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On the issue of our troubled power sector

It has been six years since the Federal Government of Nigeria handed over power generation and distribution assets to private firms in a bid to…

It has been six years since the Federal Government of Nigeria handed over power generation and distribution assets to private firms in a bid to reverse the challenges of the power sector and catalyze the economy through a hoped-for improvement in electricity supply. These last six years have been filled with all kinds of drama, operator challenges, accusation-trading, policy inconsistencies and regulatory failings, amongst others.

However, to a keen observer, it also gives room for justified concern that on the eve of the final review to evaluate the level of compliance, by the DisCo investors, with the performance agreement, new regulations are enacted which appear to be booby traps designed to provide a basis for the revocation of some licenses.

I am speaking here of the notice given by the Nigerian Electricity Regulatory Commission to a number of Distribution Companies (DisCos) to explain why their licenses should not be revoked for failing to meet a new regulation that came into force just this year. Coming from a regulator that has been all but impartial, there is enough reason for eyebrows to be raised.

The Nigerian Electricity Regulatory Commission (NERC)’s role in the industry is to regulate standards of performance for all electricity licensees and monitor performance to ensure that those standards are met and maintained or even exceeded.

After five years of balking at reviewing the tariff to reflect the reality on the ground, NERC is trying to distance itself from the situation it has created in the market and lays the blame at the foot of the DISCOs. Reviewing the tariff in 2019 or 2020 is not going to reverse the distortions that have been created in the market over the last five years. The investments which should have been done haven’t been done. The ability to attract funds which could have been tapped, the liquidity crisis which has strangulated the entire value chain …it will take an interesting amount of ingenuity to distance the regulator from the repercussions of all these upon the industry is supposed to oversee.

According to a former Chairman of the Commission, Dr. Sam Amadi, “We made mistakes or took decisions which in retrospect may not have been optimal. This is expected in human society hence development and transformation are iterative, adaptive, and path-dependent.”

Some of mistakes that emanated from the regulator, which it seeks to dismiss so casually but which had far-reaching adverse effects on the electricity supply industry include the freezing of the residential class of tariffs (R2) in 2015 for 18 months; the  removal of Collection Losses  in 2015 as well as the non-implementation of more than SIX  Minor Tariff Reviews, premature declaration of the Transition Electricity Market (TEM); Removal of Collection Losses from the tariff (an action that resulted in the DisCos declaring Force Majeure) and a premature declaration of Eligible Customers.

Even when the regulator seeks to accomplish positive outcomes, such as the Meter Asset Provider (MAP) and the implementation of the July 2019 Minor Review it, invariably, finds a way to mess them up. MAP, already constrained by unrealistic pricing of the meters and vendor access to financing, has been overshadowed by the issues associated with the Notices of Cancellation.  So also has the positive elements of the July 2019 Minor Review which, for a minute, provided a glimmer of hope, in terms of the sector’s ability to attract financing.

Interestingly, in all these periods of “non-performance”, this regulator never lacked. The GenCos lacked. The Discos lacked. While part of the government, TCN lacked. The customers lacked …but not the regulator.

How do I know this?

On July 1, 2019, a newspaper investigation with the headline “NERC earned N6bn in 2018, spent N4.9bn on 7 commissioners, others” revealed how the NERC spent over N4.9bn on its commissioners and others. Currently, the Commission collects 1.5% license fees from generating firms and other licensees.  It also gets 1.5% fee included in the cost of every kilowatt hour of electricity consumed by every single electricity consumer in the country. It has absolute freedom to set the salaries and remuneration of its personnel (See Daily Trust, July 1, 2019)

As a matter of fact, the Commission publicly declares this on their website.

“The Commission has the right to approve appropriate salaries for the Commissioners after due consideration of the recommendations of the National Salaries, Incomes & Wages Commission. The ultimate authority is that of NERC, it is in pursuance of the Act that the pioneer Commissioners approved the salaries and allowances of staff and themselves.”

Well, that “ultimate authority” was worth N4.9bn in 2018 to cater for roughly 180 people. In 2017, this figure was N3.9bn. We have no idea how much Nigeria will pay them in 2019 yet. Now, these are not just random figures. These are figures obtained from an audit report, which was prepared by Deloitte &Touche Chartered Accountants in Abuja and was approved by the NERC commissioners on May 23, 2019. Do we also need to remember that this same body of Commissioners sought to spend N160 million on seven (7) Sports Utility Vehicles (SUV), at a time of significant market liquidity challenges?

I bring these issues into the conversation because where you have a regulator whose job it is to regulate a sector, ensure that everyone does what they should do, monitor for performance – but where it seems no other player in the sector other than the regulator is getting its just desserts – then questions should be asked. And by the way, this is money made by the regulator when the market was “not performing”, depriving the private sector players any hope of recovering their investments anytime soon and, even worse, putting the livelihood of over 25,000 electricity employees at risk. Who can imagine how much more they will have to use at their discretion when the market improves?

If we are paying this huge cost for this “specialized work of the commission”, it is to be expected that there should be minimum ceiling of what constitutes failure or errors in judgment. Mistakes that cost the economy of a country as critical as Nigeria this much must have repercussions.

The job of a regulator is not just to be seen as the entity with the big stick.

There is a huge moral question which umpires necessarily ask themselves. Can you truly find the people you are regulating guilty of not measuring up to expectations when your actions while directing the activity impacted negatively on their participation?

There is no doubt that the DisCos are just as complicit in the chaos that is the Nigerian Electricity Supply Industry (NESI).  To some degree or the other, they reflect inefficiency, bad governance, extortionist practices of estimated billing, horrendous customer service, etc.  Truly, their excesses need to be corralled and channeled in the direction that will provide succor to the long-suffering electricity customers, as well as provide the boost that is necessary to rescue our economy.  However, such shepherding of the DisCos is predicated on the presence of a regulatory framework that is performance oriented and not one that is based on politicized knee-jerk regulatory pronouncements and formulations.

They are trying to get nine men to impregnate a woman and have her deliver a child in one month. It is important that we all understand that until a regulatory environment that is transparent, participatory, consistent and fair is prevalent, we are not likely to see the much ballyhooed and desperately needed investment in the sector – investment that is fundamental and vital to the turnaround of the sector.

Okey, a public policy expert, wrote from Wuye, Abuja.

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