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NERC bows to consumers’ pressure, sets target for DISCOs

By BusinessNews Staff on March 24, 2014

At last, the Nigerian Electricity Regulatory Commission has expressed its disappointment in the failure of the power distribution companies to deliver their service commitments to the market three months into the year although the latter insist the operating climate is still a major challenge, reports Festus Akanbi

Three months into the operations of the power distribution companies and amidst growing frustration of electricity consumers, the Nigerian Electricity Regulatory Commission (NERC) recently gave the 10 power distribution companies a marching order to improve services and make dividends of the recent power sector privatisation available to Nigerians.
Analysts said the regulators were compelled to break the silence having collated some reports on the performances of the distribution companies, especially in the first quarter of the year.
To the consumers who had been promised a revolutionary improvement in power services following the transfer of power services and assets to private sector operators last year, nothing has changed, especially in the past three months when power supply was said to have worsen,
The harvest of complaints from electricity consumers coupled with the frustration of the Federal Government to deliver on its promise to bring sanity into the power sector got to a head two weeks ago when NERC warned the 10 electricity distribution companies to either improve on their service delivery to consumers or expect some form of regulatory interventions.
The commission in a letter dated March 11, 2014 had told the distribution companies that it was time to bring to bear tangible electricity service delivery to consumers within their areas of operation as they had promised before taking over the companies from the government on November 1, 2013.
The affected distribution companies include Kann Consortium for Abuja distribution company, Vigeo for Benin, West Power and Gas for Eko, NEDC/KEPCO for Ikeja, Sahelian for Kano, Integrated Energy Distribution and Marketing Company for both Ibadan and Yola distribution companies, 4Power Consortium for Port Harcourt, Interstate for Enugu and Aura Energy for Jos Distribution Company.

Consumers Cannot Wait in Perpetuity
Watchers of the development in the nation’s power sector were not surprised with the NERC’s argument that the last three months which had gone by was enough for the distribution companies to overcome extant entry challenges in the sector.
According to the Chairman of NERC, Dr. Sam Amadi, irrespective of their initial entry challenges into the Nigerian Electricity Supply Industry (NESI) and the commission’s commitment to providing a good platform for their lift-off, the time is ripe for the distribution companies to deliver their service commitments to the market.
It also accused the distribution companies of negligence in the maintenance of key distribution equipment and facility upgrade, saying: “Our investigations show that apart from the well-known problem of insufficient generation and periodic transmission failures, the failure of supply to these communities is caused more by your failure to invest in routine maintenance and facilities upgrade for the past three months since the handover.”

Nothing has Changed
It stated that notwithstanding all these measures, the state of electricity supply has not significantly improved three months after handover of the assets to the new owners. While emphasising on the constant complaints to it by electricity consumers, NERC however stated that it recognises that there are extant challenges such as shortage in gas supply to generation companies which has affected the amount of power available for distribution and the burden of debt repayment by the new owners but that electricity consumers cannot continue to wait for tangible improvement in the sector.
However, as Nigerians await the distribution companies to respond to the criticisms of the regulatory authorities through an improved performance, energy sector affairs commentators said as investors, the various distribution companies have the right to evaluate their investment and look for better option out of the present situation.
As it is, it is not only the government that is expressing its frustrations over the turn of event in the power sector. Banks which funded the privatisation appear to be losing their patience given the difficulty of the various power firms in making headway in the first three months of operations.
The $3.3 billion acquisition financing for the successor generation and distribution companies was provided primarily by Nigerian banks and the estimated $4.28 billion capital expenditure and rehabilitation expenditure is expected to be financed by Nigerian banks, with support from international financial institutions.

How Viable are the Power Projects?
Just last month, former Managing Director, Access Bank Plc, Mr. Aigbojie Aig-Imoukhuede, expressed concern over the viability of the recently privatised power sector. He warned that a number of the banks that financed the acquisition of the privatised assets of the Power Holding Company of Nigeria, PHCN, risk losing their funds.
Aig-Imoukhuede, who spoke at the KPMG Alumni Forum in Lagos, with the theme: ‘Leadership, growth and succession,’ noted that the banks failed to take into cognisance the apparent problems in the power sector, while a number of them chose to ignore the issues that appears to be stifling growth in the sector.
“There are two things that are very critical to the success, growth and development of the power sector; one of them is the issue of gas and the other is transmission,” he said.
According to him, the fact that issues of gas and transmission did not feature at any point in the privatisation process has put the banks in a dangerous situation.
He specifically noted that the banks that will be affected are those that served as equity loans providers.
“In my opinion, there is going to be trouble for the banks because these things were there for these financiers to know, yet it was ignored,” he added.
He, however, noted that despite the fact that a number of the banks will have their fingers burnt, the power sector, will in the long run be a very profitable sector. He said, “Things will get rough for the banks and the power sector, but it will certainly be a profitable sector, and I must state that it will take the virtue of some people.”
Operators’ Harvest of Complaints
At the first meeting with NERC in November last year, the distribution companies did not mince words in telling the regulators how frustrated they were with the emerging scenario in the power sector. There frustrations were centred on the twin issue of poor gas supply and consumers’ expectations.
To the Managing Director/Chief Executive Officer, Kano Distribution Company, Dr. Jamili Gwamna, power allocation to his DISCO had been far below expectation; a development he said had affected the firm’s revenue drastically.
He said, “Our power allocation has been low in recent times. So, how on earth will customers pay me and how will I pay money also? There has not been power and when you threaten to disconnect consumers, they tell you to hurry up with the disconnection process.”
Gwamna stated that although it was not time for DISCOs to make returns on investment, NERC should appreciate the enormity of the problems that they met on ground.
The seeming confusion over payment of bills by electricity consumers was the issue raised by Director, Benin Electricity Distribution Company, Mrs. Funke Osibodu. She pointed out that “There is so much confusion in the public and we need to look at how to address this. For instance, the public believe that they are not supposed to pay anything until January; that they shouldn’t be disconnected until then; and they believe they can come and stand in front of you and collect prepaid meters just like that.”
She decried the drop in power generation and stressed that consumers had always blamed the DISCOs for poor electricity supply.
According to her, the power system comprises generation, transmission and distribution companies, but many electricity consumers do not understand this.
She added, “Anything that happens anywhere, even if it is not your concern, it will be assumed that it is your doing. So, the public believes that the lack of power is because the new owners in distribution companies don’t know what they are doing.
“But in reality, it is a GENCO problem as a result of gas shortage. At one point, we were about to go on air to make people know the true position.”
The Managing Director/Chief Executive Officer, Geregu Power Plc, Mr. Adeyemi Adenuga, said he was not happy with the way the system operator in the sector was going about its activities. He said, “The SO that is supposed to know that capacity declaration is what they should use to measure capacity (but) continues to use another thing outside what is in the Multi Year Tariff Order 2 agreement and outside the interim rules that have been provided.
“We are not happy and I think that the regulator, apart from coming up with all these beautiful rules, should make sure that the people who are there are actually keeping to these issues.”
A representative of the Ikeja DISCO lamented the manner in which officials of the firm had been attacked by angry consumers, who were wrongly informed on the interim operational period for the distribution firms.
The representative, who didn’t disclose his name, said, “Seriously, people have been attacked and manhandled as they go about their rightful duties. So, there is a need for people to be rightly informed because they believe that they are not meant to pay any bill for three months.”
As it is, none of the stakeholders have ruled out the possibility of an improved performance of the power sector in the near term but the gestation period of the investment by power sector companies and the impatience of electricity consumers will continue to be major issues shaping the emerging private sector-driven Nigerian power sector.