April 28, (THEWILL)- Honorable members of the National Assembly, esteemed colleagues, distinguished guests, and dedicated stakeholders of the Nigerian Power Sector,
It is a profound honor to address you today on a matter of critical national importance. This discussion is not just timely; it is essential, as we navigate through a pivotal transformation in our power sector that seeks not only to address the pressing challenges but also to redefine our future, especially with the renewed focus on the service-based electricity tariff system that has introduced the multi-tiered market.
CONTEXT AND CURRENT CHALLENGES
“We can chart our future clearly and wisely only when we know the path which has led to the present.”
– Adlai Ewing Stevenson I,23rd Vice President
of the United States of America.
The critical role of electricity in nation-building and economic growth cannot be overstated. From historical times to the present day, the journey of electricity has always been integral to national development. For example:
– China’s Economic Boom: Over the past few decades, China has experienced rapid economic growth, much of which can be attributed to its massive expansion in electricity production and distribution. The government’s focus on building infrastructure, including power plants and grids, has facilitated urbanization, industrial growth, manufacturing, and technological advancement, positioning China as a global economic powerhouse.
– India’s Rural Electrification: India has made significant strides in rural electrification in recent years, particularly through the Saubhagya Scheme launched in 2017, which aimed to provide free electricity connections to all households (both rural and urban) across the country. This initiative has not only improved the quality of life in rural areas but has also boosted economic activities by enabling better access to information and technology, enhancing educational outcomes, and increasing productivity in agricultural and small-scale industries.
“The real potential of electricity lies not in providing social amenities but in stimulating long-term economic development.”
– Christopher Flavin, former president of the Worldwatch Institute.
Despite being a nation, with the title “Giant of Africa”, here we are, with a stark reality before us—a reality where despite having the largest population in Africa and Africa’s largest economy, Nigeria tops the list of nations with the most significant number of people lacking access to electricity. According to a 2021 report produced by the International Energy Agency (IEA), the International Renewable Energy Agency (IRENA), the United Nations (UN) and the World Health Organisation (WHO), Nigeria ranked first as the country with the largest number of people lacking access to electricity with 86 million people, ahead of the Democratic Republic of the Congo (76 million), and Ethiopia (55 million).
As a matter of fact, some other reports place Nigeria with its significant population having only 55% of her population with access to electricity.
This statistic is not just a number; it represents a dire constraint on economic potential and a significant barrier to improving our collective quality of life and as such this workshop and other similar thought exercises are not only timely but must move beyond talk that is referred to as being cheap to action that will translate into a reality that will make a difference in the lives of Nigerians.
LEGISLATIVE AND REGULATORY INTERVENTIONS
It is general knowledge that the Legislative and Executive arms of government have taken steps to close the gaps that exist in the power Sector, foster initial Public-Private Partnerships and stimulate sector-wide investments, from 2001 to date, certain steps have been taken, including:
– Policy and Legislation Evolution (2001-2013): Enactment of the Electricity Power Sector Reform Act 2005, Implementation of the National Electric Power Policy and creation of the National Energy Policy framework were key initiatives in the early 2000s, along with the establishment of the National Economic Empowerment and Development Strategy (NEEDS) and the initiation of the Niger Delta Power Holding Company (NDPHC) and National Integrated Power Projects (NIPPs). This period also saw the enactment of the Electric Power Sector Reform Act (EPSRA), leading to the formation of the Nigerian Electricity Regulatory Commission (NERC) and the unbundling of the power sector into 18 companies. Additionally, policies promoting renewable energy were introduced with the Renewable Energy Action Program (REAP).
– Privatization and Tariff Structuring (2008-2013): The sector’s roadmap was established with the introduction of the Multi-Year Tariff Order (MYTO), and privatization efforts were accelerated with the sale of generation and distribution assets. These efforts aimed to create a more efficient and financially viable power sector by aligning costs and tariffs and attracting private sector participation.
– Reform and Recovery Measures (2014 to date): A transitional electricity market was implemented, followed by the release and subsequent opposition to MYTO 2.1 by consumer groups. The Power Sector Recovery Program (PSRP) was released to address sector challenges. Most recently, the “Eligible Customer” regulation was issued, and the Electricity Bill was signed into law as the Electricity Act 2023 to further regulate the market, aiming to bolster investor confidence and ensure sustainable development in the power sector.
The privatisation of November 1st, 2013, on the back of EPSRA (2005), was supposed to provide an environment, from legislative, regulatory and policy perspective, which would have alleviated or ameliorated the issues that have been previously listed. In particular, EPSRA established the legal framework for structuring the privatisation, established the basis for the formation of the Nigerian Electricity Regulatory Commission (NERC), provided for a regulatory framework and process, and also sought to promote the tenets for a commercially viable and sustainable electricity market.
Alas, what EPSRA did not envisage were the challenges that are currently besieging the NESI – lack of market liquidity, policy and regulatory inconsistency and somersaults, historical absence of a cost-reflective tariff and inconsistency in tariff reviews, unstable macroeconomic environment, customer inability to pay and theft of electricity, a prevalence of outdated and inadequate electricity infrastructure due to lack of investment that, fundamentally, undermines the operators’ ability to provide efficient service, a metering gap puts DisCo revenue assurance at risk, while alienating customers who are subject to estimated billing, etc
As a matter of fact, since the privatisation initiative under the now-repealed Electric Power Sector Reform Act of 2005 (EPSRA), the sector parties have encountered numerous challenges:
From:
– Limited generation, as power production remains distressingly low at around 4,000 MW for a population exceeding 200 million; The generating companies received for example 9% of the invoices in the last payment cycle.
To
– Bankability issues across the sector, with declining investment which can be traced to regulatory inconsistencies and an unattractive National investment climate;
– And unemployment which has limited the national purchasing power, exacerbated by insufficient industrial activity, and which continues to rise alarmingly.
This does not imply that the legislative and executive branches have been complacent; quite the contrary, as evidenced by the actions outlined above.
There is an age-old saying that investors are averse to risk that is unmanageable. Unfortunately, largely, the risk associated with the power sector has been outside of the control of the investors, with the passage of the Electricity Act, 2023 (EA), which we are here to discuss, a case in point. I make this reference within the context of the investors not being invited to contribute to the drafting of the related Bill. While I note that the drafting of the EA and its subsequent enactment was driven by the need to address the inadequacies of EPSRA and, as investors, we applaud the related effort, we believe that our participation in the bill-making process would have strengthened the EA in a way that would have, perhaps, further contributed to the enabling environment that NESI urgently needs. Nevertheless, we are grateful for this workshop which, from my understanding, seeks to, potentially, improve upon the EA. Only rapid and accelerated investment can ameliorate the challenges in the sector, the quantum of investment required is too large for Government alone and hence Laws should be investor friendly, and investor aligned (within the limits of the laws of our land).
REVIEW OF THE ELECTRICITY ACT
Indeed, the National Assembly, via the Act, is to be commended for introducing reforms that seek to enhance and promote sectoral performance, as well as introduce sub-national (State Government) participation along the electricity value chain. With the enactment of the EA, understandably, as investors, we have reviewed the act to determine how best it can both promote efficacious operations of NESI, as well and foster increased investment in the sector.
Some of our observations are as follows –
The act has excelled in the areas of:
• Contributing to increased efficiency, innovation, and improved service delivery.
• State participation that allows for a collaborative arrangement across the spectrum of the Federal Government, State Governments, and Operators.
• Protection of investor assets, in the event of revocation of license or forceful takeover.
• Improved focus on renewable energy.
• Greater and improved opportunities for the operators to partner with state governments.
• An Independent System Operator (ISO) to perform market and system operation functions.
However, it has not done so much in resolving:
• Increased bureaucracy, transaction costs and lack of clarity of contractual obligations associated with mandatory formation of subsidiary companies that result from State formation of electricity boards/commissions or establishment of electricity markets.
• Introduction of ambiguity, especially around:
* Question of validity of state electricity laws versus federal laws.
* Lack of clarity of operator roles, i.e. Distribution of electricity licensee versus Electricity Supplier licensee.
* Lack of clarity on license duration, with related determination left to the discretion of the regulator.
* Licensing of IEDN’s to coexist with subsidiary DisCo.
* Flow of power between states – boundary metering
• Absence of provision addressing mobile courts, for expedited prosecution of electricity offenses.
• Lack of focus on fostering grid modernization
• While the provision under the act allowing for the regulator’s licensing interventions of revocation, board dissolution or suspension seeks to promote efficiency, accountability, and performance of the operators, it needs to be revisited to provide transparency and guidelines to preclude arbitrariness of action by the regulator.
• The Fiscal uncertainties the new Act has created need to be addressed urgently and head on. Subsidies do not only exist as a consequence of inefficiencies in the market but also exist when Governments decide to intervene on behalf of citizens. When a State decides to regulate, does it inherit the subsidies created during tariff regulation if cost reflectivity isn’t achieved? How does this impact service providers that are national? It should be noted that States generally and legally do not operate fiscal deficits. What happens when a State regulates a subsidy it has not budgeted for fiscally? Some of the provisions of the EA need to align with the other Fiscal laws of the land and align to how the National and Sub-National expenditure frameworks operate. Without this, some of the provisions may be deemed incompatible with the law or inoperable.
• Operation of Gas laws and Gas pricing have significant impacts on the NESI due to the fact that Gas Generation is 70%+ of the nation’s production, we need to look at the sustainability of pricing gas for domestic power supply in US Dollars while consumers earn wages and pay for electricity in Naira. Partial indexation and dedicated local supply gas wells with incentives need to be looked at. It is difficult for the NESI when extemporaneous factors that impact the sector are not considered. The main driver for today’s subsidy was the Naira devaluation’s impact on Gas prices to the sector. Subsidy had been substantially eliminated by the last administration through consistent tariff increases over 3 years.
CONCLUSON
Looking at where we are coming from, Indeed, it is clear that the history of NESI is replete with all manner of regulatory, policy and contractual aberrations, including multiple instances of declaration of Force Majeure by the operators. Any legislative intervention under the EA that fosters the progressive resolution of NESI’s historical deficiencies is a good thing.
Accordingly, I do not believe that it is farfetched to state the recent increase under Band A tariffs is directly connected to the clarity and provisions that the regulator now operates under, in accordance with the stipulations of the EA. This increase is a major contributor, as a first step towards addressing the growing illiquidity of NESI. Collectively, we have to be mindful that public debt is generational debt, at a time when government electricity tariff subsidy obligation, previously estimated at N1.6 trillion for 2024, but projected to exceed N3 trillion (without the recent increase under Band A). There is no such animal as “government debt” that is separate from us as citizens. We all share the burden of debt, with the risk or danger of passing such debt to future generations, in the absence of corrective action.
Additionally, the tariff adjustment not only compels the DisCos and other operators along the NESI value chain to bring their “A game,” no pun intended, it also sends the right signals to investors and lenders that there is a pathway to recovery of invested or lent funds. Furthermore, it provides the beginning of the injection of capital that is critical to improving service delivery across the customer tariff bands. Cost reflectivity or recovery is not a punitive measure adopted by the regulator or electricity operators, but a pricing approach that is consistent with every day commercial practice of doing business. Of particular interest is the fact that with the increase in the Band A tariff, Nigeria’s electricity tariff remains the lowest in West Africa at $0.02/kwh versus an average of $0.17/kwh for Mali, Burkina Faso, Togo, Ghana, and Côte d’Ivoire.
Not to allow for the operators to recover their reasonable and efficient costs of operation, thereby stemming the mounting debt, is to put the entire NESI value chain at a risk of systemic failure, specifically, and a continued deterioration of the economy in general. There is no further affirmation of the need to work diligently towards addressing NESI’s illiquidity than this quote from American Financial Advisor, Mr. Dave Ramsey, who said, “There are no shortcuts when it comes to getting out of debt.”
In conclusion, I would like to applaud the House of Representatives and, specifically, the House Committee on Power, for scheduling this workshop. Beyond scheduling this workshop is the message that is being sent that law-making is dynamic; that law-making is serious business on how to improve the lives of Nigerians; and that the House of Representatives is attuned to the challenges of NESI, with an interest in how to legislatively contribute to getting NESI on the right track for commercial sustainability and viability.
Clearly, from my perspective, legislation must go hand-in-hand with regulatory and policy determinations to promote the enabling environment that will encourage investment in the sector. For these to happen, there are some points to note:
• On Grid Modernization: If the grid is to support renewable energy, focus on integrating technologies to support renewable energy sources and enhance the resilience and capacity of our national grid is important. The goal is to create a smart grid that not only supports current demand but is also adaptable to future innovations and energy needs.
• On Boosting Investment Appeal: To revive and sustain investment in our power sector, we must establish a stable and transparent regulatory environment. Investment security, through policy consistency and favorable economic conditions, is essential to attract both local and international investors. Our focus must be on creating an attractive value proposition that balances risk with potential returns, fostering an investment climate where stakeholders feel confident and valued.
• On Consumer Empowerment: At the heart of our reforms must be the empowerment of Nigerian consumers. They deserve not only consistent and reliable access to electricity but also a voice in how energy policies are crafted and implemented. Enhancing consumer rights, ensuring affordability, and improving service delivery must be at the forefront of our efforts. True empowerment means moving beyond mere access to fostering ownership and participation in the energy ecosystem.
• On Collaborative and Inclusive Reform: The complexity of the challenges we face requires a collaborative approach that includes all stakeholders: government, private sector, civil society, and consumers. By working together, we can ensure that reforms are not only well-conceived but also effectively implemented. This collaborative approach will also facilitate the sharing of ideas, innovations, and best practices, essential for the iterative process of policy refinement.
I would like to end with two quotations from the recent World Bank Spring meetings.
“Electricity is the basis by which people can access to health, people can get access to education, people can get access to the ability to innovate and manufacture and build productivity. … Without affordable access to energy, nothing is possible.”
– Mr. Ajay Banga, President, World Bank
“No economy can grow in the dark. No economy can industrialize in the dark. No economy can be competitive in the dark.”
– Mr. Akinwumi Adesina, President, African Development Bank
Let us, therefore, illuminate Nigeria together, ensuring that our collective future is bright, sustainable, and inclusive.
Thank you.
•A keynote speech by Kola Adesina, GMD/CEO Sahara Power Group, to the House of Representatives Commitee on Power Works resently,
About the Author
Kola Adesina
