Power Sector: Don't Compare NESCO With PHCN – BPE Boss

ABUJA, Nov 07, (THEWILL) - The Director General of the Bureau of Public Enterprises (BPE), Ms. Bolanle Onagoruwa, has explained that due to the structure of the electricity industry, it is not possible for private operators to build their distribution facilities to compete with the extant distribution network of Power Holding Company of Nigeria (PHCN.) She made the remarks at an in-house workshop on power sector reforms held at the BPE headquarters in Abuja. The Nigeria Union of Electricity Employees (NUEE) had argued that: "if the government is really serious about the sector, it should allow the 25 licensed companies to operate alongside PHCN, like the Nigeria Electricity Supply Company (NESCO.) NESCO has been operating in Nigeria since 1929, generating its own electricity without taking over PHCN.” According to her, the technology in power generation allows for many participants unlike the technology for transmission and distribution networks.

“One can set up separate generating plants using any fuel source (hydro, gas, coal, etc) that is economically viable. At any point, you can have many players,” she stated.

“Transmission network is such that it is a natural monopoly given that you cannot ask every operator to build its own transmission network. It is uneconomic, not sensible and it has not been done anywhere in the world,” Onagoruwa added. She pointed out that the design of the Nigerian Electricity Supply Industry (NESI) is such the Transmission Service Provider (TSP) should give equal access to generators in accordance with laid down rules. It is in order to initiate this that the Federal Government has retained ownership of the transmission network, she noted. The BPE boss stated that the distribution component of the electricity industry structure also shares the element of monopoly with the transmission component. Said she: “In Nigeria, the distribution network has been split into eleven companies. So asking all the generators to build different distribution networks as done by NESCO in Jos is wasteful and will make the Nigerian consumers pay the highest electricity tariff in the world. And that makes it unwise for anybody to experiment with.” She added that the Electric Power Sector Reform Act of 2005 recognizes the monopoly elements in the transmission and distribution chains of the industry structure.

“That is why the law gave the Nigerian Electricity Regulatory Commission (NERC) the power to set tariffs for both services so as to prevent consumers from being exploited. And this is what is done in all electricity markets that are reforming,” Onagoruwa disclosed. She pointed out that the revenue that drives the entire value chain (generation, distribution, transmission—market operator and system operator) comes from consumers through the distribution companies. In this regard, she stated that any reform that does address the challenge in the distribution network would collapse as there would not be adequate revenue to fund the rest of the value chain (that is, generation and transmission.) Onagoruwa noted that: “NESCO as a private company has generated and distributed electricity (through separate licenses) efficiently for many years in Jos to the satisfaction of its customers is a case in point to support private sector investment. However, it must be done in an orderly fashion and not the way that it is currently being done in Jos whereby NESCO or PHCN are beginning to squabble over territory. Both are laying parallel distribution facilities in the same neighbourhood. Aside from health and safety issues, what this means is that consumers will be compelled to pay for the cost of multiple infrastructure; whereas one set of infrastructure would have served the populace at a far-reduced cost.”