Through interactions with experts in the power market, Chineme Okafor sums up expectations from the sector in 2021.
Nigeria’s electricity market is failing and has largely disappointed a good number, if not all the people who rely on it. In theory, it has a mix bag of good solutions which could save it from total collapse. The solutions before it, experts whom THISDAY got their expectations from the sector in 2021, could be described as excellent and capable of repositioning the sector if well implemented from 2021.
Leaning on their experience, the experts who cut across the sector’s value chain explained that they however have very little faith in the federal government’s ability to follow through on these choices of actions required to move the sector forward.
Indeed, mindful of the time left for the President Muhammadu Buhari-led government to make notable impacts on the sector before the curtain draws on his eight-year tenure, the experts inferred that 2021 could be the only year realistically left for Buhari to improve the sector before his exit in 2023.
At the turn of the New Year, Buhari made a national broadcast in which he promised that, “the reforms we have put in place in the power sector would guarantee increased efficiency in our drive to significantly expand the generation and distribution of electricity for use in homes and factories.”
His broadcast was preceded by the country’s poor power supply record in 2020, averaging a daily supply of 4,051 megawatts (MW) to millions of its population in all of 2020.
This sector also failed to get an average of 3,672MW across to homes and factories every day in the past year due to gas shortages, transmission and distribution challenges. Additionally, it ended the year without earning N645.157 billion which it should have earned but couldn’t because of these challenges. It recorded a peak generation of 5,520MW as its best in the past year.
So, what could happen in 2021?
From experts’ viewpoints, the dominant challenge of the sector remains the financial mess it is submerged in. The World Bank had explained that between 2017 and 2019, the sector incurred N1.2 trillion deficits in tariff, just as the government paid Gencos and gas producers circa N1.3 trillion as subsidy.
This they explained would have to be sorted out in 2021 through a number of intervention programs started in 2020 and which are crucial to the evolution and improvement of the power sector in 2021 and beyond.
Taken together, they noted that the programs could lead to solving the main problem of illiquidity in the sector; a situation where power Discos are unable to fully pay for all the power that they purchase wholesale from the Gencos because the Discos do not collect enough money from electricity consumers.
“If the programs proceed as expected and are generally successful, then a lot of investment will be unlocked in the sector which will allow the main challenge of availability of power to be solved in the coming years,” said an expert who preferred to stay unnamed.
Power Sector Recovery Program (PSRP)
Funded by the World Bank, the PSRP is a program which would see the Bank lend to the federal government money to pay for wholesale electricity supplies the hugely broke power Discos purchase from Gencos.
Being that the Discos are still unable to pay for the wholesale power supplied to them because they do not collect enough money from their own customers for a variety of reasons, experts explained that the PSRP could step in to stabilise the sector’s financials.
The money from the World Bank, according to the experts will allow the Discos fill the gap which in turn encourages the Gencos to continue to produce electricity for the country. However, it is expected that the Discos will eventually be able to fill the gap themselves by collecting enough money from their customers when the situation improves.
Although experts consider the program as being quite intricate and has several components, they believe the main reason why the government secured the funding from the World Bank was because it promised to allow the sector run on market reflective tariffs; the NERC has so far set off this and the PSRP is thus expected to run fully in 2021 after receiving approval from the World Bank and government in 2020.
National Mass Metering Program (NMMP)
Another project expected to run and define Nigeria’s power sector in 2021 is the NMMP, a program funded by the Central Bank of Nigeria (CBN).
Even though the metering gap in Nigeria’s power sector is between four and six million meters, the NMMP is expected to help reduce this and improve the confidence of electricity consumers in the bills they receive from their various Discos.
Through the roll out of at least one million prepaid meters in the country, the NMMP is thought by experts to also help Discos increase the amount of money they collect from electricity consumers as there will be less frequent incidents of contesting estimated bills.
Officially, the program took off in October 2020 like the PSRP but likely to gain momentum in 2021. According to experts, the CBN chose to fund the program mainly because organised labour insisted that the government provide prepaid meters for consumers when the NERC approved tariff increase in September 2020.
However, they noted that one million meters which the program seeks to provide will not be enough to cover the entire country or end the metering gap.
Distribution Sector Recovery Program (DISREP)
The DISREP is funded by the World Bank, solely on the basis that it is clear that the CBN funded metering program will not provide enough meters for Nigerians, thus the World Bank stepped in to provide an additional three to four million meters for customers as well under the proposed DISREP.
Experts explained to THISDAY that in addition, the World Bank will provide funding to power Discos to enable them to refurbish and replace old transformers and cables; this will help improve the efficiency levels of the Discos’ networks.
“The main reason the World Bank is providing the funding to the Discos to install meters and improve their networks is because it believes this would allow them to increase the amount, they collect from their customers which in turn will allow them fill the gap in payments to the Gencos for wholesale supplies,” another expert stated, preferring to stay unnamed.
Although the DISREP is still under proposal stage and yet to be approved by the World Bank and federal government, it is however expected that its approvals will be secured in 2021 and implementation also started.
A combination of these, the experts noted will if implemented in 2021 allow power Discos the opportunity to improve service deliveries to customers as well as increase their abilities to pay for wholesale power supplied by Gencos.
“So, in all, we should be expecting improved customer service from the Discos in 2021 – particularly a significant increase in the number of customers that are metered,” noted one of the unnamed experts.
Will Siemens, Mambilla, others happen?
Beyond the PSRP and other World Bank and CBN supported programs which are expected to define the sector in 2021, there is also the Nigeria Electrification Roadmap which the government and German firm, Siemens signed to resolve the sector’s existing challenges and expand its capacity.
Described as a major milestone by Joe Kaeser, the president of Siemens AG when it signed with the government, the program he noted “will significantly enhance Nigeria’s energy system, create thousands of new qualified jobs and enable the country and its people for the next level of industrial and societal development,” when implemented.
The program is thus structured in three phases of phase one, focusing on essential and quick-win measures to increase the system’s end-to-end operational capacity to 7,000MW; phase two, targeting outstanding network bottlenecks to enable full use of existing generation and distribution capacities to raise capacity to 11,000MW and phase three, developing the system up to 25,000MW in the long-term through expansive upgrade and expansion of generation, transmission and distribution infrastructure.
This, Farouk Yabo who is the Acting Director of Renewable Energy and Rural Power Access at the ministry of power explained will including other projects like the 3050MW Mambilla hydro project begin to be implemented in 2021.
Yabo, noted in a recent Nigerian Television Authority (NTA) program observed by THISDAY that the government intends to in 2021 focus on addressing the sector’s liquidity problem, align its value chain for efficiency, expand the transmission network and complete or advance works on existing legacy hydro power projects.
The country’s solar power and off grid segment will equally get profound attention through programs such as a five million solar home system the CBN has opted to back for the Rural Electrification Agency (REA) and Niger Delta Power Holding Company (NDPHC) to implement.
According to him, it was important for the government to exit the power subsidy regime through the PSRP which described as an exit route for this, align the value chain – Gencos, TCN and Discos to work efficiently through Siemens programme and leverage the Transmission Rehabilitation and Expansion Plan (TREP) which he noted has up to $1.6 billion to spend.
“Clearly, we are not in any way close to where we are supposed to be and need to work harder. Despite the COVID-19, 2020 has not been too bad for the power sector. The issue of tariffs is largely legal, the EPSRA 2005 established the NERC and require of it to ensure balance between customer and investors; it is usually something beyond the realm of policy,” Yabo said while indicating the government’s intent to allow the sector run on existing market principles in 2021.
According to him: “Current tariff is designed as a service-based tariff which means that investors will increase tariff from improved service delivery. Generation has improved greatly. The Discos have started taking responsibility to ensure improved supply.
“It will be very difficult for a country like ours to continue to pay trillions of naira in subsidy. Sources of power from solar have continually become cheap and I foresee that as we expand, the tariff will get more competitive.
“It is a very important for everyone to understand that the sector has been privatised but there is a willingness from government to ensure that there is a balance in supply and cost.”