President Bola Tinubu on Monday, October 30, disclosed that preliminary analysis has indicated that the 11 electricity Distribution Companies (DisCos) are undercapitalized to the tune of N2 trillion.
He noted that the federal government must facilitate the recapitalization process to bring in new partners and capital to jumpstart performance in distribution that is so critical to the entire power sector value chain.
He said: “Poor performance must not continue to drag the sector down. All licensees must not only have the technical capacity to deliver on their license but must also have the financial muscles to invest to improve their operations.
“Preliminary analysis shows that DisCos today, are undercapitalized to the tune of at least N2 trillion. We must facilitate for the reorganization of the sector, the subsector and the recapitalization process that brings new partners and capital to jumpstart performance in this critical sector of the value chain,” he said.
The president, who was represented by the Office of the Vice President, Special Adviser to the President on Energy and Power Infrastructure, Mr Sodiq Wanka, spoke at the 10th Year anniversary of the Nigerian Electricity Supply Industry (NESI) Market Participants and Stakeholder Roundtable in Abuja.
The President insisted that “All licensees must not only have the technical capacity to deliver on their license but must also have the financial muscle to invest and grow their operations.”
According to Tinubu, the reasons for the underperformance of the sector in the last decade are well-known to be governance and operation issues that have bedevilled the sector.
He noted that as of Q2 2023, for every kWh of electricity sent to the grid, only 60% of it is paid for.
Insisting that the present tariff is not cost-reflective, the President added that the recent devaluation of naira has worsened the situation.
He noted: “But as we know, even the tariff paid for that unit of electricity is far from being cost-reflective, especially in light of the recent devaluation of the Naira.”
Tinubu stressed that the sector has suffered from chronic underinvestment, especially in transmission and distribution. Many of the successor utilities of the PHCN, according to him, have failed to meet their performance improvement targets due to technical and financial capacity issues.
He lamented that “We are in a vicious cycle of under-performance and under-investment, and everyone has a different view of which value chain player should be blamed for continued sector malaise.”
Tinubu described the 10th anniversary as a perfect opportunity to reflect as a sector and as a government on the progress achieved and the challenges faced since the unbundling and privatization of the integrated national utility.
He recalled that the key objectives of the privatization effort were to improve the efficiency of the power sector, unlock private sector investments and unleash the potential of the nation through an energized economy.
The president, however, insisted that the sector has not met its privatization objectives 10 years later.
Buttressing the submission that the sector has not met its objectives of privatization, he said, “10 years on, I believe it is fair to say that the objectives of sector privatization have by and large, not been met.
He stated: “Over 90 million Nigerians lack access to electricity. The national grid only serves about 15% of the country’s demand.
“This has left households and factories to rely on expensive self-generation, which supplies a staggering 40% of the country’s demand.
“What is worse, is that the total amount of electricity that can be wheeled through the national grid has remained relatively flat in the last 10 years. The grid capacity has increased from just over 3000MW to typically just over 4,000MW today. Versus a 40,000MW target by 2020 that the Federal Government had set pre-privatization.”
The President noted that the reasons for the underperformance of the sector in the last decade are well known.
He added that there are deep commercial, governance and operational issues that have beleaguered the sector.
Tinubu urged the stakeholders to intensify efforts to address commercial issues and improve the investment attractiveness of the sector.
He said only around 45% of NESI customers are metered today, with wide variations across DISCOS.
The President noted that the scale of investment needed to meter current and new customers and replace obsolete meters is not trivial.
The government, he said, is “committed to supporting the metering drive through the World Bank DISREP programme which should add at least 1.25 million metres, while activating the Meter Acquisition Fund to procure another 4 million meters.
“But we must also realize that long-term sustainable metering should be within the remit of DISCOS and their partners.”
Stressing the issue of tariffs, Tinubu insisted, “We need to have a clear plan to re-base tariffs, so we recognize the real costs and loss levels of the entire value chain, and we allow for adequate cost recovery for investments.
“We need to be clear on what shortfalls are and how we will finance them. And there must be a clear path to extinguishing historic sector debts to various value chain stakeholders. A reconciliation exercise in this regard is already underway.”
He disclosed that the sector needs to quickly develop and execute a clear roadmap for serving profitable pools of customers.
According to him, this includes industrial and agricultural clusters and strengthened participation in the West African Power Pool in the immediate term.
He revealed that the government and sector must deepen engagement with the Nigerian public on power – including communicating sector strategy and key milestones and curbing energy theft through community engagement and penalties.
Operationally, he said there are a number of key imperatives that the sector must pursue: He also disclosed that since 80% of grid generation today is from gas, the government intends to convene all relevant stakeholders to develop a gas policy for the power sector delineating where the power sector will get gas from and how it will pay for it.
He noted: “We cannot build a sector on best endeavour arrangements. We need to have a single source of truth in terms of data in the sector, a national electrification plan that highlights the energy gaps, supported by clear investment plans on how to close the gaps.
“We need to institute a Presidential Taskforce that will monitor and unblock the progress of deployment of key projects in the sector. This includes projects that will help un-constrain the grid and deliver the full available generation capacity to our homes and factories.
“We have to accelerate the pace of deployment of renewables and solar in places where it makes sense. There is a real opportunity to accelerate the deployment of inter-connected and isolated mini-grids to deliver power close to the point of use.
“And will support the rollout out of initiatives aimed at diesel displacement to reduce the carbon intensity of embedded power plants, while supporting innovative financing schemes for solar solutions in the home.”
The president said the government will announce its transformation roadmap by the end of 2023.
He stated: “To announce what the transformation roadmap will be by the end of this year.”
He made some clarifications about the role of states in a new national electricity framework of the Electricity Act 2023 which he signed.
According to him, the Electricity Act has also given the Nigerian Electricity Regulatory Commission the power to advise on the transition of the market away from a single bulk trader and on the unbundling and concession of the country’s transmission network.
He sought the prioritization of access to electricity, stressing that his challenge has been universal electricity access to electricity by the end of this decade.
“In this context, we must understand that customers have differing abilities to pay and must be protected through the operationalization of the power consumer assistance fund and other cross-subsidization schemes.
“President Bola Ahmed Tinubu has made strong commitments in terms of building a leveraging the national grid and how they build out their electricity markets.
“We need to understand that private sector investments are what will move the sector forward and we must work hard to align all decision-making to attract serious equity and debt investors.”
He said that there is a need to realize the complex stakeholder map of the sector and the need for closer inter-ministerial and cross-sector regulatory coordination. He noted that the reconstitution of the inter-ministerial power working group is a priority.
Speaking to the Minister of Power, Chief Adebayo Adelabu noted that the renewal of the licenses of the DisCos and GenCos will be a factor in their performance and not automatic.
According to him, the government will not renew the license of any of the firms that have underperformed.
He noted that the roundtable will discuss whether the companies have complied with their agreement to reduce commercial and technical losses.
Adelabu said: “10 years down the line the licenses are expiring and it is high time for renewal. Renewal is not automatic.
“Any of the privatized company that has not lived up to expectations will not have the license renewed. We have to consider whether you have complied with the terms and conditions of the licence you were given.
“We will look at the technical capacity of the GenCo and I’d the DisCo. We will look at the financial credibility of the DisCos, and how much investments made since you got this license.
“How much improvement have you made in addition to it? How much of the ATC&C losses have you reduced based on the agreement when you were given this licence? “These are the serious conversations we need to have with the private sector of the generation and distribution companies.”
Responding, NERC General Manager, Market Competition and Rates, Shamsudeen Mammud noted that the licenses of the DisCos will expire in 2028 and not in 2023.
According to him, the commission extended their 10-year licenses by five years.
He said: “However, I want to make a clarification on the trending issue about the license of the DisCos. It is all over, people are saying the license will expire this year. The DisCos were given a 10-year license.
“But as they took over, the commission extended their license by five years. So the DisCos have 15 years license. So their license will expire five years from now which is 2028.”
He said the commission has always sanctioned the licenses when they err.
According to him, the industry has been making slow progress.
House of Representatives Speaker, Hon. Tajudeen Abbas represented by House Committee on Power chairman, Hon. Victor Nwokolo was opposed to the idea of holding only the private investors accountable for the challenges in the industry.
He said the government which holds only 40% of the equity of the DisCos has the upper hand in the board meetings instead of the private sector which has 60%.
He wondered how many government ministries, department, and agencies pay their bills.