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FG’s power delivery targets may lead to adjustments in NERC’s rules

By BusinessNews Staff on May 20, 2014

There are growing concerns among operators in the Nigeria’s Electricity Supply Industry (NESI), as to how the newly announced interim market rules of the Nigerian Electricity Regulatory Commission (NERC) will help advance the sector into the anticipated Transition Electricity Market (TEM).

THISDAY gathered from industry operators, especially Chief Executive Officers (CEOs) of some distribution and generation companies that attended the May edition of the monthly industry stakeholders’ meeting with NERC in Abuja that certain provisions in the interim market rules may need to be adjusted for the industry to swiftly achieve TEM.

Some of the CEOs who on conditions of anonymity, stated that with the federal government’s June target for improved electricity delivery in sight, the need for the regulator to consider adjusting certain aspects of the interim market rules may after all become necessary particularly as the government continues to show good commitment to improving gas supply to thermal power plants.

It was learnt that one of the major concerns of the operators with the interim rules was the staggered baseline revenue remittance figures allocated to the various distribution companies, despite their inability to activate vesting contracts signed with the Nigerian Bulk Electricity Trading Company (NBET) Plc.

Also worrisome is the allegation that the generation companies may have been short-changed in the makeshift rule, which is said to have left the Nigerian Bulk Electricity Trading Company (NBET) Plc with very limited choice.
Although, it is not clear if recommendations on this and other issues had been made to NERC by the operators that are open to possible adjustments in the rules, one of them however stated that the choice of the commission to push the market to achieve TEM at once may not be the best and stands to act as a setback to the gradual attainment of efficiency in the sector.

As expected, NERC’s interim rules for the sector which became effective from May 1, is to govern trading arrangements during the interim period when PPAs and vesting contract between the privatised generation and distribution companies and NBET will not be effective.

The rule would also manage the probable revenue shortfall in the industry by determining the revenue allowable to participants and service providers during the period, establish the payment arrangements and flow of funds from distribution companies through the Market Operator to all beneficiaries, as well as establish the sources of funds required to ameliorate the probable shortfall in revenues collected by the distribution companies during the interim period.

It also stated that the distribution companies shall make certain monthly baseline revenue remittances to the Market Operator. For example, Abuja, Benin, Eko, Enugu, Ibadan and Ikeja electricity distribution companies are mandated to make baseline remittances as a percentage of the Market Operator’s invoice in the order 65.13, 53.12, 98.24, 55.93, 74.03 and 90.66 per cents respectively.

Yola distribution company is however expected to make 25 per cent remittance to the Market Operator; these remittances are expected to be in line with the amount of electricity allocated to the various distribution companies.

But one of the CEOs said: “You see, these are some of the things that we think should be discussed with the regulator. This privatisation came with some measure of sacrifice, we must be very jealous in guiding it and we are of the opinion that as much as we work towards TEM, that this interim rules are good but they cannot just sustain the sector.

“We stand the risk of losing whatever little gains we’ve recorded with this privatisation if we remain rigid, the truth remains that we cannot just achieve TEM in one fell swoop as the regulator envisages.

“What stops the regulator from saying, Ok, you Eko disco, you are doing 98 per cent remittance already, you sign your vesting contract with the bulk trader to guarantee your maximum power needs but with a caveat that if there is a general drop, you’ll be affected minimally.

“And then, the bulk trader goes to the generation companies and activates its PPAs telling them, you Egbin, give me 20 per cent of your daily production and I’ll guarantee you prompt payment. That way, we begin to achieve efficiency in bits until it assimilates into the entire market,” he added.

The CEO further said: “What we are simply proposing is that we should adopt a systematic progression into TEM other than waiting for everyone to achieve certain level of remittance. Let us allow the viable discos to activate their vesting contracts with the NBET and conduct real trading because you don’t expect Eko for instance to wait for Yola that is just doing about 25 per cent and sometimes zero now before it can activate its contract with the bulk trader, it will be unfair.

“For us to actually meet up with the government’s deadline, we think that we should be looking towards this direction. Let us begin to have firm market contracts in place because as it is now, we are beginning to have two types of discos in the sector; those that are in for tariff adjustment and of course the proactive ones that are saying, guarantee me power and I will guarantee you remittance.”

While stating that Nigeria’s power sector privatisation was achieved with so much sacrifice, the CEO explained that operators in the sector are constantly on the edge to see that the processes are managed well to guarantee success.

Similarly, the CEO of Egbin power plant, Mike Uzoigwe, noted that operators were increasingly worried about poor revenue profile of the sector and would want an improvement to keep the sector afloat.

Uzoigwe explained that Egbin’s investment of about N7 billion for capacity upgrade and reliability was yet to pay off, adding that it has rather incurred a loss of N570 million from November 1, 2013.

“Our experience since after privatisation has been undesirable. As at the end of last month, our books showed that we are losing revenue to the tune of about N570 million doing business from November 1 to date.

“The revenue profile in the electricity industry is very poor and if any further investor will look in, it will give results that may not be desirable for the country. Two factors are impinging on our moving forward, those are the fact that consumers are not metered, the second is the issue of gas. We can never overstate the problem that lack of gas is causing the industry,” Uzoigwe said.

[This Day]

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