Frequently asked questions about the Nigerian Power Sector answered by the Minister of Power, Works and Housing, Mr Babatunde Fashola.Excerpts.
What are the features of reforms in the Power Sector?
Well, l think before we go into reforms, let us also understand why reforms? Until about 2013, which is over 60 years ago, Government was the provider of electricity. Nobody else but Government except for a few gas-to-power initiatives by our Joint Venture partners like Chevron, Exxon Mobil and some other Independent Power initiatives, in order to convert the gas that they were producing. It was government in generation, in transmission and in distribution. And then the people of Nigeria said that government was not efficient, that government must change the system and that government must hand it over to the Private Sector. That was what the people of Nigeria said and in 2005, our elected representatives came together and passed one law called, the Electricity Sector Reform Act of 2005 and that was the beginning of reform. That reform was concluded in November 2013.
That was the privatization that the last administration did and it ended in the sale of 17 companies comprising six generation companies called the GenCos and 11 distribution companies called the DisCos sold to private organizations with government retaining certain levels of equity and ownership. But majority interest has been sold to private owners. The only one government kept was the transmission line. The Transmission System is the one we colloquially call the “high tension.” That is the transporter in the whole value chain.
I will now go to that value chain. In that value chain, it is important to talk about the fuel source because it defines the cost of electricity. Today we have power produced from two principal sources – Gas and Water which is hydro. Now before you get gas, you will either get it directly from production, which is called associated gas or from natural gas fields that has no association with oil. So you need to set up a gas production and processing facility to set up. That is a very big machine that you must raise money in order to construct. People must understand this. After you have produced the gas, you must now pipe it out and pump it into the generator. It is like building your fuel tank at home and now using pipe to connect it to your generator.
From the time the gas is going out, there is a meter saying how much gas I am sending to you the generator owner. At the point of intake, when you are receiving the fuel, which is the gas, you also have a meter measuring how much you are receiving. So just as your generator at home is measuring how much fuel it can take, it is measured because you have to pay for that fuel. And when you use it and turn the machine on to produce energy, when you are sending it to a transmission company, the transporter, there is also a meter at the generation end saying, “Ï am sending you so much power”.
So, he too knows what he is carrying. And when the transmission system is receiving it, it is also measuring and saying, “0 l got 10 ”, and then it is delivering it to the DisCos. At the point the DisCos take the Power in, they too have meters which measures how much was received. The DisCos may say, you said you sent me 10MW of Power, l received 9.8 and that’s what l am going to pay for. It is now the Disco at the last end that does the hard business of distributing to hundreds of thousands and millions of homes.
At the point when the DisCos are pushing out Power from the substations, if you go to those substations, you will see meters of what is going out from each substation as bulk power and then it is metered at the transformer end into our individual homes so that it can be measured, the money collected and paid back to everybody.
Now, the impression has been created, perhaps, that the DisCos collect all the money. It is not true. The maximum that the DisCos collect is about 25 or maximum 30 percent of what they collect from consumers because they must now pay the transmission company, they must pay the generation company and they must pay the gas company. Once there is a default on that value chain, the power system is in trouble. Because there must be continuous supply of gas and continuous wheeling of energy. So if you are an operator or a transporter in that system and you don’t get paid will you continue to render service?
Power is a capital intensive venture that requires foreign investors. Why is government not looking in this direction?
Power is too strategic, just like fuel, to leave entirely in the hands of foreigners. And as a matter of National Security, we can’t leave all of our power to foreign investors. They can play in the environment as they already are, there are investors from different parts of the world now. But listen, Power is a strategic security asset. That is one side of it, the other side of it is that, we complained that most Nigerians don’t invest in their country, they keep their assets abroad; they have invested here now and we must give them some support. We must give them some token acknowledgement. They could have refused to invest at all or they could have even taken their money abroad.
When you look at economies like the United States today, you can’t talk about the prosperity of their economy without talking about people like Rockefeller, J.P. Morgan, the Carnegies and so on that built that economy. They built the first oil wells, the first rail lines, the steel plants and other big projects. J. P Morgan financed the production of electricity although he is much more known for Banking and Finance. And l think that, in my own little way I am beginning to see that generation of Nigerians beginning to emerge, funding infrastructure, strategic national assets and venturing into entrepreneurship. That is my sense of it. Now the interesting thing is that in the last few weeks there has been enormous appetite for investment in the power sector. International brands that I worked with when I was Governor have come and they are seeking to invest in buying equity in some of the existing distribution companies and generation companies. That means Capital is coming into the Sector.
Also some people are wrongly directing proposals to government to supply electricity accessories. Such proposals should be properly directed to the GenCos and DisCos and not to government what government does now through TCN is building transmission lines. For those who want to generate power, their proposal and license applications should be directed to NERC. We are now just supervising the architecture of power. But indeed there is a lot of appetite for investment in the power sector.
We just approved about 14 different solar projects to generate a combined capacity of 1,286 MW and that is the biggest aggregation of solar project that the country has ever undertaken but those projects would not be delivered for another 12 to 18 months depending on how quick they come through with the agreement on tariff and the price which has made it difficult to close the agreement. I think it is important for the information of the public, to underscore that when you get a license to generate power, the journey has just begun. If you are using gas, you have to close agreement to guarantee the supply of gas otherwise you will have some of the projects we have today in Geregu Omotosho, and Olorunsogo where the gas is not enough because it wasn’t well planned.
If the Government has sold the DisCos and GenCos, why is it still in charge of increasing tariffs?
Let me say first that as Minister, I have no power over tariff. Any interference that I make on tariff would be an unlawful one. I have no powers over tariffs, but an opinion and I think it is important to make that point. The authority vested with deciding tariff matter is the Nigerian Electricity Regulatory Commission (NERC). It was created by the 2005 law which the people of Nigeria, through their representatives passed and I think it is a good law. The power to review tariff is vested in provisions of that law. Of course, they will not set tariff without notifying the Ministry.
The important thing to say about this last tariff is that when privatization took place, the last administration knew that they were not doing market tariff. It is important to say this and I think they should have been honest and open with Nigerians to say this is the price. But they sought to inch the price along, especially because of the advent of elections. And so people had already began to get an impression that tariffs were just going up every time. So instead of taking us to that tariff once, they were inching us towards it. So the impression was created that the thing was going up every day. So I understand the frustrations and the reactions that trailed the last tariff.
But there are two broad lines between the two tariffs. The old tariff was going to continue to go up. How did I know? I was the first person to oppose the review of the tariff when I was briefed. Why are you reviewing upward? Why can’t we have Power? These were my initial reactions when l first became Minister. Then, I was taken through all that had happened before, in my opinion and I saw in fact that the tariff was reviewed upwards but was reversed by the last administration because of the elections and during that reversal liabilities had accumulated; about N200 billion liabilities had accumulated.
In order to validate what they were telling me I called a meeting of all the DisCos and the DisCos took me through all the challenges that they were facing. It wasn’t that they were without blame, but these were the realities and if we kept the tariff going like that, every two years, Nigeria would be indebted to them to over a trillion Naira for an asset we had sold. So we were going back to an era of subsidy for people who are supposed to be operating commercially. I couldn’t recommend that. If we had a trillion Naira to spend on Power why didn’t we give it to PHCN. If we had done that we won’t be where we are today. So this was what changed my thinking, because without a doubt as I have always told people there is problem with gas. Gas production for local use was low because the price was not right. Local gas use was selling at $1.30 and for export it was $4. If you were producing gas where would you sell it? So we needed to raise that price to get more gas to our idle power plants. So by the time I became Minster that decision had been made to add two dollars to the price of Gas to take the price of Gas to $2.50 and to allow for 80 Cents transportation which came to $3.30 from $1.30. If gas was the major material for producing power, how sensible is it to expect that the major component, the palm oil that you would use for cooking your soup, the price would go up and the price of your stew would not go up. So that was the basis when l surrendered my objection to tariff review.
With the increase in tariff will Nigerians now have stable power?
There is still a lot of work to do. What I can tell you is that if we can get the cases out of court against the tariff, we get the cases out of Parliament against the tariff, because I believe that business men like to deal with their regulator not with politicians, they understand business rules they don’t understand political rules, then you create stability in the market. Business men are confident; they know that the game won’t change. They will take position and in that way, you will see first incremental power. If you don’t have incremental power, moving from 5,000 to 8,000 and upwards like that you can’t equitably distribute what is not enough. The logic behind it is like ten people are thirsty and there is one bottle of Ragolis water and they ask the seller to buy more Ragolis water when the cost of production has increased and they are not ready to pay for the difference, they won’t get enough Ragolis water to quench their thirst.
Electricity is compounded by the fact that you cannot store it. Once it is produced, it must be used. But the more power we produce the more stability we will see. I can guarantee that but I cannot guarantee that people will not go and cut gas lines. I can’t guarantee that people will not go on strike and go and shut down distribution companies or transmission facilities or the Control Centre in Oshogbo because they want some of their colleagues to be kept at work. Is it profitable to discomfort a whole nation in order to protect 200 people? Because that is what happened in Ikeja DisCo.
If there is a dispute about policy in the NNPC about restructuring, is the answer to a welfare issue that can be negotiated, resolved or even litigated upon in a court or before an arbitration panel a shut down? Instead of choosing those options, the chosen option was to shut down the gas pipelines. As a result, 13 generation plants were shut down. Was that the best answer? I can’t guarantee people’s behaviour. So it is actually the people who are supposed to be producing the energy that are shutting down production in both the gas companies and DisCos. It is not the President or the Minister. So we need to have a rethink about the productivity of that workforce. What are they doing? What are they contributing to our national productivity? Because, as I said, I am a lawyer and I do not know about the technical side of electricity except what I am learning. But you know what; very highly educated engineers like Engineer Makoju and Prof. Barth Nnaji have operated in this Ministry. It wasn’t that they were not good enough; it was because of some of these attitudes.
So, as far as technical capacity lies, we have it. In terms of technical capacity, Engineer Makoju can fix things but he cannot run a power plant on his own, people were employed to do that. I know that Prof. Barth Nnaji knows much more about gas than me but he won’t operate a gas pipeline on his own. The job of a Minister is to coordinate all these activities together in order to engender productivity. If there was a war today, President Buhari, with all his military might would not be the one to carry the gun. His role would be to coordinate. So that is the productive force. What are we getting out of it? That is a question we need to ask. It is, therefore when we all sign up for qualitative and uninterrupted power supply that we can then guarantee what you are talking about.
Will the Power sector not be better off with the spread of metering and bringing more consumers into the meter net than increasing tariffs?
Deregulated, privatized, regulated; they are terms of art. The real purpose is to allow business operate on a commercial basis, in order to create competition, in order to engender productivity. Now meters in electricity production are not as freely sold as the readily available telephones, because there are codes, there are standards, and because of safety as well. Improperly installed meters may become a potential source of danger- fire; using cheap meters can cause accidents. There is a regulatory agency which regulates the types of meters you can use. Installation of meters is a very technical things because the Operators are saying that some people even by-pass their meters.
But what is the meter when stripped of its technicalities? An electricity meter is basically just a measuring device to measure how many units of power you use. Meters on a basic level are comparable to measuring devices such as fuel pumps, plastic water bottles and mudu cups for measuring garri. But we can’t leave meters without going back to tariff.
We have about 180 million people. But all the DisCos combined have just about six million consumers in their database combined for Nigeria. Are you telling me in reality that it is only six million people that use electricity in Nigeria? So you can imagine the number of people that are using electricity that is not measured, that is not metered, that is free. Out of that six million that they have, they have metered about three million, inherited and added on. So there is still a gap of close to 50 percent of that six million that need to be metered. Now, in deciding that tariff what did we seek to achieve? It was to say, “stop giving people fixed charges, it’s unfair… Take it out,” because there is no fair basis for doing so.
In deciding tariff again what people must understand is that consumers are classed in different categories. R1, for example, is the most vulnerable class of consumers, their tariff is about N4 per kwh or something like that. It remains unchanged. It wasn’t changed; there is a protective policy for the poorest of the poor that if we get power to them they must not pay more than this. These are people who use not more than a light bulb and radio. They don’t have fridge or any big appliances. Then there is R2 one phase; these are people who have the basic one fridge, television and radio. Then there R2, 2 phase and R3, these are those with big appliances, DSTV, air conditioners and all of that. Those are the people whose tariff really went up because they form the real bulk of those who pay for electricity. When you flip it around, it is almost like a type of cross subsidy, let those who can afford pay more and let the poorest of the poor stay where they are, don’t change their tariff.
Then we removed, through NERC, the fixed charge, don’t pay the fixed charged any more. We now told the DisCos “If you get this new tariff, if anybody complains that his bill has gone up, and he disputes that bill, that person is only liable to pay his undisputed last bill”. You cannot say because your bill has gone up so you won’t pay; pay your last undisputed bill so we know you are complaining in good faith; you are not trying to game the system. From that point on, the DisCo cannot disconnect you. If he insists you used the power, let him come and prove it. The only way to prove it is to measure it. That was the first incentive to force the DisCos to meter. But we also had to give them the incentive because people should not forget that meters cost money.
On the average, some of the DisCos that I know used to have about three to four hundred thousand consumers that they have to meter and given some of the numbers that I have seen, those run into no less than seven, eight to ten or 18 billion Naira to cover. You don’t keep that kind of money in your pocket, you must go to a bank. Now if a bank wants to lend you that kind of money it wants to see that you can pay and if you are doing it with the old tariff clearly no bank will lend you money because it is an unsustainable business.
With widespread complaints relating to issues of load shedding, ageing or non-existent transformers in some areas and estimated billings: Why is there poor customer service instead of improved service in the power sector?
We have talked about how long privatization has taken, nearly two years. I’ve talked about the transition in knowledge and capacity. Most of the power plants are very old. Most of the transformers are very old, 30 to 40 years and they are being refitted slowly.
I was in Jebba Hydro Power Plant which was built and commissioned by President Buhari when he was Military Head of State. Part of the maintenance schedule for Jebba was a full turn around service scheduled every six years after commissioning. It was not done until 2013, almost 30 years later, so how do you expect that to deliver efficient power?
The same thing happened in Egbin, turbines were down; parts were being cannibalized and so on and so forth. At Oji River Power Station, after cannibalizing the old coal plant one turbine at a time, in order to save the other turbines, the whole system finally collapsed and somebody suggested that it should be scrapped.
So that is what the businessmen have bought. In the same vein, similar to the same backbone that the GSM operators had of 250,000 lines prior to expansion to the current 100 million lines.
So that’s another analogy. So you will have epileptic power supply from time to time until all the equipment is refurbished, changed, upgraded and more power is built in. But as I said, the focus is incremental power. Now why is that important?It is important because all over the world, machines and turbines break down. The reason you do not notice them in those parts of the world is that they have enough and they have redundancy.
When one is down they switch to another because they have enough and they have time to carry out routine maintenance on the broken down machines. If you have only one generator in your house, it will not generate power for you while it is being maintained if it breaks down. If you have two, you have a backup. This is just a context for you to see all of this.
But customer service must improve. At our meeting in Enugu I said to the DisCos “you have to lead this reform now by taking ownership. You have to have complaints officers that people can reach to explain why they could not have service and how long they have to wait to get it”. That is customer service. They can wait out a problem if they know what the problem is and how long it will take to solve it. But it becomes frustrating if they do not know what’s going on.
They need to open more customer service outlets just like the TELCOS have done. Some of them are already opening up portals on the internet which we must also use because they are trying to cut cost. The more customer care centres they open the more rental they pay and you see when they are going to pay rent nobody wants to accept one year rent they all want 3years rent in advance.
So these are part of the cultural issues that you and I must also change because they can’t build all of those facilities, they will need to rent. Well,I am sure that their business will be assisted if they see someone who will accept 6 months rent rather than 3years rent in advance. But as the equipment get upgraded they will get better. As I pointed out, all of the lines that come to our homes now don’t belong to NEPA again but belong to the DisCoS. As they age they must change them. They must change within that bandwidth of money they get. Bulk power today for gas is about N13.50kobo per kilowatts, N2.50kobo for transmission to carry it, you are at N16.
The average tariff now is about N24 so N16 to N24 is about N8 and that is the margin of the DisCo to operate its station, get the power to you, to fix broken transformers, to fix your line, to get people to come and repair and so on and so forth. That is the reality. It can be a very profitable business in numbers but it can also be challenging.
Why not use solar and wind for cheap power if the cost of gas is too expensive?
There is a lot of misinformation being thrown out there by people who claim to know, who either have not verified what they learnt yesterday or deliberately seek to mislead the public.
Today, the cheapest source of energy is hydro because the turbine is driven by the force of water to create electricity. Hydro is about 4 cents per kilowatt hour followed by gas which is about 11 cents per kilowatt hour. If you multiply that by N200 per dollar hydro comes to about N8 per kilowatt hour while gas come to about N22/kwh.
Now the minimum tariff for solar is 17 cents which works out to about N34/kwh. How do you index a tariff of N34 for solar energy on people who are resisting tariff of N24? It cannot be cheap after accounting for imported costs of shipping, transport and demurrage. However, it can get cheaper with locally made photovoltaic panels and cells.
As for wind power, upon assumption of office as Minister, even I questioned why we don’t make use of wind energy. The simple answer is that we lack the required wind speed because of our location as a country. To achieve the necessary wind speed of 8 mph as compared to the 4 mph typically available in Nigeria, taller and more expensive wind towers will be required to achieve the same result. If you need a storey building to achieve something and I need to build a 6 storey building to achieve the same result, then I am definitely at a disadvantage compared to you. These are some of the factual realities our experts have not told Nigerians. And so, the answer is again in the energy mix. Take the power closest to the energy and fuel source which will help reduce both tariffs and production costs while making evacuation easier because of an increased ease of planning.
What is the future of Power generation in Nigeria given the current state of the Power assets?
I think that as long as we can excite the investors’ confidence, the future of power generation is bright.
Today, incidentally, I just saw the head of the international nuclear agency who visited to assess the progress of Nigeria’s nuclear power because we are already pursuing, from the previous administrations dating back about 15 years, a nuclear programme.
The plan ultimately is to start to produce nuclear energy, 1,200 mw at start, expanding up to about 4,800 mw as we go forward because that would be, again, the new power for developing an emerging economy because most of the big, global economies have signed up to Cop .21 and the Climate Change obligations to reduce carbon fuel use and therefore nuclear energy will be the alternative energy they will be looking at.
Therefore, we will benefit from the technology as time goes on. So the future really, for me, is a very hopeful future. We can ramp up on solar, reduce the cost, we can ramp up on gas, produce more, and we can ramp up on hydro because Zungeru Power Project is now back on stream. Construction stopped for about two years due to court cases and other hindrances. Thanks to the initiative and dedication of the Governor of Niger State, all the cases got out of the way in order for the construction workers, about 800 workers to get back on site.
So, there is so much opportunity for inclusion and jobs if people just allow this thing to play. But we can’t force people to do the right thing and that is why I have decided that this discussion is important to educate people and to let Nigerians know that it is one thing to elect a government and another thing to stand by your government, through the distance. And I think ,this is the time the government needs the people to stand by it, and to tell all of those who seek to obstruct the plans that this government has.
There must be a continuing ownership of the policy of government. That is the way you give support, and every time your government looks back, the government sees that you are still there, the way you were during the campaigns and during the voting. That is a fuel that government needs to carry on without looking back.
Pipeline vandalism contributes largely to the poor generation and transmission output currently being experienced. What steps are you taking to put a stop to this?
I think the biggest contribution will come from the communities through whose territories these pipelines pass, to take ownership, to stand as security vanguards for the protection of pipeline assets because if the pipelines work it benefits them more. With the best of intentions, how many kilometres of pipeline could any government really police? And they are as diverse as they are lengthy.
So it is a cultural and behavioral remake that we must have, that no matter how aggrieved or upset we are about anything, government assets that deliver power, that support the power system and the economy of the country are not things that we can take our anger out against.
There is no society in the world that I know, as vexed as they may be in Europe, as vexed as they were in the Arab Spring, they didn’t damage their power assets and they didn’t damage their gas lines. And I think that is the message really to us. Those assets must remain inviolate. All of us must protect them as if they were our personal assets. And that is when we can then begin to say we will have uninterrupted power.