LIGHT AT THE END OF THE TUNNEL

A few years ago, during my Industrial Attachment with the Power Holding Company of Nigeria, I joined a team for revenue collection. One house we visited in a low income neighborhood had single room accommodations with a central kitchen, toilet and bathroom. The occupants (who had no energy meter) were owing electricity bills, and we disconnected them. Later, while at another house, a middle-aged man from the first house ran to meet us, asking that we return, and reconnect their supply. Using pidgin English, he pleaded that they were poor, and the electricity, though irregular, was the only thing making life a little pleasurable for them.

What would you have done as the head of the disconnection team?

My last article explored challenges in Nigeria’s power sector, and I promised to return with solutions. I share the above story to highlight that the solutions are neither straightforward nor easily implementable. There is no silver bullet.

But, let’s try, starting with the liquidity challenge.

Current Solutions

In 2005, the Federal Government (FG) endorsed a restructuring of the power sector – from government-controlled, heavily subsidized to a privatized, largely market-based industry. The Nigerian Bulk Electricity Trading Company (NBET) was established to engage in the purchase and resale of electricity from power generation companies (GENCOs).

Due to low returns by the distribution companies (DISCOs), NBET has struggled to pay the GENCOs. Thus, the FG has used hundreds of billions of naira directly or indirectly (e.g. through CBN loan guarantees) to keep the sector afloat.

The DISCOs “rightly” complain that the electricity prices – which are currently not cost-reflective – must increase for services to improve. But their customers, majority of whom are groaning under the burden of estimated billing, are unwilling to accommodate any increase (which they “rightly” describe as paying more for darkness), until the DISCOs achieve 100% metering. DISCOs hesitate to invest more in power distribution/metering until prices increase, but customers are unwilling to pay more until DISCOs invest in improved services. A stalemate!

In a quest to ensure proper billing of electricity, the Nigerian Electricity Regulatory Commission (NERC) approved the Meter Asset Provider (MAP) regulation. It aims to close the metering gap in 3 years by encouraging the establishment of independent and competitive meter providers. The regulation came into effect in 2018, and was rolled out in 2019.

Following slow implementation of MAP, in February 2020, NERC repealed the Estimated Billing Methodology. Thus, placing a cap on the amount certain classes of residential and commercial customers will pay in the absence of a meter. All other customers without meters, are to stop paying the DISCOs from May 1, 2020.

On the surface, this seems to be a good move to force the DISCOs to meter everyone. But, it has at least 2 drawbacks.

First, money flows in one direction in the sector. The DISCOs collect fees from the customers, and deduct their share, before passing the balance to Transmission Company of Nigeria (TCN), and the GENCOs. If over 50% of customers are exempted from paying (or allowed to pay less) because they don’t have meters, ultimately, the entire value chain will bear the cost. And probably, the GENCOs and gas suppliers will feel it the most. The end result: more bailouts.

Second, Nigeria’s estimated grid-connected power requirement is 13,000MW, and on average, only 3,000 – 5,000MMW of power is generated and distributed. DISCOs can choose to increase power supply to areas where more customers have meters, and reduce power supply to other areas.

Alternate Solutions

Perhaps, a better solution to the metering crisis is for the government to take up the task of providing meters. The current system of government/CBN bailouts/guarantees is in a sense pouring water into a leaking bucket. The first step is to mend the leak. If part of the bailouts had been spent on closing the metering gap, the DISCOs can improve revenue collection, customers would be more open to tariff increase, and the sector could be on the path to self-sustenance. The government’s N-Power youth development programme, which has large-scale skill development as its main policy thrust is a possible vehicle to channel this metering intervention through. Youths under this programme can be trained to assemble, distribute and install meters.

With the metering gap closed, the NERC can gradually introduce a cost-reflective tariff.

While scaling up meter deployment, revenue leakages from corruption, and sabotage must be reduced. Preference should be to install meters that are difficult to tamper with. DISCOs can install energy meters at their transformers, and at sections along the low voltage poles to meter energy consumption at different points of their network to help track electricity theft.

There are few recorded cases of people punished for meter tampering, and electricity theft. The rate of prosecution of these cases will need to increase, to deter others.

Finally, there is a disparity between the Aggregate Technical, Commercial and Collection Losses amongst the DISCOs. Every DISCO needs to aim for, and achieve the lowest possible losses. To incentivize this, NERC can introduce a sliding electricity tariff, with DISCOs with the most efficient collection mechanism, allowed to charge a higher tariff.

Aging and failing infrastructure is a serious challenge which needs addressing to reduce Technical losses, and improve the grid capacity. But, that is a topic for another day.

If we start with the metering and liquidity crisis, there is already so much light at the end of the tunnel!

COVID-19

We are facing what is probably the greatest challenge since World War II – the COVID-19 pandemic, and its rising death toll. Billions of people have movement restrictions, and many (including me) are adapting to changing work conditions.

It is tough, but we must continue prioritizing slowing the spread. I encourage you to reach out to someone today, and share a positive word. If you can, look for families less fortunate than you, and support them financially.

To the healthcare workers, emergency responders, and everyone risking their lives to keep us safe, fed, entertained, and powered, Chukwu gozie gi!

Engr. Odinakachi Umunna (MNSE, MNIEEE, AMNIM) is a first class graduate of electrical engineering with broad energy industry experience (oil, gas and power); and stints in media, and the public sector. He is passionate about access to energy, business development and leadership. He can be reached at umunnaodinakachi@gmail.com.

 Note: Views shared on Energy related matters are my own and do not necessarily reflect those of Shell.