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    How Not To Derail Electricity Industry Growth Through Policy Reversal


    December 2, 2022 - By Chidi Ugwu

     

      CHIDI UGWU

      The story of Nigeria's manufacturing and production sector has been characterised by lack of infrastructure, including power supply hence, when on the 6th November, 2017, the Nigerian Electricity Regulatory Commission (NERC), issued the Eligible Customer Regulation, the Generation Companies, otherwise known as Gencos and manufacturing outfits across the country welcomed it as a win-win regulation for the electricity industry.

      The then Minister of Power, Mr. Babatunde Fashola was said to have been moved to announce the policy following outcry of poor electricity supply services by industrial consumers in spite of the 2,000 megawatts stranded (unutilised) power available from the GenCos.

      With the policy, the power generation companies in Nigeria's electricity market were given the go-ahead by the industry regulator, NERC, to procure new capacities, generate more electricity, and sell them directly to end-users across the country with very minimal interference from the 11 electricity distribution companies.

      Apparently, the preponderance of opinions in the power sector supports the eligible customers policy, but few years later, the policy implementers and bureaucracies suddenly realised the policy was hurriedly implemented at the time they did and have now decided to back-off.

      NERC had in a recent letter in July directed that TCN should redirect all eligible customers from their contracted GenCos and revert them to their respective DisCos.

      According to the letter dated July 7, 2021, Port Harcourt Electricity Distribution Company, PHEDC, had written a letter to NERC in June complaining that a company left its network and was recognised as an eligible customer by the TCN. NERC in its reply to TCN, indicated that it had reviewed the complaint and found that it was against the provision of the ECR.

      NERC, therefore, mandated the GenCos ready to enter into an eligible agreement to provide evidence that they have capacity more than what they had contracted with the Nigerian Bulk Electricity Trading Plc, NBET, as grid supply. They must also have an executed bilateral agreement with a DisCo for the construction of a distribution system, DUOS, to supply the customer where applicable.

      The policy initially generated hiccups and was hotly litigated. It was initially introduced during the administration of Babatunde Raji Fashola as the then super Minister of Power, Works and Housing.

      However, experts in the industry described the decision of government regarding the eligible customer regime as depicting another policy somersault and regulatory inconsistencies in the power sector.

      The position of NERC after these rigmarole with regard to eligible customers regulation has been described as retrogressive which may derail the progress and much needed fast tracking of the growth of electricity sector in Nigeria.

      For instance, Professor Yemi Oke, a pioneering specialist and leading expert and scholar in Electricity Law in Africa, described it as another policy summersault and distortion.

      "The eligible customer regime depicts another policy summersault and regulatory inconsistencies in the power sector. As one of the sector experts, it is my considered view that this is another avoidable acrimonious policy distortion. Without doubt, one of the best policies promoted so far in the Nigerian Electricity Supply Industry (NESI) is the Eligible Customer Regulation 2017 (ECR)" he said.

      According to him, the policy become even more rational realizing that Nigeria's inflation rate of over 17 percent is driven mostly by high cost of goods and services.

      "There are over 10,000 MSMEs in Nigeria with the Manufacturers Association of Nigeria (MAN) estimating that its about 2,500 members spend 40% of production cost on self-generated power which is imputed into the prices of goods and services. Nearly half of all electricity generated are from self-generated power. These realities contribute in constraining the growth of the economy and impede any plans to diversify it from over dependency on the oil and gas sector.

      "The policy makes it practically possible for the country's stranded 2,000MW unutilised power to be transmitted directly to industries on a direct contract basis between a GenCo and company owners. Therefore, reversing this laudable initiative will amount to a disservice to the Nigerian economy.

      For an Abuja based economic analyst, Mr. Jude Ewelukwa, Nigeria appear to be unwittingly halting a process that could hasten more power supply to industries to increase production that would stimulate growth at a time when inflation is at a peak.

      Ewelukwa said this move most certainly will adversely affect Nigeria from benefitting maximally from the African Continental Free Trade Area.

      "one of the biggest threats to Nigeria being able to take a leading role and benefitting maximally from the African Continental Free Trade Area is the energy poverty crippling manufacturers and providers of goods and services.

      "Boasting the continent's largest population, most immense diversity in mineral resources and abundant talent are constrained by the absence of power supply required to transform them into productive endeavours in terms of value and commodities that can be exchanged across the borders of the continent with competitive advantage" he said.

      James Agbedo, an energy law expert, in his submission said the implementation of the eligible customers regulations would have opened up the market and accelerated growth in the industry.

      Agbedo noted that the Niger Delta Power Holding Company (NDPHC) alone has capacity of 3,000MW, which could easily have been taken by the big consumers if the regulation had not been abruptly halted, urging the regulators to reconsider their stance on the issue.

      "For me, there is need to reconsider the regulators' stance on the matter. Keep in mind that the NDPHC alone has available capacity of 3,000MW. Now, think of the impact of 3000MW of stable electricity to the economy. NDPHC latched on to Eligible Customer in its determination to ensure that productive sectors of the economy have access to needed electricity to provide jobs; ensure continuity of economic activities;avenue for selling stranded electricity; ensure profitability of its operations since the system is yet to decide if NDPHC is commercial or social service company; its electricity is not usually given priority despite its low price. Having said that, I also feel that state governments should take advantage of NDPHC plants located strategically across the regions rather than embark upon expensive and unsustainable provision of diesel powered IPPs" he added.

      Independent recalls that when the policy was introduced in 2016, the Gencos had called for an effective implementation of the regime to put an end to alleged unhealthy market practices by the 11 Discos, which have been accused of dishonesty in the management of monthly revenues collected by them. These acts are said to have contributed significantly to the market's financial troubles wherein the Gencos are unable to pay their gas debts to gas suppliers as well as meet other operational obligations.

      The Gencos said the declaration was done in good faith. They said it was made after the government had consulted with operators in the sector, adding that the Discos are clearly unable to take as much power as the Gencos would generate in a long time.

      APGC's Executive Secretary, Dr. Joy Ogaji, stated then that with the declaration, bulk electricity consumers, who were willing and had the capacity to procure power directly from the Gencos, could now deal with them without the Discos.

      Ogaji explained that the trading agreements to be adopted in the new provision would be without the usual loopholes, which operators in the sector often capitalised on to shirk their responsibilities. According to her, this would include, water-tight contractual agreements because this is not going to be about any national cake.

      The electricity market had immediately set up a meeting of stakeholders in Abuja to facilitate the implementation of the eligible customers' regime.

      On it's part, Manufacturers Association of Nigeria (MAN) had highlighted the need for a quick take-off of the regulation.

      MAN said the amount of electricity required by its members to carry out their respective manufacturing operations every day had risen to 14,882 megawatts, saying most of this is self-generated.

      The association said it found it uneconomical that up to 2000MW of the power Gencos could generate was stranded because Discos were unable to evacuate them to points of need. MAN said it looked up to the new eligible customers' regulation to cut down its expenses on self-generated power.

      The then President of MAN, Dr. Frank Udemba-Jacobs, stated that members of the association were ready to take up the 2000MW of stranded generation capacity using the eligible customers regulation.

      He called on Discos to shelve their opposition to the eligible customers regulation and, instead, consider the overall economic interest of Nigeria, adding that poor grid power supply has impeded the growth of the country's manufacturing sector.

      Udemba-Jacobs stated regarding the eligible customers regulation, "It is a welcome development. We have been complaining about power as one of the infrastructure that has been impeding our progress as manufacturers, and when we heard about government coming up with the eligible customer guidelines, we thought it was a wonderful idea because at present, we know that 2000 megawatts are stranded and not been utilised because the Discos couldn't buy them. These are wasting away while we need power.

      He stressed, "This is an opportunity for us to key in and take that 2000 megawatts that are wasting. MAN members alone consume 14,882 megawatts per day, and this we cannot get (from the grid). Most of them are self-generated. We believe that this eligible customer initiative will make it possible for us to get some of those power that are wasted and convert to our own use".

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