- DisCos’ threat should not deter NERC from making them operate in line with their MoUs
FROM the Association of Nigerian Electricity Distributors (ANED) came a dire prognosis last week: most Nigerian banks will collapse if power generation and distribution companies fail. To be sure, ANED was referring to the $1.4bn paid by its members to acquire 60 percent stakes in the unbundled entities of the defunct Power Holdings Company of Nigeria (PHCN).
To ANED’s Executive Director, Research and Advocacy, Sunday Oduntan, with only 30 percent or $460m of the cash directly from pockets of the investors, and the balance of 70 percent sourced from banks, coupled with the fact that only one out of the 11 distribution companies actually got its funds off-shore, he reckons that the failure of the DisCos will inevitably drag the financial sector down with them.
Admittedly, should this happen, it would be bad for the investors who, without due diligence, willfully plunged into a business they know very little about; not least in this respect would be their handmaidens – the banks, for their failure to exercise good judgment in granting credit to unproven players.
As for the prognosis for the larger economy, we consider it somewhat exaggerated. The sector retains its boundless potential and this in spite of the established incompetence of the current players. Far from running out of options in its bid to rescue the industry from the band of clueless operators currently holding sway, the fact that the Federal Government still retains 40 percent of the DisCos shares obviously avails it sufficient muscle to force some changes for the good of the sector. Moreover, the serial breaches by the DisCos of their respective MoUs are such that now impose the duty on the regulator to act in defence of the national interest, particularly with the DisCos showing no improvement in their operations.
Overall, the flipside is whether the power sector can continue along the current trajectory without plunging the entire economy – not just the banks – into complete ruin.
This is where the grim prognosis by the Association of Power Generation Companies (APGC) – the body representing the Generating Companies (GenCos) is most instructive. In what signals a dire alarm on the current state of the power sector, the body says the system risks a shut down over the inability of the Transmission Company of Nigeria (TCN) to evacuate the electricity generated into the national grid.
Says APGC executive secretary, Joy Ogaji, in a statement last Thursday –”The grid cannot conveniently take over 4,500MW without rejecting load. Generation above 5,000 MW may either be lost or rejected either by the Distribution Companies (DisCos) or the Transmission Service Provider’s (TSP) inabilities largely due to infrastructural challenges like line cuts and transformer faults and unavailability thereby causing grid frequency to be very high.”
To further buttress her point, she claimed that in April, TCN could only transmit an average of 3,985.15MW– that is 53 per cent of the available capacity of 7,484.88MW produced daily by the GenCos. This development, she explained came with “reduction in efficiency, with implications for an increase in consumption of gas for thermal plants by as much as 15 to 20 per cent (cost neither recognised by the Nigerian Bulk Electricity Trading (NBET) nor captured in the Multi-Year Tariff Order (MYTO)”. Of course she highlighted other challenges.
Clearly, if it seems hard to imagine such quantum of energy loss due to under-investment by TCN and the DisCos, even harder to contemplate is the grave risks the development poses to the entire system. Most certainly, this would appear to constitute a new level of threat – perhaps of a higher scale than the indebtedness of the DisCos to Nigerian Bulk Electricity Trading company, NBET, which standing at some N859 billion, would ordinarily suffice to undermine the delicate linkages in the entire electricity supply value chain.
Are the fears of the GenCos real? Much as the DisCos would rather choose to live in denial, the Minister of Power, Works and Housing, Babatunde Fashola, has since affirmed the possibility. But then, the TCN, which the government wholly owns is also guilty of under-investment in critical transmission infrastructure. The difference is that the DisCos have neither demonstrated the ability nor shown inclination to undertake the requisite investments in distribution facilities; so also is the lingering concerns of the consumer, particularly in the iniquitous and patently unfair regime of estimated billings.
Which of course throws up the question – what could be done? Or put in another way – can the Federal Government afford to do nothing until the system gives way?
As the minister recently suggested, it would seem time for the Nigerian Electricity Regulatory Commission (NERC) to step in.