TARIFF GAIN IN POWER SECTOR HAS BEEN WIPED OFF WITH NAIRA DEPRECIATION – FASHOLA

ABUJA, Nigeria – The Minister of Power Works and Housing, Mr. Babatunde Fashola SAN, has described the Power Sector Recovery Programme, as a series of carefully thought out policies and actions that have emanated from government’s interactions with the players in the industry aimed at restoring financial viability, improve transparency and service .

The Minister who conducted an Overview of the Power Sector at the Fourth Presidential Quarterly Forum at the State House, Abuja said the five-year Programme also seeks to reset the industry for future growth.

“It is really a series of carefully thought out policies and actions that have emanated from government’s interactions with all the players in the industry, not only as a result of my monthly meetings but also meetings at the higher levels of government which have come as feedback to us as issues challenging the industry”, he said, expressing delight that many of the Operators whom he used to meet with on a regular basis were at the Forum.

Fashola noted that the Power Sector Recovery Programme has been developed, in collaboration with the World Bank Group, as the programme of actions to activate and achieve the Energy requirements needed to meet the economic objectives articulated in the Economic Recovery and Growth Plan presented recently by President Muhammadu Buhari.

“We have developed this document in collaboration with the World Bank to whom we will be looking for support, not only in terms of technical areas, but also in particular the financial support they can offer to the government side and also to the few Operators that may need financing support from the Private Sector arm of the World Bank which is the IFC”, he said.

Enumerating debts, tariff and World Bank funding as some of the big issues that agitate the sector, the Minister explained that debts have arisen “partly by inefficiency and partly by government interventions as a result of tariff reversals in the heat of elections”.

He explained further, “You will all recall that at the time government directed that tariffs be reversed somebody was already producing power, somebody was producing gas, and some body was transporting it. Who was going to carry that Can?”, adding that the Power Sector Reform Programme has set out programmes “to solve those debts, find a way to pay them or to restructure them in a way that restores viability back to the sector so that the operators can carry on with their business”.

He noted that there were also debts owed as a result of the consumption of electricity by government departments and agencies which again government was now addressing adding that it had reached inception closure which, according to him, “We will be communicating to you when we get approval for the amount”.
Fashola, however, added, “But I am also happy to say that some of the Operators here can acknowledge that some of the Ministries’ debts have been paid, at least as it relates to the Federal Secretariat at Abuja and we are doing our level best to ensure that we don’t run into default again”.

On the tariff side, the Minister who noted that there were misunderstandings about the issue, added, “There are issues about whether they are cost reflective. Tariff issues have also been subject to the vicissitudes of the larger economy; what was supposed to be tariff gains have been wiped out by exchange rate depreciations”.

He added, “And so one of the things we are trying to do now is to re-evaluate the tariff regime in a way to see first that the methodology must be simpler; those who pay must understand how they arrived at the price and all of us must be able to say this is what the tariff is saying and it is a little complex at this moment. So, this is some of the issues that the Power Sector Recovery Programme seeks to address”.

Fashola said Government had, by way of operational and technical interventions, set a minimum generation of 4,000MW adding that it was important to stress the word minimum because ”at the time this administration started its journey on May 29, 2015, the amount of power on the grid was 2,690MW”.

“Today we are now averaging about 4,000MW and we want to make that just a minimum. But I have always tried to refrain from discussing megawatts because I think what is important to us as consumers is how much energy do I have on a minute-by-minute basis”, he said.

According to the Minister, “That is the minimum threshold, and then we have to also reduce the losses and the losses come from so many sides; lack of proper metering, poor equipment, electricity theft, violation and destruction of electricity assets that generally just characterize inefficiencies”, adding that those were also the issues the Power Sector Reform Programme was set to address.

The third issue the programme would address, he said includes governance issues, the quality of representation, including Federal Government representation on the Boards of the DisCos, representing the interests and shareholding of Federal, State and Local Governments.

He added, “We want to improve the quality of that representation in a way that it can help those companies also to bring some financial, technical and other skill sets to play so that they can help the majority shareholders to actually deliver on their objectives which is our role really as enablers”, pointing out that it would also “improve transparency using data, install our supervisory data acquisition and control system so that everybody really sees on a near real time basis what is going on”.

The Minister said government would also enable the Private investors to also resolve issues such as legal issues they were challenged with “either as a result of lack of understanding of the emerging nature of Private Sector intervention”, expressing delight that the Judicial arm had responded in a most admirable fashion.

“The Judicial arm has responded in a most admirable fashion by the practice directions issued by the Chief Justice of Nigeria to all Federal courts requiring that all cases relating to electricity and electricity related matters, where they have arbitration clauses, the courts must quickly decline jurisdiction and let the parties go to arbitration which is a more efficient mechanism for resolving commercial disputes instead of having cases set down in court”, he said.

Fashola declared, “So, for the operators, for your lawyers, this is a very cheering news and if you have such cases this is the time to apply that the courts exercise the directives, declare jurisdiction so that you can go for more business focussed fora which are arbitrations, to resolve disputes and get business going”.

“Then in terms of policy interventions we are seeking to ensure that government, through the Central Bank, develops a foreign exchange policy that will include the Power Sector and increase access to foreign exchange and make the rates more clear and more predictable to plan how to make investments and deliver on service”, he said.

Explaining that government was determined to improve electricity access nationwide, Fashola, who said this was one of the reasons why government set up the Rural Electrification Agency “with very clear mandate to focus on how to improve access using all of the options that are available”, said the agency was necessary to take electricity to rural communities that could not benefit from the national grid.

He explained further, “I have been speaking about Ihiala and Nnewi for a while and all you have heard is 133KV and 132KV, those are transmission lines that require us to transport energy to very long distances. If they are not commercially rewarding and viable under a private sector regime, the investment is not one that you will find easy to fund”.

“And in lieu of doing that now, we are focussing on embedded power using renewables coming to areas that have not been connected instead of waiting to connect them over lines of 400 kilometres; we can go in there, do the catchment, deliver the power to them, then meter them and let them go”, he said.

He, however, pointed out that as the sector grows, government would expect to see increased Private Sector confidence adding, “And confidence breeds further investment and when the investment stock is larger, I think we will be able to manage some of the risks and the liquidity issues better”.

On what the government is doing, Fashola, who said government’s first line of policy thrust was to increase the amount of power that was available, listed projects aimed at incremental power to include the 450 MW Azura Power Plant, 10 MW Katsina Wind Power Plant, 340 MW Afam Power Plant, 40 MW Kashimbilla Hydro Power Plant, 700 MW Zungeru Hydro Power, 29 MW Plant Dadin Kowa Hydro Power Plant, 40 MW Gurara Power Plant and 215 MW Kaduna Power Plant, adding that the projects were you will see that are at various stages of completion.

“Some of them will be completed this year; some will run into the first quarter of 2018 and some in 2019”, he said adding that the Power Sector Recovery Programme was being monitored in the office of the Vice President, which, according to him, “is the focal point for ensuring compliance”.

“So on a fortnightly basis at the minimum, we are called to report progress to the Economic Management Team and you will see all that have been done and there are still a lot to be done in the process of implementing the Power Sector Recovery Programme”, Fashola said.
He explained that the success of the Sector was contingent on the participation of the Private Sector which, according to him, has an important role in solving the Sector’s challenges.

Providing a background to the current state of the Nigeria Electricity Supply Industry, Fashola said the unbundling of the Power Holding Company of Nigeria in 2013 was a step by the Federal Government to bring in Private Sector investment,
processes and efficiencies into the power sector adding the Sector’s participation was geared to address financial, technical and operational inefficiencies.

The Minister, who noted that about 70 per cent of the Power Sector was now in the hands of the Private Sector, added that the role of government was to assist and support it through the current transition period, where, according to him, “there is still a lot of learning”, adding that the Power Sector Recovery Programme had continued in this vein with provisions for policy interventions that would encourage private sector investments.

He told the gathering of eminent Private Sector operators and stakeholders in the Power Sector, “I will not reiterate your important role too vigorously except to say that this really is your business”, adding that Government’s ultimate desire was to see “a Private Sector-managed Power Sector that delivers on the expectations of Nigerians”.

According to Fashola, “The expected outcomes, of course, are to improve power, to improve power supply and affordability, its generation and transmission, and to make it safe and, of course, to also improve and modernise on the options and choices that are available to us and ultimately poverty alleviation and economic prosperity” adding that the bottom-line was “the ease and cost of doing business in Nigeria to deliver a more competitive economy”.

Speaking on the opportunities in the sector, Fashola, who listed Gas supply as one of them, added that it was a business that investors needed to get more involved in as a people pointing out that manufacturing of cables, steel stanchions for transmission towers, metering, transformers were also very profitable investments in the sector.

“The field is seemingly limitless and endless and a treasure trove of opportunities for our people and our businesses”, Fashola said adding that a step-by-step graph of the steps required to register an isolated mini-grid has been done as a point of information for people who needed to know what to do in order to create their own small grids.

Other opportunities the Minister listed included installing some of the equipment which, according to him, would help to address the issue of unemployment and job creation adding that NAPTIN, the government training institute, was training a lot of young people along those lines while there were other agencies within and outside Nigeria who were partnering with the Ministry to empower people with skills sets.

“But this is a market really that we are creating for those skill sets to become useful tools for economic development”, he said adding that metering was a behemoth and a business that was a multi-billion Naira business in which government would expect to see more investments in terms of independent power.