Agora Policy urges incoming govt to re-privatise DisCos

An Abuja-based policy think tank, Agora Policy, has urged the incoming administration to consider re-privatising some of the nation’s electricity distribution companies (DisCos).

The think tank provided the recommendation in a report titled “Addressing Nigeria’s Lingering Power Challenge”.

The organisation noted that the centrality of adequate and reliable electricity supply to individual welfare, economic growth and overall national development cannot be overemphasized.

It, therefore, urged the incoming administration to prioritise the resolution of the privatisation conundrum, particularly with a view to ensuring a “sensible activation” of contracts in the industry.

“By “sensible activation” of contracts, we mean allowing more bilateral negotiations, rather than an imposition, of market contracts amongst parties in the industry, under the regulatory oversight of the NERC.

“The in-coming administration also needs to look at re-privatising some of the DisCos that have been taken over by lenders due to default by core investors in meeting the acquisition loan repayment terms to the lenders, or under some form of administration by the NERC and the CBN,” the think tank said.

It argued that the failed DisCos should be broken into smaller franchise areas preferably along state boundaries, and privatised as new entities.

Failed Reforms

The report said various initiatives and reforms aimed at creating an optimal power sector for the country have fallen short.

The think tank said the reforms initiated by the President Olusegun Obasanjo administration, leading to the privatisation of the power sector in 2014, are yet to yield the desired results.

“According to the World Bank, Nigeria has the largest energy access deficit in the world. The World Bank estimates that the lack of reliable power costs the Nigerian economy over $26.2 billion (N10.1 trillion) which is equivalent to about 2 per cent of Nigeria’s GDP. This is not to say that Nigeria has not made some progress in the power sector since 1999,” the report said.

For instance, it said in 1999, Nigeria had nine power generating stations, three hydro and six thermal stations with a total installed on-grid generation capacity of 5,906 MW, but with available generation below 1,500 MW.

“Today, Nigeria has up to 26 on-grid generation stations with a total installed capacity above 13,000 MW.

“However, available generation capacity hovers around 4,000 MW, with an average daily energy output of about 100,000 MWH. Sadly, the little progress that has been made in the power sector since 1999 is neither at par with our population growth nor adequate for the energy needs necessary to achieve our economic potential,” the report said.

It said Nigeria’s energy consumption per capita at 140kWh is relatively low and is three times lower than the average for Sub-saharan Africa.

Recommending policy for the next administration, Agora Policy said there is a need for the government to stop thinking about electricity in terms of megawatts (MW) that can be generated, and start thinking in terms of incremental megawatt-hours (MWh) generated and consumed.

The think tank said the government should stop thinking of installed generation capacity and start to think in terms of the amount of electricity delivered or in layman’s terms, how much electricity is generated and consumed every hour by electricity consumers in Nigeria.

“This is an important paradigm shift with a positive impact on the government, as having such a policy mindset changes the prioritisation and allocation of public and private resources to projects, interventions and initiatives across the electricity value chain that will increase the energy output, availability, reliability and quality of electricity delivered to end-users.

“Under the new paradigm, we expect the incoming administration spokespersons to make statements such as “we will increase the total electricity delivered to Nigerian households and businesses from xyz megawatt-hours by 100 per cent within x months”, rather than the usual statement saying “we will increase generation capacity to 20,000 megawatts.

“Increasing generation capacity to 20,000 MW without most of the 20,000 MW being consumed or a corresponding increase in electricity consumption is not only meaningless but also fiscally detrimental to the country,” it said.

Natural Gas Fields

The report noted that an increase in megawatt-hours delivered to electricity customers can be achieved if there is a seamless conversion and flow of energy from the natural gas fields to the generation stations and from the generation stations to the high-voltage lines that transmit the energy to the national grid and ultimately to medium-voltage and low-voltage lines that distribute the energy to end users.

In this regard, the think tank said the incoming administration needs to prioritise solving the interface issues and challenges across the entire power sector value chain (from natural gas-to-electricity interface, generation-to-transmission interface to transmission-to-distribution interface).

The report said the incoming administration needs to continue the implementation of the power sector programmes, initiatives and interventions carried out by the Buhari administration.

Agora policy said new administrations are under political pressure to either terminate, suspend, put on hold, or create parallel projects, policies and interventions in the power sector.

“The incoming administration should continue the implementation of these and perhaps other projects and initiatives of the Buhari administration in the electricity sector.

“While we advocate for the continuation of the Buhari administration interventions, the incoming administration should also review and optimise some of these programmes and initiatives to ensure value for money,” it said.

National Electricity Policy

The report explained that with the recent constitutional alteration of section 14(b) of the concurrent legislative schedule of the 1999 Constitution (as amended), it has become imperative to develop a new national electricity policy.

The report noted that decarbonisation and energy transition from fossil fuels to clean sources of energy are now very important aspects of any country’s national energy policy.

Consequently, it said the incoming administration must develop a national electricity policy that reflects the electricity aspirations of both the federal government and the states in line with the new provisions of the constitution.

According to the report, the lack of effective coordination of the various segments of the power sector value chain is one of the causes of the dysfunction in the sector.

It said the incoming government should consider the establishment of a standing inter-ministerial energy committee to be chaired by the vice president.

“The inter-ministerial committee members should include the Minister of Power, Minister of Petroleum Resources (or such designate), Minister of Finance, the Permanent Secretaries of the mentioned ministries, the chief executives of NERC, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA), the Governor of the Central Bank of Nigeria and heads of other key agencies and departments in the oil and gas sectors and the power sector.

“The inter-ministerial committee’s role will be to ensure effective coordination of agencies and operators that are part of the gas-to-power value chain,” the report said.

The think tank said with the constitutional amendments that grant states’ houses of assembly the power to make laws for electricity generation, transmission and distribution within areas covered by the national grid in their domains, states and other sub-national governments have finally become players in the electricity market.

“The incoming administration should work with the states to develop the electricity markets within their localities.

“State governments should be encouraged to take steps to begin to develop the electricity resources within their areas in collaboration with the federal government and under the framework of the new national electricity policy and amended Electric Power Sector Reform Act (EPSRA).

“That means the incoming state governments will also need to develop the right electricity policy framework for their states and develop the right legal and regulatory frameworks that would create efficient and competitive electricity market structures, which can help them to attract needed investments into the electricity market. Also, states should be encouraged to drive rural electrification,” the report said.

The report said there is an “unspoken” issue of the payment of the huge market debts in the sector, adding that GenCos claim that they are owed over $1 billion by the NBET.

It said reversing the privatisation of the power sector should not be contemplated under any circumstance.

“The privatisation process has built-in contract provisions to address the failures of any core investor under their performance agreements. What is needed is for the government to activate these contract provisions, provided the government has also met its obligations too to core investors,” it said.