Dialogue with H.M Babatunde Fashola 2016 Power Sector Review and 2017 Power Policy Direction

By Nextier Power Team

PREAMBLE
1 Nigeria’s electricity supply market presents immense investment opportunities.

However, it faces significant challenges despite concerted efforts by the Federal

Government of Nigeria to resolve the fundamental issues. These challenges have

resulted in unmet expectations from the privatisation exercise, significant revenue

shortfalls, apathy towards further investments in the sector by existing and

potential investors, etc.
2 On Wednesday, January 18, 2017, Nextier Power organised its monthly Nextier

Power Dialogue with Babatunde Raji Fashola, SAN, Honourable Minister Power,

Works and Housing, as the Guest Speaker. The event was held at Thought

Pyramid Art Centre in Abuja, Nigeria.
3 Participants at the event included the senior
executives from government power agencies,
private power companies, development
agencies, consulting firms, and legal firms.
There were also professionals, journalists, civil
society organisations, and many others.
OBJECTIVES
4 The core objective of the dialogue was to
convene sector leaders and knowledgeable
stakeholders in the sector to review 2016 power
sector achievements with responses to current
sector challenges and also to present policy
direction for 2017.
OPENING REMARKS
“Young Child; Still Emerging”
5 The Honourable Minister, Babatunde Fashola acknowledged the importance of

forums such as the Nextier Power Dialogue for the opportunity it provides him to

interact with people for whom he is responsible. He explained that it is the

Ministry’s aim to “demystify” electricity in order for Nigerians to understand the challenges facing the power sector.

6 The Honourable Minister explained that for 63 years the Nigerian government

owned and managed the entire value chain in the Nigeria electricity supply

industry. The people of Nigeria were however unsatisfied and demanded change

in the form of privatisation. Consequently, for the past three years, private

companies have been running a significant portion of the power sector (generation

and distribution). The government has continued to manage the transmission

company. The Honourable Minister noted that it is not realistic to expect the

private companies to achieve in three years what the government was unable to

achieve in 63 years. He urged Nigerians to “see the private initiative as a young

child, still emerging.’
7 The Honourable Minister conceded that there are developments that are realisable

within the timeframe; however, there is need to first ascertain how much electricity

power is required in Nigeria. He said that Nigeria couldn’t effectively plan if it does

not know how much power it really needs. This is a major challenge as the

country’s population, which is the basis for the projections, is quite uncertain.

8 The Honourable Minister reviewed the 2016 activities in the power sector as

follows:
 Strategy: Achieve incremental power from all safe and reliable sources.

 Generation: Nigeria reached an all-time high of 5,074 MW in February 2016.

About 3,000 MW of generation capacity was lost due to vandalisation of gas

pipelines by militants in the Niger Delta (14 attacks in 2 months).

Subsequently, Nigeria realised about 2,000 MW from the grid that lead to the

incessant power outages across the country at the time.

 Transmission: The government has achieved 7,200MW transmission capacity

from the completed transmission projects.
 Distribution: Financial shortfalls have continued in the sector, however, the

government is working with the World Bank Group to develop a package to

resolve the issue. The government is eager to resolve this issue as some of

the gas companies have stopped supplying feedstock to the generating

companies which has lead to another 2,000 MW drop in generation to a new

low of 1,973 MW. A sustained drop in gas supply results in low generation

levels that makes the transmission grid unstable and results in constant power

outages.
9 The Honourable Minister was optimistic about the outlook for 2017 and stated that

Nigerians should start experiencing the impact of the improvements that have

been completed over the last year:
 Completed projects: Ongoing transmission projects ongoing at Kudenda

(Kaduna), Ayobo (Lagos), Odogunyan (Lagos), Kumbotso and Maiduguri

should be completed this year.
 New projects: A number of new power projects will come on-stream this year.

Some of the major projects include the Gurara Power Plant that is expected to

start generating electricity before the end of Quarter 1 2017, and the Katsina

Windmill Farm that should be completed by Quarter 4 2017.

 Policy: The government is finalising a policy that will ensure more gas supply

with improved liquidity in the system.
 Better governance: The Senate Committee on Power, led by Senator Abaribe,

has concluded the screening of the NERC Commissioners. As a result, the

sector should have improved institutional framework and sector governance.

 Loss reductions: The government is set to implement measures to reduce

power theft through more stringent sanctions, improved metering, audit of

distribution companies (DisCos), etc.
 Government Debt: The government has completed plans to payoff the debts

owed by government agencies to power companies. However, there is need

to complete an audit of these figures before any payments are made.

 Financial strengthening of the Nigerian Bulk Electricity Trading Plc.

 Better contract performance and standard sanctions for non-compliance.

 Improved access to electricity through rural electrification

10 The Honourable Minister concluded by reiterating that the system is in a transition

period. The government will continue to support the system during this period but

there is need to ensure the system does not remain in transition forever.

MODERATED DISCUSSION
The moderated panel discussion and audience participation raised a number of issues

including the following:
11 Responsibilities as Minister of Power?: The Honourable Minister was asked to

explain his role in the post-privatised power sector to ensure Nigerians know what

to hold him responsible for. He explained that his role is to provide policy direction

for the sector. For instance, Ministry of Power is providing guidance on the optimal

energy mix, energy use, and safety procedures for the sector. He noted that the

staff strength of the Ministry has been significantly reduced following the

privatisation.
12 Reverse the privatisation?: The Honourable Minister explained that while there

may be some challenges with the privatised companies, government does not

intend to cancel the privatisation as, amongst many other issues, it will send a bad

message to investors. He submitted that he supports the principles of privatisation

and concluded that instead of reversing the privatisation, government should

consider to fix the challenges that have emerged. He recommended stronger

governance, regulations, and sanctions. He cautioned that these

recommendations should be carried out within the framework of the existing

contract. He suggested that an alternative would be to introduce new terms that

can be negotiated. The market has changed since privatisation, he stated that

Review the Tariff? The Honourable Minister reiterated that privatisation was a

decision taken by the government of Nigeria with the support of the people.

However, this decision comes with the consequence of increase in tariff. He

pointed that tariff reviews are built into the privatisation system because the cost

of supplying power has to be paid for by the consumers. Tariff reviews are a

continuing event in the sector and there will be times when they will be increased

and other times when they will decrease in response to changing economic

factors. However, he pointed out that a tariff review is not the solution to the

problems in the sector today. Rather, he said that the major problem is the need

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to establish the actual number of people consuming energy. There is a need to

find a way to stabilise the economic context within which all the entities operate.

13 Grid Expansion? The Honourable Minister, in his opening remarks, mentioned

that there has been some significant increase in the capacity of the transmission

grid. He was asked to explain what the current government has done differently to

achieve this feat. The Honourable Minister noted that the government has

provided the staff and engineers in the Ministry with the tools to do their work. He

reiterated that President Mohammad Buhari has championed a budget that

provides the resources for expansion.
14 Renewables? The Honourable Minister was asked to address the opportunities

in the renewable energy space. While acknowledging that there are immense

investment opportunities in the space, he advised potential investors to first seek

appropriate legal advice, explaining that there are legislative policies in Acts like

the Nigeria Investment Promotion Council (NIPC) Act that provides incentives to

investors. He pointed investors to the Ministry’s website where they can find

information on potential sites for different types of power projects: solar,

hydropower, coal, etc.
15 Mini and Micro-Grids Policies? The Honourable Minister confirmed

government’s commitment to the use of mini and micro-grids to address the needs

of Nigerians that currently are not connected to the grid. The Ministry has

presented a Rural Electrification Implementation Plan (as outlined in the Rural

Electrification Policy) and it is awaiting approval by the President. He confirmed

that the Rural Electrification Board and the Rural Electrification Fund have been

set up. The government’s strategy is to model the mini and micro-grids in

universities because of their locations. These factors will make the universities

attractive to private investors in the mini and micro-grids space. The government

has completed an audit of about 40 universities and will select a number of them

for pilot projects. With the success of the pilot projects, the government will

commence the audit of polytechnics and other tertiary institutions with similar

characteristics.
16 Investment Opportunities and Areas of Support? The Honourable Minister

explained that there are investment opportunities across the entire electricity

supply value chain. He identified challenges and opportunities in metering,

expansion of the transmission grid, expansion of distribution capacity, etc. He

encouraged the owners of the distribution companies to approach the Ministry for

approval of any investors that is interested in improving the capacity of the

distribution networks. There are also opportunities in terms of expanding

generation in non-associated gas fields, and of course solar and renewable

energy.
17 Insolvency of Privatised Companies? The Minister was asked what the

government’s response would be in the event that one of the privatised companies

were to become insolvent. The Honourable Minister explained that while the

government will continue to provide enablers to ensure all businesses in Nigeria

have a fair opportunity to success, he acknowledged that insolvency is one of the

ways that the system corrects for faulty business models and business practices.

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The Ministry will try to support every business that plays by the rules but it is also

obvious that it cannot save every company.
AUDIENCE PARTICIPATION
The audience participation (question and answer) session raised a number of issues

including the following:
18 Options for Funding and Financing the Sector: Mr. Dagogo-Jack, Former

Chairman, Presidential Task Force on Power, proposed some form of levies on

sectors such as telecommunications, oil and gas, and overseas transportation to

develop aspects of the electricity sector. The Hon. Minister noted that he will

consider this suggestion and asked that the details of the idea and other ideas

should be passed through Nextier Power to his office.

19 Electricity Bank: Dr. Shadi Sabeh from the Usmanu Danfodiyo University in

Sokoto suggested that the government should set up a special bank focused on

financing the development of the electricity sector. The bank will be similar to the

Bank of Industry. The Honourable Minister welcomed the suggestion and

requested for further details on how the bank would operate.

20 Power as a Political Issue: A member of the audience asked what the Ministry is

doing to counter the trend of members of the public sabotaging power

infrastructure as a political statement. The Honourable Minister reflected that

oftentimes what we have come to refer to as “politics” is simply bad behaviour. He

said people who believe damaging public infrastructure is a means to a political

end are simply bad members of our society.
21 The Nigerian Electricity Regulatory Commission: Mr. Joe Ejidoh of CET

Power, a power firm based in Abuja, asked about the absence of a Board for the

Nigerian Electricity Regulatory Commission (NERC). The Honourable Minister

pointed out that NERC, as the institution, exists whether there are commissioners

or not. He said the Commissioners’ powers are related to approving orders for

tariffs, etc., and that institution can run in their absence. However, he

acknowledged that the government is committed to improving sector governance

and as a result, except for one Commissioner, the rest have been screened and

confirmed by the National Assembly. He confirmed that the government is making

efforts to conclude that process.
22 Renewable Energy for Entrepreneurs: Mr Suleiman Yusuf, Chief Executive,

Blue Camel Energy, inquired about opportunities available to entrepreneurs in the

renewable energy space. The Honourable Minister noted that the government is

working on interventions that target the specific challenges faced by the

entrepreneurs such as cost of land acquisition. For instance, the Ministry is

concluding plans with a state government to acquire a large expanse of land,

develop the sites and services such that renewable energy entrepreneurs can take

portions of this land to develop their wind or solar farms. This intervention will

reduce the cost of land acquisition for the entrepreneur.

23 Willing Seller, Unwilling Buyer: Dr. Stephen Ogaji, Head of Gas, Niger Delta

Power Holding Company, suggested that part of the indiscipline in the electricity

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market is because generated power is sold to the distribution companies based

on quota levels, and not based on payments by the companies. As a result, DisCos

are not incentivized to remit payments. He suggested the Honourable Minister

should approve for generating companies to sell power directly to an eligible

customer. This way, the distribution companies will be forced to compete for

available power. The Honourable Minister responded that the Ministry is already

considering that recommendation although the full legal implications are yet to be

agreed. However, the Minister mentioned that the current policy allows for

contracts between parties.
24 Financing: The Hon. Minister noted that the allocation of the finances in the

Ministry has been about 65 percent to Works, 25 percent to Power, and 10 percent

to Housing. He further noted that majority of the finances has gone to settling

outstanding debts to contractors. Regarding subsidies that were promised since

privatization, the Hon. Minister noted that subsidies appear in different forms. For

instance, the Nigeria Electricity Market Stabilization Facility provided by the

Central Bank of Nigeria is a form of subsidy because it is a low interest rate fund.

He advised Nigerian businessmen that the days of collecting money without the

intention of repayment are over.
25 Rural Electrification Fund?: The Honourable Minister explained that the

government is committed to setting up the Rural Electrification Fund to be used to

expand electricity access to communities that are currently not connected to the

grid. He said that income for the Fund will be accrued from electricity tariffs,

government investment, donor funds, fines etc. The Honourable Minister noted

that the Rural Electrification Agency would be responsible for managing the Fund.

26 Board of the REA: Mr. Alexander Obiechina asked why a Board has not been

constituted for the Rural Electrification Agency. The Honourable Minister

explained that the Ministry has made some recommendations to the President. He

further explained that appointments at the Federal level need to meet various

Federal character considerations: geopolitical zone, religion, gender, age, etc.

This consideration, while important, tends to slow down the decision-making

process and increases the levels of consultations needed before an appointment

is made.
27 Collaboration with Other Ministries: The Honourable Minister noted that

collaboration exists both at the institutional and personal levels with the Ministries

of Solid Minerals, Petroleum Resources, Water Resources, Finance, Budget, and

Environment. He further noted that the Ministry of Power is an end user that

depends on input controlled by these various Ministries: water for its hydro dams;

gas for gas-fired power plants; and coal for coal-fired plants.

28 What the Ministry has Done Differently: According to the Honourable Minister,

what his Ministry has done differently is that they are asking more questions before

decisions are made, working harder, staying focused, exhibiting more

determination, not afraid to make tough decisions, and more importantly, ensuring

the right things are done right. He noted that power plants like Jebba that require

routine maintenance were not maintained until 2015. Shiroro Power Plant had

turbines that were out, and that the current administration just recently concluded

the maintenance programmes.
January 2017 CONCLUSION
The Nigeria electricity supply market is still in a transition period and the Federal

Government of Nigeria is committed to support the sector to achieve incremental and

sustainable power supply to Nigerians. The government has focused on fixing the

governance challenges, policies, complete ongoing power projects, and provide

support to the private sector to resolve other persistent challenges. The Honourable

Minister urged Nigerians to adopt a positive outlook for the year 2017 as he listed the

ongoing projects and developments in the power sector. He also urged all the

stakeholders in the power sector to register with the West African Power Pool in order

to share and sell energy between themselves during peak and off-peak energy periods.