HOW TO ACHIEVE CONSTANT POWER SUPPLY
There is a simplicity round him that defies logic if you try to rate him by his academic accomplishments, past positions and present appointment by President Jonathan as Managing Director and chief executive of National Electricity Regulatory Commission.[NERC] In him you find that the poet lied; the centre is about to hold because one sees a ray of hope and trace of light not at the end, but from the middle of the dark tunnel.
I can proudly stand in Zamfara and scream it loud with deep conviction to Bayelsa, the gods are to blame. Yes! Ola Rotimi wrongly titled his masterpiece. Move over Chinua Achebe grand literary icon; things are no longer falling apart, don't mind the bomb blast here and there we are now at ease because our leaders have finally woken up to look for competent hands like Dr. Sam Amadi to fill the right position and it is just a matter of time before things will start to work. There is nothing in Great Britian, USA, Japan and China that can not be found in Nigeria. Greatminds?-Prof. Soyinka, Prof. Herbert Orji. Visionary Leaders?- El-Rufai, Okonji-lweala. Investors?-Dangote, Adenuga. 'Why are we not a great nation then?, you might rightly ask.
You see why the gods are to blame. They blessed us with plenty mineral resources and since they make kings, they gave us leaders with little minds whose greatest burden was how to squander our wealth.
The green light started appearing at the middle of the tunnel with the appointment of the likes of Soludo, lweala, Ribadu, El-Rufai, Ezekwesili, and Akunyili by the Obasanjo civilian regime. Initially, it was like the Jonathan government was lost in the high sea. But, with the coming on board of the likes of Prof. Barth Nnaji-one of the best robotic engineers in the world- and recently Dr. Sam Amadi, those days of excellence are about to be rekindled.
'Dr. Sam, you better don't fail, if you do, l will be the first person to pounce on you' I had told him
'Peter,' he called, ' our success and failure has a lot to do with people like you in the media. we will do our best, but, help me to tell Nigerians that they should exercise patience' Well said, but, did you notice some thing, he used plural instead of singular, that means he is a team player, and that means there is light at the middle of the tunnel.
Welcome to the life of Dr. Sam Amadi the Chief Executive of the NERC. What you are about to read is his first official interview. Here is a bit of his profile; Ph.D., Ethics, Religion and Conflict, Human Rights, Political Philosophy Jurisprudence, and Legal Theory. 2004, Harvard Law School, Cambridge, Massachusetts. M.P.A., Political Economy and Public Sector Reform, 2003, Kennedy School of Government, Harvard, Cambridge, Massachusetts. LL.M., Human Rights, Jurisprudence, Alternative Dispute Resolution, International Law, and Administrative Law, 2001, Harvard Law School, Cambridge, Massachusetts. B.L., General Legal Practice and Professional Ethics, 1993, Nigeria Law School, Nigeria. LL.B., Constitutional Law, Human Rights, Contract law, International Law and Company Law, etc., 1992, University of Calabar , Nigeria .
What is the Nigerian Electricity Regulatory Commission all about?
NERC is an agency that is empowered by law to regulate the electricity sector. The Electric Power Sector Reform Act, 2005 mandates the NERC primarily to license firms that want to engage in electricity business in Nigeria whether in the generation, transmission or distribution sub sector. NERC has responsibility to monitor these firms, and create the environment that allows them to cover cost and make profit so that they are able to invest in the sector. NERC also fixes the tariff- that is, the price for electricity. Above all, NERC protects engineering, safety and environmental standards and promotes quality service delivery for the Nigerian public
What was your vision statement when President Jonathan appointed you to head NERC, bearing in mind that the former occupants of the post were removed in a very unceremonious way?
When I was informed I was being nominated for the Chief Executive Officer of the NERC I immediately knew it is an immense responsibility. I immediately began to envision the changes I would like to see in the electricity regulatory sector in the light of President Jonathan's strong commitment to reliable and stable electricity. As a law and economics scholar and development practitioner I understand perfectly that without strong regulatory regime it is difficult to optimize the gains of privatization and other reforms. So, from day one it was clear to me that building a strong NERC is central to realizing the lofty visions of President Jonathan. What makes for a good regulatory? For me, it is competence and integrity. Regulatory interventions must be smart and credible. They must be based on comprehensive and nuanced knowledge of the sector. In development literature we describe it as 'metis', that is, 'local knowledge'. It is not just any kind of knowledge, but knowledge that is adapted to local environment. But apart from being competent the regulator should be trustworthy.
This is crucial to stimulate the level of investment required to jumpstart the electricity sector. Every investor in the sector can do the back-of-envelop calculations that assure him of profitability. But what is difficult is doing political risks analysis. This relates to the regulatory environment. So they would like to have certainty about the exposures and risks they will carry. So, regulatory integrity is critical here. So, my vision is to create a competent and credible regulatory agency out of NERC. Already a great work has been done in this regard. The commissioners are meeting an organization that has capacity and is ready for the hard work. The staff has worked really hard to regulate the sector. The former commissioners did their best to create a structure that will carry our vision. Our commitment is to motivate them to do better in the days ahead. In a nutshell, my vision is to help create a regulatory agency that has first class expertise, technique and integrity. We must be efficient, effective and strategic to create the energy capacity that can drive industrialization and transformation in Nigeria.
How best do you think government should approach the issue of power deregulation in other not to hurt the consumers and still attract investors who can revive the system in the shortest possible time?
I think government is proceeding in the right direction. It has outlined a roadmap that articulates concrete steps to take to deliver electricity to Nigerian in adequate and sustainable manner. The best way to go is for government to strive to respect the autonomy of the regulator. In a political environment the tendency to slightly compromise that autonomy is attractive and in some cases compelling. But government does well to resist the itch to intrude into the regulatory craft. Such intrusion caused a set back to the reform. Of course, government continues to play critical role but it should know that what investors want is continuous regulatory process that emphasizes stability of laws and regulations and enforceability of contracts. Having appointed commissioners government now takes a back seat and allows the regulators to improve the business environment while it takes charge of the stability of the political environment. If NERC works uninterrupted for the next 8 years the sector will drastically improve. There is something to say for continuity of policies and processes. That is the first lesson of sustainable development. In addition, the regulator itself must be politically sensitive. It should not instigate undue opposition and resistance so that reform does not suffer reversal. It calls for sensitivity and intelligence in mapping out stakeholders and their interests and negotiating critical challenges.
What was the moral, economic, social or even politically justifiable excuse that influenced the decision of government to increase electricity billing while supply is still very poor in some places and not even available in other areas?.
I can't speak authoritatively about tariffs until I am completely apprised of all the building blocks of the new Multi Year Tariff Order (MYTO) and get acquainted with all the facts that determine the new tariff. I know that setting the tariff is one the most difficult aspects of electricity regulation. Of course there are different models to use. In Nigeria we are using a model that allows the recovery of efficient cost including reasonable returns on investment; that gives incentive to improve efficiency and quality of service and allows greater access to customers. Our goal is to promote quality and adequate supply of electricity at affordable price. Like in every other commodity, proper pricing will signal efficiency and supply. But there are different conditions that should exist before an increase in tariff becomes justifiable and pragmatic. The question is whether such conditions will exist before the expected increase. But no one disputes that we need to do something drastic to increase electricity supply in Nigeria. Our status is miserable. It is also not disputed that Nigerians are paying far more for alternative source of power and would be ready to pay a little more for electricity if they can be guaranteed steady supply. It is like the chicken and hen paradox.
We need cost reflective price to attract the sort of investment to boost electricity supply in Nigeria. We need improved supply to create the incentive to pay more. So, which comes first?
That is the paradox. But it is important to be pragmatic and communicative. The problems arise when we come to the issue with mindsets stained with ideology and self-interest. In constructing the right tariff we should listen to all stakeholders but be decisive in protecting public interest. This is NERC's position. The overriding public interest is that the Nigerian people have reliable and adequate electricity in their homes and business. Yes, I agree that government should do everything to make sure the citizens have access to adequate and stable power supply. But it is doubtful if that would be possible without a pricing system that encourages investment and is affordable. NERC's responsibility is to split it even between affordability and profitability.
Nigerians were crying for paying for service not rendered and in an election year all that the same government will do is to increases the cost without improving in service. So you think this will happen in societies where the peoples vote counts?
The question is slightly biased. Government is not just increasing price it has articulated policies to improve supply. At least that is what the roadmap says. The issue is how to effectively implement the roadmap. Also, the fact that government contemplates a seemingly harsh measure in an election year is evidence of courage. One can argue that with the manner in which our supply of electricity has slumped in recent times we have little luxury to play politics. The reality is too stark to admit of politics. And strategically, in times like this when the sector is in real crisis, it is time to take bold actions because people are ready for the sacrifice. The important thing is to make sure leaders communicate the crisis well and do everything right to reinforce their commitment to transformation. As they say in the US, people are smart; people know better. I would argue that in the so-called advanced societies, citizens expect leaders to take drastic actions to solve critical questions as long as the measures are well considered and largely in public interest. You get penalized if as a leader you fail to solve critical social problems.
I understand the new Multi Year Tariff Order (MYTO) was fixed using the costs of what an average family spends in fueling generator per day. Isn't this the height of economic abnormality bearing in mind that a Gen-set economy is a distorted economy. Moreover, how would those in the rural areas cope?
It is not really true that the MYTO was fixed using what an average family spends in alternative generation. This cannot be. May be we can say that some government people have used that analysis to make a case for increase in tariff. The MYTO develops out of extensive consultations with consumers, labour unions, government officials and other relevant industry stakeholders. It is established according to the principles and guidelines in Section 76 of the EPSR Act. It provides a 15 year tariff path with minor reviews each year in the light of changes in a limited number of parameters like inflation, exchange rate and gas price and a major review every five years. The major review is due in 2013 but NERC is bringing forward in the light of the roadmap.
The MYTO methodology uses three important building blocks: fair returns to invested capital, allowance to pay for rundown and depreciation and provision of operating costs and maintenance. It uses a uniform regulatory framework that applies to all firms equally irrespective of their individual cost structure. So, it is an actual cost based methodology and does not speculate on what customers would pay for alternative provision of electricity. The bottom line is to have a tariff that provides justification for making investment in Nigerian electricity supply industry and also affordable.
If Government thoroughly desired to unbundle the Power Sector why is it still insisting on managing the transmission aspect through consultants that would directly report to it?
It is not NERC that decides the template of government business model. Our responsibility is to provide a regulated environment that assures market participants of price and cost stability and the consumers of value for money. It is the government that determines the combination of privatization, commercialization and corporatization necessary for the sector going by present realities. But I understand that transmission still remains in government's hand via management contracts. This is one form of privatization or restructuring broadly speaking. And there are good reasons to leave transmission out of privatization. The cost of transmission is such that may be only government can continue to make the required investment and it may be unattractive to private firms since usage of transmission grid may still be subsidized. It is a little bit troubling for people to question the wholesale sale of the successor companies and still critique the decision to take the transmission network out of outright sale to private sector.
For long governments have been playing with the people's intelligence, fooling around with dates for constant power supply. The only things that has to do with figure which government gives and it sticks to is increase in bills.
What makes you think that Nigerians should take people like you seriously this time around?
It is true that deadlines have been bandied about in the past and we never got there. But is that a good reason to be murderously cynical? Well, anyhow you look at it, it is the responsibility of any good government to plan well and establish some timeline for action. Government has committed itself to some production milestones. Obviously it will be assessed by these milestones. But it better to set clear targets and miss them after good efforts than not have clear goals. Having made commitments government should work had to meet the milestones to avoid delegitimizing the roadmap especially in the face of serial failures of the past.
But we ought not to be slave of the past. We should not stop dreaming and courageously pursuing our dreams because past leaders faltered in the pursuit of the dream.
The Act that unbundled NEPA from monopoly of one single entity to 18 companies - six generating companies, one transmission company, and 11 distribution companies stated that the transmission companies will report directly to government.
Since transmission is very crucial to the realization of steady power along the line don't you foresee the usual government bottleneck coming to destabilize power transmission?
It all depends on how you structure that reporting responsibility. Fatalism about the behavior of social institutions is not scientific. Whether the transmission company is efficient and independent actually depends on the transmission company is designed. Institutional design is the key. So, the fatalism that says the transmission company will necessarily be compromised once it is not privatized is not altogether correct.
The management contract can deal with the traditional bureaucratic system by weakening its stranglehold and introducing a large dose of best corporate management in spite of the reporting structure
What ever yard stick you use in arriving at the current MYTO one thing is certain this government did not factore in harsh economic environment, and most importantly, it never made any attempt to compensate the long suffering Nigerian who for decades endured being taxed by NEPA with or without services rendered.
All government arguments centers around 'investment' 'profit' must these come at the detriment of masses?
The Multi-Year Tariff Order (MYTO) is a pricing framework that tries to respond to the economic challenges of electricity supply industry. The idea of MYTO is to bring stability to the pricing of electricity. The present MYTO is in place from 2008 to 2013. It is due for review after every five years. The review date should have been in 2013 but NERC decided to bring forward the review to 2011 to address the strategic objectives of the President's Roadmap on power. As you know some of the successor companies of the PHCN are up for privatization and concession in a couple of months.
The Bureau for Public Enterprises has designed a transparent process to divest about 51% of the public share in some of these companies. BPE is beginning a road show to mobilize investors to take up these companies as part of government's policy of privatizing the power sector. NERC did not create the policy. As regulator our brief does not extend to determining the fate of public enterprises. That's the responsibility of the National Council on Privatization (NCP) and its implementing agency, the BPE. In a sense, even the Jonathan government does not have complete freedom to detract from the privatization. Of course, every government has the right to revise the rules and policies but when the Electric Power Sector Reform Law enunciates the privatization of these companies and commits government to liquidate the PHCN and proclaim a competitive electricity market, a responsible government would tread that part except there are overwhelming strategic national interest to do otherwise.
Now, to the tariff business. Like we said in our public statement, NERC is still undertaking some of the preliminary work necessary before you get to the end-user tariff for electricity in Nigeria. But the basic consideration is to have a tariff that permits adequate investment in the sector. Even government would want an assurance of profitability before it invests money in the sector, talk less of private firms whose primary objective is profit not necessarily service. So, the leadership here is to have such tariff that is fair and efficient and reflects the cost considerations. This tariff will determine investment in the sense that it will tell investors the level of efficiency required in the sector. This is why a draft new MYTO will be basic information available to prospective investors in preparing their technical bids.
The real problem is not the tariff as much as public perception about service delivery in the sector. The argument in support of increase in tariff is partly that Nigerians are prepared to pay more because already they are paying far more in self-provisioning of electricity through generators, candles, etc. This is fair argument. But before Nigerians will completely buy it they will like to see significant improvement in electricity supply. It is the case of chicken and egg. We may need to break the egg of increase of tariff to make the omelet of improvement in supply as promised in the roadmap. NERC position will be to use effective regulation to improve service level so that any increase in tariff will be tolerable. It is a question of trust. And time may not be on our side to establish that trust in time to make the decision on tariff. The situation calls for credible and effective communication. It is important to note that increase in tariff goes together with subsidy and Consumer Assistance Fund which ensures a lifeline tariff that allows access to adequate supply of electricity for poor households.
According the Mr. Amachi Aloke, the project manager, Electric Power Sector Reform BPE about 50 percent of the power generated in this country is lost and this means that the tariff paid by consumers is two time what they should pay. At the same time government is claiming to be subsiding electricity.
My question is how can you subside for a service you did not render?
Customers usually pay for what they consume especially those with prepaid meter. But it is slightly different in Nigeria because she has a capacity problem. There are technical and non-technical losses. What I hear from industry experts is that there is always electricity loss in every jurisdiction. But Nigeria's is too much. The technical challenge is to reduce loss of energy. We can do so by improving the technical quality of our installations, increasing both the quality and extent of grid network. At the moment our grid is not properly meshed. There is also the human component that has to be dealt with through both regulation and public enlightenment. Hopefully, we can reduce energy loss to the minimum so that customers do not have to pay for what they actually did not use. We have started meeting on this issue.
We are made to understand that the account of PHCN has not been audited in the last six years yet we are talking of deregulating and unbundling PHCN.
Do you think any reasonable investor would accept that?
I think it is a sorry situation. But this has to do with the amorphous status of PHCN. By now PHCN ought to have been completely liquated. But we have PHCN alive administrative even as it is legally dead. This is an oddity of a sort. This poses serious challenge to monitoring. The fact that it is still a public enterprise living on public finance means that the ease with which you deal with other market operators in terms of failure to render account would not be applicable to PHCN. Our challenge is to craft politically and technically smart way of getting round this constraint. If the roadmap works as planned we will be talking of private companies whose resistance to accountability would be easily surmounted. Let's wait and see. We will get smart and tough as we gain better hold of the political and technical contexts.
Call it privatization, deregulation liberalization rationalization, right or downsizing, we know what happened in corporations like NITEL Nigerian Airways Ajaokuta Steel, Daily Time, and NAFCON etc. when any of these took place.
There are over 50,000 Nigerians earning their living in PHCN why should they and Nigerians fold their hands and watch people like you throw them into the unemployment market?
This is the most difficult aspect of the issue, dealing labour matters. Apart from the politics surrounding labour the fact is that we are talking about the livelihood of Nigerians. By the way, the ultimate responsibility of government is to protect the welfare of ordinary Nigerians, in a word, the pursuit of prosperity, liberty and happiness of every Nigeria. And being in a job is critical to any form of welfare. But government has responsibility to promote the welfare of every Nigerian apart from the workers in PHCN, to promote welfare today, tomorrow and in the years to come. This is where the conflict starts. Government will be completely remiss if it does not courageously address the darkness in Nigeria. If it dithers on this sooner or later we will all end in poverty. The challenge is how to procure the long term development without compromising short term welfare. I understand that government is making progress in dealing with workers issues. I urge greater sincerity and patriotism on the handling of these matters.
I am not in charge of privatization or anything of sort. I have no responsibility to determine how government decides to manage its enterprises. I can give advice when the opportunity comes. My views on privatization are well known. I have written a book on this which received favorable reviews. I am not a market enthusiast or fundamentalist. I am not also a hater of market. I belong more to the social market model. My belief is social experimentalism; some sort of pragmatic radicalism. Government does fail. When this happen we react by introducing some elements of the market. Market too fails and when it does we introduce aspects of the public sector. It is only foolish people who think market is always the solution or that government intervention never fails. Social experimentalism is the way of the future. Pragmatism should be the ideology of social transformation. Selling off the successor companies in the present context seems to be a good idea. It does not mean that government should not get involved in investment in power sector. While private sector builds IPPs government should continue to enhance capacity. By the half decade we should add more than 40000 new megawatts to our national grid.
The US government added about 75000 new megawatts to its national grid from diverse energy mix between 2000 and 2005
The Federal House of Reps committees on Power Sector revealed that about $6.2b billion was paid to contractors that had no record of registration with CAC under the independent power project Don't you think the same people who cornered the funds are coming back to buy over NEPA with our stolen funds?
From what I see, I think that the BPE has introduced some prudential safeguards to ensure privatization succeeds this time around. In the past we have not done a good job. We should build on the failures of the past. We should not forget that our greatest problem is corruption.
This is the monster we are yet to slay. It is our propensity to game the system for personal gains that will determine whether we succeed this time around. If no one interferes unduly with the process we are likely to get investors with the capacity to manage these companies. Also, we should resist the temptation to overcharge on these companies so that the preferred bidders would have resources and incentive to invest in them. We should be critical without being cynical. We can get it right this time if we do the right things and follow the rules of the transactions
Call it privatization, deregulation or what have you, my simple question which is the fear of the average citizen is, what do you think government should do to protect their citizens from Shylock capitalists who would start charging extortionate prices.
I ask this question bearing in mind how MTN and ECONET were reaping us off before GLO arrived?
You have the subsidy and Consumer Assistance Fund to assist in this wise. The situation here is quite different from telecom industry. Operators can charge any price for calls. It is only the market that controls market operators. The tariff in electricity market is fixed for now until we get to competitive electricity market. If the methodology in MYTO is right then we have taken care of that problem.
We are not even sure of constant power in the next 2 to 3 years, yet through the Multi Year Tariff Order government has impose an arbitral increase in electricity.
Doesn't this boils down to triple taxation?
I don't understand what triple taxation means in this sense. You are right about the need to improve power supply. That is the whole focus of the roadmap and the main work of NERC through regulatory intervention. The MYTO is supposed to help in this regard.
Again, we are not even sure of constant power in 2020, which is one sector that could cause a catalytic effect that would revolutionize productivity and bring about growth in our GDP. Yet we are trumpeting vision 2020 in every corner.
When you are planless are you not planning to fail?
Absolutely. Adequate and reliable power supply is one of the fundamentals of any vision of making Nigeria a modest economic power, not to mention being one of the leading 20 economies in the world. President Jonathan has got his priorities right by pruning down on the 7 point agenda. The one point now is power. With less than 4000 megawatts we are a left behind country. None of the countries in the 20 economies of the world has less than 40000 megawatts.
These economies have ambitious plans to expand their megawatts to accommodate greater industrialization. Economic development turns on a country's industrial power and the smartness of its service sector. If your citizens live in darkness and your factories have closed down due to lack of power should you be talking of being the world leading economy in 2010? Should you not be working secretly and passionately to create the capacity to spring a surprise in the race to the top? We are yet to begin the real race. We are making preparation to enter the race. We can accelerate if we take off well. President Jonathan's vision is a right take-off point. Let's commit to it.
The cost of a GSM SIM Card in 2001 was N25, 000 before Adenuga came with GLO and crashed it.
Do you think with time same would happen to electricity bills if deregulated?
Not in the same manner. But the basic principle of economics is that greater supply will reduce cost and more and better structured competition will improve service and reduce cost. Going forward the price may reduce. But what is important is to have supply first and improve service. The basic consideration should not be to reduce price. It is to produce sufficient power and distribute it to households and firms so that we can escape this darkness and poverty.
According to research, about 50% of the populations don't have access to electricity and the people that have access don't have it 60% of the time. In economics we are taught that when you mass produce it forces down the cost, why don't the investors find a way to reach out to the rest 50% and meet up the 60% short fall in access this will give them more revenue and bring about productions cost reduction?
Part of the roadmap is to create incentive for the sort of investment that will expand network and access in the rural communities. The Rural Electrification Agency was created to spearhead the expansion of access to those Nigerians in the rural area. But corruption and mismanagement has truncated the initiative. But we cannot relent. The Act permits NERC to promote customer connection in urban and rural areas. Electricity is a basic right which every Nigerian should have.
We must make access universal in Nigeria
If we deregulate petroleum, electricity, increase tuition fees when too many top government officials remains corrupt and unaccountable to public funds at their disposals. No functioning railway, bad roads, insecurity, no adequate health facilities.
What in the real sense of it are the government going to give back to alienate the people's sufferings?
Government must remain the chief service provider. It cannot shirk this responsibility. It is the social contract and the basis of exercising coercive power in any organized society. There is no place in Nigeria for a 'night-watch-man' government. There is so much to do to address the prosperity and freedom deficits in Nigeria. Happily, this government is seriously engaged in addressing these deficits. That is why the NERC was reconstituted and the President appointed me a Chairman.
Dr. Sam, in your Sunday Oct 24, 2010 contribution published by Thisday you wrote 'Regulation is critical to delivering on the lofty aspiration of the power sector road map. Getting regulatory basics right is the only way to create the credible context in which investors will be assured that their business risks will be covered''. Good! Sir, my simple question is if we are covering investors risk is it at what cost and risk to the citizenry.
This is not a case of either or. We can cover investors' risks as well as provide quality service to citizens. It is wrong economics to believe that if investors make profits then citizens lose. No. Both can win depending on how the mark