example, that gas is a problem. So, NERC started the idea of the Central Bank of Nigeria (CBN) intervention fund. It was an idea, and the idea was simple; we felt that you need to put liquidity into the sector. If you do not have the components of gas supply, then, they won’t send to the market; rather, they will send to fertilizer and other industries. We wanted to pay off debt of over $14bn owed to gas suppliers. So, that is the first measure.

The second measure is that we now focus on contracts. In fact, in the past, there were no contracts. So, we established a process by which you have contracts. We now moved to the electricity market which is a contract-based market.

So, what all these have done is that they have created confidence. They have been able to help us to tie some loose ends in the power value-chain. The power system is inter-related; if you don’t take care of the gas, it will affect generation; if generation is not up, then, distribution will have problem and it goes on in transmission until it gets down to the household.

So, we have built different parts; we are now coupling them and in coupling them, we discovered that they have problems. We are now going back to those problems and dealing with them one after the other. So, that is what helped us.

The second thing that helped us is that the change of government has brought greater urgency. I do believe before election, the NNPC told us and gave us guarantee that by July, things would work. By then, we were pushing them and the GED came here and we had meeting with all the stakeholders. We laid out a plan for them to recover, repair their gas pipelines and get more gas. So, they gave us assurance that by July, things would work but in the past, we have had plans that slipped. But with the new government, with the change now, there is high degree of discipline and urgency to deliver.

The third reason will be that essentially, the very direction of the reform right from President Obasanjo to President Jonathan who really worked very hard for the electricity reform.

The Transmission Company of Nigeria (TCN) was divided into two different companies at the end of last administration’s tenure but you were reported to have kicked against it. Why?

No, no, no! We didn’t kick against it. NERC, as a regulator, the very first day we came to this job, we were convinced of two things – one; if there must be a credible regulator, it has to be an honest, incorruptible regulator and today, for instance, the staff here and the commissioners are probably the most honest, accountable and transparent in this country.

For the Independent System Operator (ISO), first, there will be public hearing and consultation. The regulator will now provide the terms by which it will be done through the board of the TCN. That board will be the board that will unbundle it in line with the regulator’s direction.

The Independent Service Operators all over the world are usually owned by the industry, not the government. It exists like a trustee between the consumers and the Discos (Distribution companies) to guarantee non-discriminatory and impartial distribution of power.

Our job is to survive the electricity market according to the Act. There is only one licensed company called the TCN and that company has three business units – system operation, market operation and transmission service provider. The law says that at the appropriate time, NERC will lay condition for those three business units to become two companies which mean that there will be no TCN any more. So, you can’t have an ISO and have a TCN. We have an ISO and it is registered under the law. We are proposing that it should be a non-profit organisation. That means it is a company owned by all the operators. Alternatively, one can say it is a publicly owned company. However, government said it must be a different company registered under the law.

So, NERC now says when government gives us instruction, in the meantime, the process outlined in the Act has to continue. Based on our letter, the minister, before he finally departed, said, “revert” and that there is no ISO. He said it is now system operator (SO) and market operator (MO) but the SO is already a business unit of TCN.

The problem with TCN now is that there are confusions as to which is which and NERC has had a meeting to streamline and set up a committee to say ‘you have to run things here like a regulated company under the best code of conduct and corporate governance’. You cannot have multiple structures with five different people answering managing directors (MDs), say, MD of SO, MD of Manitoba, from Nigeria. That is confusion.

So, we stepped in. We said we were trying to solve this problem but the bottom-line is that as part of this reform, the government itself must be a disciplined player. The rules should apply and when the rules are no longer good or when the government wants to change the rules, it should change the rules, not to act against the rules. We have seen in the past, some degrees of interference in the management of TCN and I have always stood up against it. I have always made it clear. I believe in an independent regulator. People think I am being confrontational or radical but the point is simple. The government created the rules; the government set up the regulator; the government decided that they are going to do it in a rule-based market. Therefore, the government should try its best to follow the rules in running even government-owned companies as long as those companies are part of the regulated electricity market. That is NERC’s position.

As a matter of fact, if the government tells us today that they want TCN to be done in XYZ way, our job is to point out the rules, the process and change them to suit what the government wants. But so far, there are no policies of government, past or present, conflicting with or contradicting or cancelling the policies already in the Act and in NERC’s rules.

So, it is our job to point out those contradictions (if they exist). We made it clear, no ISO has been created by the government and if they want to create it, they will go to Corporate Affairs Commission (CAC), Ministry of Finance, PPA, who have been customary shareholders of these companies. Then, they will create a new company.

Two; nobody has spoken to us to say, ‘today, we want you to start a process of creating an independent system operator’. It was our own process in the market and that process is still running and until it concludes, we don’t have an independent system operator.

 There is the general feeling by people that they are being short-changed over service (fixed) charges and estimated billings. What are you doing about pre-paid metres which seem to be scarce?

I spoke last Monday with the Nigerian Bar Association (NBA) and I made it clear. By the way, NERC’s regulation says that every customer should have a metre and that the only condition precedent to connecting a consumer to the grid is via a metre. But this is the problem. For the last 30 or 40 years, we have not done anything significant about metering until between 2010 and 2012. We set up a committee to ascertain the extent of metering in some countries. That committee presented a report which says that we have about 40 (or slightly more) per cent metered customers in Nigeria. So, if you have an electricity market where about 50 per cent of the customers are not metered, it is a huge legacy problem.

So, you don’t expect that the new owners would have metered everybody in short duration. So, what we have done is that we introduced the idea of customer-credited metre (because there is also a cash flow for financing problems). You can see how rich or poor the new owners are. They bought their assets with borrowed money; they are over-leveraged; they don’t have easy access to capital. It is not really reasonable to expect that they would have metered everybody. So, we came up with a very brilliant idea which South African electricity regulator is trying to borrow by introducing the customer-credited metre. That means customers can now pay and reimburse. Why did we do that? It is because we want to find a fast track means of getting financing.

All over the world, there is a concept called crowd-sourcing of financing. So, instead of crowd-sourcing, we source for the crowd. Instead of waiting for Abuja Discos to borrow money and metre all of us, we now say why don’t you lend me the money and I give you the meter and I pay you by discounting your fixed charge over time, plus interest? That is a very innovative idea. So, today, we have seen some movements in metering customers but it is still insignificant considering the amount of the gap. The metering gap is huge and therefore, the little effort looks like a drop of water in the desert. So, there is still the need for more. What we are doing today is that we are proposing a new measure to try to locate the problem: Why is it that the Discos are not doing enough?

Perhaps, they are making more money through estimation. How do we discourage that? We now came up with ‘capping’ – a proposal to reduce charges on unmetered customers. It is a restriction to the effect that any person who doesn’t use metre should not pay more than a certain amount of money.

Secondly, metering is just like tariff. We want to make sure that the Discos have sufficient revenue. So, we expect that in a couple of months, there will be much faster and aggressive improvement in metering but there is no false promise here that all customers will be metered.

On the issue of fix charge or service charge, what we have said to the Senate is that fixed charge is not illegal, it is not unusual. It is only paid for in Nigeria because we had large hours of low electricity supply in the past. But if you watch, since we moved above 4,000 or about 4,500 megawatts, you discover we have few hours of low electricity supply. What we are doing, therefore, is to ensure that we pay fixed charges proportionate to what we are consuming.

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