Power Sector Recovery Programme: A Reinvigorated NESI?
The fundamental role of adequate power supply to the development of all the sectors in a country’s economy cannot be overemphasized. Unfortunately, the Nigerian Electricity Supply Industry (NESI) is yet to deliver the desired outcomes despite laudable efforts by successive government to advance the sector. The sector is plagued by myriad challenges stemming from various imbalances in the market that manifest as inadequate infrastructure and financial shortfalls. These have resulted in poor electricity supply to Nigerians, and, indeed, can be blamed for the current economic recession as poor electricity supply hinders Nigeria’s productive capacity. For instance, according to the World Bank, Nigeria’s electricity consumption is 144 kW per capita which is (3.4 percent and 40 percent of South Africa and Ghana’s electricity consumption respectively). There is a shortfall of about N1 trillion in the market. There is no gainsaying that these issues must be expeditiously addressed before a total collapse of the sector; or indeed, the economy.
In April 2017, Federal Government of Nigeria, with support from the World Bank Group, rolled out a comprehensive intervention plan, the “Power Sector Recovery Programme”, which aims to “reset” the Nigerian Electricity Supply Industry to a more sustainable sector in the medium term (2017-2021). The objectives of the Programme include restoring sector viability; improving power supply reliability to meet growing demand; strengthening the sector's institutional framework and increase transparency; implementing clear policies that promote and encourage investor confidence in the sector; and establishing a contract-based electricity market. The PSRP has a number of carefully crafted interventions to the fundamental challenges in the market including financial interventions, operation and technical interventions, governance intervention, and policy interventions.
The PSRP intends to use a number of financial interventions to address and eliminate historical debts, future sector deficits, and provide support to the value chain. Some of these interventions include NGN 701 billion Payment Assurance Facility provided by the Central Bank of Nigeria, World Bank Group funding totalling about $2.5 billion to unlock an additional $2.7 billion from private investment, the annual budget of the Federal Government of Nigeria and its Medium Term Expenditure Framework. This injection of funds should resolve the financial shortfalls and stabilise the market.
The operational and technical interventions would ensure a minimum baseline generation of 4,000 Megawatts. These interventions would guarantee the stability of Nigeria’s transmission grid and also improve the performance of the electricity distribution companies (DisCos) by ensuring reduction of aggregate technical, commercial and collection (ATC&C) losses. In achieving this objective, constraints affecting thermal plants especially gas will be addressed and measures such as metering programmes and DisCo recapitalisation will aggressively ensure ATC&C loss reduction.
Furthermore, the governance interventions would improve transparency across the value chain and ensure proper governance of Nigeria’s electricity sector by appointing qualified Boards to sector agencies and by establishing data driven processes for decision making.
Finally, the policy interventions such as implementing FX policies and off grid renewable energy solutions would facilitate the development of the sector, increase access to electricity and encourage private investment into the sector.
Risks and Mitigation
The PSRP highlighted the possible risks to the plan and outlined how they would be mitigated. A major risk is the potential disruption of gas supply by vandals and its adverse impact on the programme’s assumed baseline electricity generation of 4,000 Megawatts. The plan recommends high level political engagement with the various groups in the Niger Delta region. Furthermore, it recommends extending ownership stakes in the gas supply infrastructure to the host communities as a way of incentivising them to protect the assets.
The PSRP could be impacted by a failure by all parties to meet their funding commitments. The plan, therefore, ties the budget support commitments of the World Bank Group to the certain pre-conditions that must be met by the Federal Government of Nigeria before the funds are released. These pre-conditions include tariff adjustments as scheduled in the PSRP.
At the micro-level, there is a risk that the electricity distribution companies may not meet the baseline performance levels or the stipulated loss reduction levels. The PSRP stipulates the activation of the performance agreements the various electricity distribution companies executed with the Nigerian Electricity Regulatory Commission.
In the final summation, the success of the PSRP will depend to a great extent, on the ability of the Advisory Power Team to provide the cross-sectoral programme management required to deliver on the various tenets of the plan. There is need for a holistic strategic communications plan that ensure Nigerians understand the plan, its components and timelines, and what is expected by the various parties, including the masses (electricity customers and consumers).
Proposed Action Plans
Mindful that previous Nigerian governments have announced lofty plans for the sector, PSRP brings a significant focus on implementation. The proposed action plan begins with addressing the market shortfalls under the existing vesting agreements between the Nigerian Bulk Electricity Trader and the responsible DisCos. The process of settlement will be communicated and agreed with the Ministry of Finance, Ministry of Budget and National Planning and the Ministry of Power, Works and Housing. Furthermore, installation of pre-paid meters and implementation of a centralised paying system that will deduct MDA’s electricity bill from their budget will avert future occurrence of MDA debts.
The federal government will also issue a tariff recovery policy that will cover the transition path to achieve full retail cost recovery within 5 years with constant review from the Nigerian Electricity Regulatory Commission.
Another action plan in the PSRP is the identification and appointment of credible Board of Directors by the federal government to the sector agencies and provision of trainings to restore proper governance.
The plan also intends to implement an integrated ERP system that support real time issuance, review and settlement of energy and services invoices to improve transparency in the sector.
Also, the PSRP proposes to implement a communication strategy that will secure the buy-in of all sector stakeholders and Nigerians. A dedicated delivery unit that reports to the Economic Management Team (EMT) Chaired by the Vice President has also been set up to monitor the implementation of the PSRP.
The PSRP did not articulate failsafe actions for the electricity distribution companies to improve bill collection from electricity customers. Improved collection of market funds is important because most of the funds that the sector will need to pay back the loan facility will be from the consumers as designed in the value chain. However, a detailed nationwide metering plan should be prioritised in achieving bill collection. Also, DisCo customer service should be strengthened to enable easy access to electricity consumers.
There is an urgent need to conduct a comprehensive enumeration of electricity customers. This exercise will provide the data on the customer which are important for demand planning and financial projections by the DisCos. Consumer enumeration should be a condition precedent for the release of the PSRP funds.
Given the activities and the action plans stated out in the PSRP, the time line for achieving these set goals seems ambitious considering that most of these activities are dependent on each other. If there is a delay in a plan, it would have a ripple effect on some other plans which causes a delay in implementation and outcomes. The PSRP needs to be more explicit on the programme governance and how it intends to ensure collective and concerted efforts towards realising the programme objectives.
The PSRP did not present a plan for energy efficiency as critical component for improving electricity supply in Nigeria. A revised plan should articulate a plan to get Nigerians to improve the efficient use the supplied electricity.
Finally, despite the practical measures stated out in the PSRP, there has been some uncertainty about successful implementation as some of the plans depend on government actions such as timely approval and passing of annual budgets.
The Power Sector Recovery Programme outlines strategic set of goals that should help the Nigerian Electricity Supply Industry recover in the medium term. These strategic measures would ensure financial viability and attract private investments into the sector as a result of a clear regulatory environment and other factors in the programme. However, some other measures such as customer enumeration, strengthening ofcollection by DisCo and energy efficiency should be incorporated in the programme. The PSRP should also outline a detailed implementation plan and how it intends to gain support and buy-in from Nigerians. Nonetheless, PSRP can have a positive impact on the Nigeria electricity supply industry if the plans are diligently implemented.