Restructure NERC Now!

...Speaking For Power System Engineers In The Nigerian Power Sector

By Idowu Oyebanjo

Power System Engineers have always maintained that the gains of the privatisation process cannot be felt except if conscious effort is made to involve qualified Power Systems experts to lead the course. The most recent addition to this urgent call or advice to a nation in darkness is the one from Engineer Otis Anyaeji, the current president and council chairman of the Nigerian Society of Engineers on why and how the Nigerian Electricity Regulatory Commission (NERC) should be restructured. 

*Fashola, Minister of Power 

Engineer Otis Anyaeji, in his interview with Tajudeen Suleiman in this month's TELL Magazine on why and how the government should restructure NERC has this to say:

"They just have to appoint an Engineer as Chairman, an Engineer each to regulate generation, transmission, system operation, distribution and marketing. That is to say, five of the commissioners must be Engineers while the other two can come from support services"

I cannot express it better!

One should praise the courage and devotion towards the revamping of the electricity industry in Nigeria by Lawyers and Economists who tried their best in the last ten years as Commissioners of NERC. However, they should have known that Law is in no way relevant to the management of electricity business especially one that is in the kind of chaos the NESI is. Advanced economies whose models are copied hook, line and sinker, have had stable electricity for decades before toying with Lawyers and Economists to manage electricity business. When did we lose our collective senses?

Only Power System Engineers who know their onions can save NESI, of course with a few lawyers and economists just for mere guidance. Power System is a unique field. The greatest damage done was to put Lawyers and Economists as Commissioners in numbers greater than Power Engineers, because, try as you may, you will move in circles. There will be no electricity. It is a career that some have spent their years to pursue, how easily can it then be replaced by those who pursued a different career running away from the almighty equations of physics and mathematics back in the days. 

As NERC Introduces New Electricity Tariffs In Nigeria

By Idowu Oyebanjo

The much talked about increase in electricity tariffs became operational with effect from 1st of February 2016. As consumers brace up for the new tariff regime, there are issues worth noting which will determine the sustainability of the power reform process.

The main focus on the issue of cost reflectivity has been the Distribution Companies (Discos) because they act as the conduit pipe for the collection of monies to be shared by all the stakeholders involved in the provision of energy for the generation, transmission and distribution of electricity to consumers. In effect, they are the cash boxes of the entire electricity value chain. Although 25% of collected revenue is theirs to keep, 60% goes to the generating companies (Gencos), 11% to the Transmission Company of Nigeria (TCN), while the remaining 4% goes to other stakeholders like NERC, NBET etc.

One of the main issue is that the cost reflective tariff is hinged on a recent performance agreement reached between Discos and NERC. Given that the new Commissioners for NERC have not been appointed, albeit a care-taker committee of career officers have been running the show, it is clear that the enforcement of the service level agreements (SLAs) in the performance as agreed will lag behind. There should be a tracking of performance right from the word Go!

But the Discos cannot perform any miracles at all. The investment to be made is huge and will take many years before the overall impact can be felt. They cannot fix the technical losses in the wires and transformers from the monthly bills collected from unimpressed consumers who are likely to display a recalcitrant attitude towards the payment of their bills. At the moment, Discos have huge debts to finance as many of the technical partners have left for lack of liquidity in the sector even after two years. The current 187 billion naira deficit is a case in point. This deficit has the potential to be recurrent year after year if power system engineers are not allowed to lead the privatisation process. Economists and Lawyers will never have a clue. Technically speaking, the contract between a Disco with the federal government is no longer valid once the technical partner has abandoned the partnership. Don't forget the sale of government's asset was based, in part, on the technical capability of the so call "technical partner". Nigeria needs to get it right this time having wasted so much resources on the power sector reform of which time is the most invaluable.

A Swot Analysis Of The New Electricity Tariff In Nigeria (2)

(Click Here To Read Part One)

By Idowu Oyebanjo

The Opportunities

Localisation Of Services

In the last few years, there has been increased agitation for localisation of services in the power sector especially in the local manufacture of smart meters. Local manufacturers of meters now have an opportunity to showcase their capability under the local content initiative. This will lead to the creation of jobs and business opportunities as marketers of electricity recharge cards or vouchers just as experienced in the Telecommunication sector will spring up along with companies involved in metering and customer billing systems. 

*Idowu Oyebanjo

A critical element that will hold NESI in good steer is the need for a global procurement strategy or culture where stakeholders leverage on the volume of purchase to reduce cost. In the atmosphere of cuts, this will serve the industry well. This can start now. As Discos seek to purchase meters in bulk, they should negotiate a fair deal in view of the number of meters they will have to purchase. Consultants and service providers will not be left out as installation, operation, and required maintenance services for meters procured will be sourced. Generally speaking, there is need to establish the Joint Qualification System (JQS) and register of suitably pre-qualified practitioners to provide these services by the Nigerian Content Joint Consultative forum. 

Other potential opportunities include but not limited to the provision of Demand Side Response and Distributed Energy Resources (DERs), pursuit of revenue protection initiatives by Discos, energy efficiency and energy conservation (as those who waste electricity will now conserve it and therefore contribute to increased availability of power elsewhere on the network), increased network operational efficiency, phased introduction of feed-in-tariffs (as consumers deploy renewable generation on their roofs), increased penetration of embedded generation with the attendant reduction in network losses and accelerated increase in availability of electricity supply.

A Swot Analyses Of The New Electricity Tariff In Nigeria (1)

By Idowu Oyebanjo                  

The Nigerian Electricity Regulatory Commission (NERC) has finally succumbed to pressure from investors in the Nigerian Electricity Supply Industry (NESI) to increase the tariff regime in the absence of steady power supply and at a time of economic downturn. Consumers, organised labour and affected stakeholders have expressed dissatisfaction. As painful as this may appear, it is suffice to examine the Strengths, Weaknesses, Opportunities and Threats inherent in the increased tariff structure planned for the 1st of February 2016.

*President Buhari 

The Strengths

Government's Responsiveness And Support

In every regulated electricity business, the price of electricity as a commodity needs to be cost-reflective. This among other requirements means that price must cover the cost of efficient delivery of electricity through the value chain. Before now, the price or electricity tariff in Nigeria is one of the lowest in the world and one of the lowest in West Africa. Electricity as a commodity is produced worldwide following roughly the same process so cost should within reasonable limits be reflective and comparable. The usual dilemma in a regulated business is the requirement for government, by means of the regulator, to seek to be fair to all stakeholders especially consumers, while maintaining a fair profit margin for investors. This is generally a conflicting role. However, the government showed leadership in trying to accede to the plight of the investors by setting new guidelines that will enable increased availability of supply albeit with increase in tariffs to large consumers.

Most Nigerians are exempted from the increased tariffs

The increased tariff regime exempts consumers in the R1 and R2 categories who make up the largest number of residential consumers (albeit for six months only) whose consumption of electricity is strictly for non-commercial, but regular day-to-day home use. Most homes, and therefore the bulk of workers and citizens, are therefore unaffected for now. However, it must be stated that consumers who engage in commercial activities either in their residence or in a separate facility along with industrial consumers who consume a significant amount of electricity (high end users) have been directly targeted by the increased tariffs.

Addressing The Confusion In The Nigerian Electricity Supply Industry (NESI)

By idowu oyebanjo

 There is no doubt that the challenges facing the electricity industry is huge even as all but the Transmission Network have become private concerns. There are fundamental changes now taking place which will define the general outlook of the Nigerian Power System in the future as the power grid becomes unbundled and privatised such that the traditionally integrated and centrally dispatched energy system becomes a largely distributed and more complex architecture.

It is fair to say that today's technical and regulatory governance framework is grossly inadequate to manage the seamless integration of the different stakeholders and functions within NESI which are largely under differing ownerships. This has the potential to lead to disaster and chaos in the future if not addressed now. One of the first things required to be done is to establish an independent expert group to ensure an holistic approach to the phased development of NESI as it is becoming more than obvious to the blind that a "whole System" approach is what is needed to address the challenges facing the industry.

The recommended steering group to address the mechanisms for whole-system integration should be made up of a panel of technical experts from the Transmission and Distribution Network companies, consultants, academia, NERC, BPE, NBET, IPPs, Nigerian Gas Company, NNPC, NEMSA, MAN, data and ICT companies, the Nigerian Electricity Consumers' forum, SON and so on who have practical experience of electricity supply business. The aim of the expert group is to assist in the building of an integrated perspective for the planning and operation of the future electricity network, ensuring not only technical performance but also the opportunities for jobs and exports (technical and materials), identifying issues, defining the questions to be answered, clarifying the parties accountable, obtaining synergies and highlighting areas of relevance to national policy-making.

For most complex systems (which electrical power system is one), there is often a gap between those who specify what the whole system is required to achieve and the plethora of contractors, design authorities, operators, and other technical specialists who provide the hardware, software and other technical skills to construct and run the many sub-systems that together form the whole. It must be mentioned heretofore that neither the transition electricity market nor the free electricity market alone will be able to shape the structure, supply chain and system architecture for the provision of goods and services within the NESI. Hence, it has to be stated that this expert group will provide the co-ordination and the glue between established parties and new entrants, including generators, network users and operators, to facilitate the technical operation and the market mechanisms in a multi-party complex system like the NESI.

The new architecture required to meet the challenges of the NESI would need to develop a "Power System Framework" to address whole-system issues plaguing the NESI and this can only be provided by what we will term a "System Architect". The system architect gives a purposeful direction in the immediate and future development of the power network infrastructure based on defined codes, standards, and processes that enable seamless movement of information and operational instructions. The system architect thus takes responsibility for the correct functioning of the architecture of the whole system.

The pertinent question therefore is "Who or what is the System Architect?"

*NERC Chair, Sam Amadi 

The system architect is a separately defined entity that would take a whole-system and long-term responsibility for developing and agreeing the framework of architectures, standards, protocols, and guidelines needed to ensure seamless technical integration of the sub-systems of the industry players and parties, enabling a seamless response to the challenges arising from policy imperatives as they emerge over the coming decades. This single entity will be responsible for the management of the complexity of the evolving power system architecture in the public interest on behalf of government. Solutions for system integration challenges should be developed in consultation with key industry stakeholders while considering whole-system cost-benefit across the supply chain. The system architect would also have advisory role in providing assurance that the whole system can meet the policy-driven technical challenges of the next two decades. The role would involve developing functional specifications, policies, interfaces and best practices, overseeing system integration, interpretation of the direction of established policies by government to enable the organisations responsible for implementation and operation to do so in a coherent manner. Acting as a risk manager, the system architect will provide early warning of emerging risks to system stability and advise on the feasibility and timescales for the implementation of policies. To this end, the system architect is limited in function to technical matters that will make the Nigerian Power System function effectively to meet government's policy objectives while accommodating the requirements of the markets. Of course there will be times when effective technical integration requires attention to commercial and regulatory frameworks, and in such times, the system architect would be expected to identify these and work with government and other parties to resolve them.

The system architect in general will operate as an integration model that combines the existing segmented functions into a single function with the overall responsibility and ultimate accountability to the Minister of Power. For example, the architect can extend the scope of two key existing entities- the Grid code and Distribution code panels whose scope at the minute is limited to operational and technical matters rather than the integration of technical, operational and commercial aspects across the whole system. To succeed, the panels must be constituted to address structural and technical constraints jeopardising the successful development of the NESI with a clear focus spanning the whole system - generation, transmission, distribution, consumer, and related information flows.

NERC too should ensure the integrity of the underlying systems engineering while keeping its focus on commercial and economic levels. The activities of the Association of Nigerian Electricity Distributors (ANED) and Nigerian Electricity Consumers Advocacy Network (NECAN) forum need to be strengthened to realise the objectives of the power system. It is believed that the integration and management of data and ICT will present further challenges despite the goodwill or commitment of stakeholders and expertise of individuals involved if there is no adequate legal personality or party that will be accountable for ensuring the functionality of the increasingly complex system. Overall, there is a highly fragmented institutional landscape today that maintains and develop the codes which govern the operation of different aspects of the system, but none of which takes a whole-system view. This needs to be addressed urgently.

Nigeria: Electricity Tariff Increased, Fixed Charges Removed

PRESS RELEASE

New Tariff Regime Removes Fixed Charges

The new electricity tariff regime approved over the weekend by the Nigerian Electricity Regulatory Commission (NERC) has removed fixed charges for all classes of electricity consumers. Henceforth, from the next billing period, distribution companies will no longer charge their customers monthly fixed charges. Fixed charge is that component of the tariff that commits electricity consumers to paying an approved amount of money not minding whether electricity is consumed during the billing period.

*Amadi 

Under the new tariff regime, electricity consumers will now only pay for what they consume from month to month. According to the Chairman/CEO of NERC, Dr. Sam Amadi, "This is good news for electricity consumers who have long asked for a more just and fair pricing of electricity. The regulatory commission had promised to address all the complaints against fixed charges through a regulatory process that promotes investments in the electricity industry without unfairly burdening electricity consumers. This is in line with NERC's mandate to be fair in all its regulatory interventions".

Although, the new tariff regime comes with an increase in energy charges, all electricity consumers (residential as well as commercial) will no longer pay fixed charges. Their total bills will depend on the electricity they actually consume and may be reduced when they conserve electricity. Consumers will no longer be spending money every month to pay for fixed charges even when they do not receive electricity in their homes and business.

According to the chairman of NERC, "The objective of the new tariff is to enable prudent consumers to save money on electricity bill as they can now control their consumption and not pay monthly fixed charges".

Why There Should Be No Tariff Increase In The Power Sector!

...NERC Should Make A Public Statement On Charging Methodology

By Idowu Oyebanjo

One of the main problems with the power sector reform in Nigeria is the absence of technocrats in the right positions. This will always lead to reversals and policy summersaults. When those with lack of knowledge of Power Systems speak, especially when the target audience resides predominantly in a country where there has not been electricity for so long, they tend to get away with it.

The problem is that such people constitute a laughing stock when similar comments are made before an international audience. Hear the Central Bank of Nigeria (CBN) governor: "For you to have good electricity, you need to pay a little more (to have better maybe)...".

I can guarantee that the National Electricity Regulation Commission (NERC) does not know what it means to determine a cost reflective tariff because these are some of the fundamentals of power systems that only those who have studied power systems and have demonstrable experience or practice can handle. Fake consultants employed by NERC can't do it. The DISCOs or GENCOs advocating for these price increases have not done it either. Can we as public request that NERC publish the analysis used to determine the so called "cost reflective tariffs?"

The power sector needs Nigerians who studied Power Systems, and who work in economies where uninterrupted power supply is the norm, to mediate the correct transition to privatised electricity utility. Although I maintained this position 7 years ago, the position is still valid because you cannot apply the Quota System syndrome to the generation, transmission, and distribution of electricity. It will fail! There is need to start again or at best, re-jig the status quo of the reform in a way the losses to the nation can be minimised.

*Amadi, NERC Chairman 

Another example of putting the cart before the horse is the fact that the wheeling capacity of the transmission network is known to be lower or at least equal to the peak generation achieved recently in response to the "Buhari Body language" in August 2015. This simply means there is no improvement to power supply that can take place now even when tariffs are increased because the weakest link has not changed and will not change overnight. More than that, I warned the authorities against establishing the electricity market because the power system is not yet ready for it but they have gone ahead because some believe the laws of economics apply to the physics of electricity. 

Try as you may, you will always recourse to the recommendations made by power systems engineer who know their onions. They aren't many worldwide so not all consultants can be of help.  I think because Nigeria has been in darkness for so long, it is in a mysterious way reflective of the attitude of those in charge of the power sector reform. Can we say for the umpteenth time that the only way, and I mean the only way, to have stable electricity supply is to liaise with power system engineers of Nigerian origin with demonstrable experience of power system leading the course in some way?

All of these amount to one thing - Abusing the sensitivities of the already impoverished consumers is the way to loot more money from the federation especially when the government at the federal level has tightened loop holes using the TSA.

 *Idowu Oyebanjo, MNSE, CEng MIET, a Chartered Power System Engineer in the UK is a regular contributor to SCRUPLES

213 Billion Naira Bailout For Power Sector – Foolishness At Large!

By Idowu Oyebanjo 

Earlier in the year, the Nigerian Power Sector witnessed an unprecedented development wherein Government decided to give a whopping sum of 213 billion Naira as "bailout" to Privatised entities who now own and operate the Nigerian Power utilities in what was seen by many as another means of sharing the wealth of the nation by a few. Last week, after disbursing up to 58 million Naira, the Central Bank of Nigeria (CBN) governor suspended further disbursement to beneficiaries. Some of the pertinent questions include: What becomes of the already disbursed funds? Will disbursed funds still be recouped as intended via the 10 percent interest rate and repayment spread? How will this be tracked?

*Buhari 

The lack of coordination and policy somersault from the Nigerian Power Sector reforms leaves no one in doubt that the lack of planning and deployment of square pegs in round holes in the execution of strategies contribute greatly to the problems of the electricity supply industry in Nigeria. Why do we not have the right kind of people in the right places so that thorough analysis and evaluations are carried out before jumping to execute a strategy only to realise half way that some issues needed to have been looked after before embarking on a journey that technocrats in power sector have warned us against? The answer lies in not involving power system engineers in the decision process plus the lack of knowledge of power systems in Nigeria. The most disturbing thing about the 213 billion Naira been shared is that it came at a time when quality of power supply is low or better put non-existent even as consumers face the ludicrous decision by NERC to start paying higher tariffs for electricity unused. Insult upon Injury!!! Why do we have many reversals of policies in the Nigerian Electricity Supply Industry especially when this does no more than infuse lack of confidence in investors who are the custodian of the much needed investment in the sector?

The Nigerian Electricity Regulatory Commission (NERC) in the very early days ruled out funding of Electricity Distribution Companies (DISCOs) beyond 2012. This was even against calls from Government to continue to fund the companies. Sound as the reasons for calls for continued funding may appear, let us ask ourselves what the rational and motives behind such call is. If you as an individual offer to sell your car as “scrap” – so cheap, will you want to maintain the car or fund the additional repair works required to put it right? In the first instance, if you are prepared to do just that, you may as well keep it and fix the car for keep.

The buyers of the Discos have definitely prepared to milk Nigerians dry. Their intention is to continue to eat fat from Nigeria’s oil wealth using a different disguise. 

The interesting thing is that they have for many years been eating fat from this same source. The main weapon to check mate such would have been a proper technical and commercial evaluation of interested bidders at the appropriate stage of the selection process. Technical and Commercial evaluation criteria should have been set ab-initio in such a manner that will preclude this barbaric idea of funding privatised entities. It is up to the owners of the privatised utilities to ensure they meet their obligations as required by law. I have in the past expressed concern about the quality of the companies that won the different bids as most of them have not been known to have demonstrable experience in this highly technical field. 

NERC – Regulating In Whose Interest?

By Idowu Oyebanjo

What exactly is happening in the Nigerian Electricity Supply Industry (NESI)? Whose interests are the leaders serving? Whose interest are the operators of the weak electrical network serving? And most importantly, in whose interest is the The Nigerian Electricity Regulatory Commission (NERC) regulating the industry?

*Sam Amadi, NERC Chairman 

(pix: leadership)

These questions have remained with us for a long time now. Each time one examines these questions, more questions come to the fore. Was Nigeria ready for privatisation? Does Nigeria realise that the management of electricity systems is highly technically intensive and would need individuals who know their onions to mediate the course? Is the regulator aware of its role to protect consumers from the regional monopoly of the operators? Why has it taken so long, after "unending" complaints from poor and already impoverished consumers, before NERC was forced by an order from the 8th Senate to carry out what is supposed to be its main function?

Why should consumers be pushed to the wall before a revolution occurs? Why should government wait until a huge crisis of discontent from millions of individuals - North, South, East or West, united in one voice, unleash mayhem on public utility and public officers because of years of neglect and mismanagement of funds meant to provide electricity for the nation? Why is Nigeria yet to have electricity which was discovered over a century ago?

It is widely accepted that regulation, where it is impossible to have competition, as is the case with the distribution of electricity through wires, is a veritable means of providing quality service at low cost to service users. This is true but so much depends on the regulator. The principal role of a regulator in a privatised electricity system is to cater for the interest of the consumers in such a way that operators can make reasonable profit without exploiting the consumers. In this regard, NERC has failed Nigeria woefully in recent times. Why do we say this?

There is ample evidence that NERC has orchestrated a villainous act against customers in the area of estimated billing and fixed charges. In effect, NERC has raised money for the distribution companies (DISCOs) from the pocket of already impoverished Nigerians. With NERC unable to account or monitor how much money has been "borrowed" from individual consumers, this act of treachery is daylight robbery.