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