Still on Remedying the Power Sector (2) By Ani Nkemjika Nnenne

In reaction to my article on “Remedying the power sector for
service delivery”, an interesting and well thought-out piece by
Carl Umegboro, published in several national dailies exposed the
realization of a comical truth; that “Up NEPA” is among the first
few words mastered by infants in Nigeria. A phrase unanimously
chorused even by adults, whenever there is flash of power
especially after long hours of no supply.

The stimulating piece rightly acknowledged that tariff
adjustments, government bailouts and subsidies are “positive ideas”
towards solving the sector’s liquidity issues. It further posited
that these ideas are “not feasible means of revenues” and advised
DisCos to first, “Consider all unconnected population to the grid
as neglected, untapped or unexploited revenues”.

Incidentally, a high number of unconnected populations without
access to electricity are majorly in rural areas. Emphatically,
Section 88 of the Electric Power Sector Reform Act (EPSRA) 2005
established the Nigerian Rural Electrification Agency responsible
for promoting, coordinating and administering electrification of
rural and unserved population. In other words, electrification of
“unconnected population” is outside the purview of DisCos
responsibilities.

Additionally, the concept of sourcing revenue through this
medium does not support economies of scale. Due to the sparse
nature of rural areas, they are powered by 33KV voltage level
compared to urban areas that can be powered with 11KV voltage
level. Impliedly, rural areas may consume higher levels of
electricity making connection to these areas more cost consuming
coupled with reluctance to pay electricity bills by majority of the
rural population as they consider it a social benefit.

Until urbanization rates increase, grid extension is not
cost-effective for providing access to electricity and therefore,
may not happen without provision of subsidies or government
funding. This is supported by the provisions of EPSRA which
provides eligibility criteria for electrification of unconnected
population to the extent that such activity must demonstrate
technical, economic and financial viability for a sustained period.
Until done, DisCos may be unable to extend service to potential
rural customers as a way of increasing market share and
earnings.

Asserting, “the key factor affecting the sector is the defective
privatization that myopically mortgaged it to the people without
in-depth knowledge of the sector unlike the government’s apt action
in the telecommunications industry” appears to be an indictment on
the National Council on Privatization and the Bureau of Public
Enterprise. They are required to conduct its affairs with high
levels of transparency and accountability by ensuring investors
meet the set technical and financial criteria.

Conversely, comparing the power sector with the
telecommunications industry is an unfair analogy. For example, the
private wireless telecommunications companies in Nigeria have
operated for 18 years (since 2001) while the power sector
post-privatization era is 5 years (November 2013). Similarly, big
telecommunication giants like MTN is a product of foreign direct
investment characterized by deregulation of the telecomm sector and
not privatization. Undeniably, the defunct NITEL is still battling
the vagaries of an unfortunate privatization exercise.

Furthermore, the telecom sector tariff was market determined
(and relatively high) at inception giving these companies time to
stabilize financially. Irrespective of process, profit and return
on investment are major motives and guide behind prudent private
sector investments.

Over 40 years of underinvestment in the sector cannot be
remedied by private finance alone. Given its importance, government
support for the sector is imperative. Development finance
institutions like World Bank advised FGN of the need to support the
sector until service delivery levels improve to the point where
electricity customers accept automatic tariff adjustments because
of improved service. At privatisation, FGN conceded the need for
this support and committed a financial sum post-privatisation,
which is now reneged. Till date, FGN retains 40% stake in DisCos
and if DisCos declare profits, 40% of agreed dividend goes to
FGN.

Suggesting that, “DisCos as public limited liability companies
can effectively source for funds from the public for enhanced
capacity on operations” is brilliant but currently impractical.
While public funding is an efficient means of raising funds by
public companies, DisCos do not meet the criteria for enlistment on
the NSE yet. DisCos are not yet profitable; an attempt to issue
IPOs in the face of liquidity crisis and non-cost reflective tariff
will fail until they achieve financial viability and profitability.
Companies seeking admission to the Official List of the NSE must
comply with SEC’s Rules, Companies and Allied Matters Act,
Investment and Securities Act and other relevant laws.

I agree in entirety that the system should be “firmly run on
accountability and prudent management” by DisCos tightening all
loose ends to enhance effective ATC&C loss recovery through
reinforcement of the revenue protection arm to checkmate bypasses
and illegal connections. By extension, also checkmate their corrupt
and unscrupulous workforces that device means to divert company’s
earnings resulting in gross losses.

In conclusion, for DisCos like any other real business to
thrive, cost reflective tariffs must be set and products sold at
marginal profit. A cost reflective tariff reflects the
true cost of producing and supplying electricity;
otherwise, Government subsidies should cover the variance between
the current tariff and the true cost of
electricity supply. Importantly, obtaining commercial loans is also
not a solution to the sectors lingering liquidity issues. In the
short term, DisCos should focus on customers, service improvements,
revenue and profitability as these serve as foundation for reaching
long-term fundable milestone.

Ani Nkemjika Nnenne wrote from Abuja.