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FG’s power sector reforms rattle operators

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FG's power sector reforms rattle operators

…as underperforming discos brace for state govt’s hammer

There is palpable fear among Electricity Distribution Companies (Discos) operating in the country, as the Nigerian Electricity Regulatory Commission (NERC) commences the transfer of regulatory oversight of the electricity distribution sector to states, Business Hallmark can report.

The move is in compliance with the amended Electricity Act (EA) 2023 signed into law on February 9, 2024 by President Bola Tinubu, which decentralised the nation’s electricity market previously centralized until the presidential assent. The new law replaces the Electric Power Sector Reform Act (EPSRA) signed by President Olusegun Obasanjo in 2005, which had provided the legal, regulatory and governance frameworks underpinning the Nigerian Electricity Supply Industry (NESI).

President Bola Tinubu had originally signed the new bill into law on June 10, 2023. But the lawmaker representing Ikorodu Federal Constituency of Lagos State, Babajimi Benson, lawmaker drafted an amendment bill to correct the shortcomings observed in the act, which seeks to give states, companies and individuals to generate, transmit and distribute electricity.

The bill was eventually passed by the House of Representatives on July 27, 2023, and the Senate on November 14, 2023 before it was assented to by the president in February.

With the new law, states now have the power to issue licenses to private investors, who have the ability to operate mini-grids and power plants, transmit and as well distribute the generated off-grid power.

The licenses, however, cannot be used for inter-state or transnational distribution of electricity. On Monday, April 22, NERC moved to effect the new Act by directing the transfer of regulatory oversight of the electricity market in Enugu to the Enugu State Electricity Regulatory Commission (EERC) in an order marked NERC/2024/039.

Two days later, the commission also directed the transfer of regulatory oversight of the electricity market in Ekiti and Ondo to the Ekiti State Electricity Regulatory Bureau (EERB) and the Ondo State Electricity Regulatory Bureau (OSERB) respectively.

NERC in a statement by its Chairman, Sanusi Garba and Commissioner in Charge of Legal, Licencing and Compliance, Dafe Akpeneye, said that all transfers between the Benin Electricity Distribution Companies (BEDC), Ibadan Electricity Distribution Company (IBEDC), and EERB and OSERB, envisaged by the order shall be completed by 22 October 2024.

“Enugu, Ondo and Ekiti States have initiated the implementation of the provisions of the recent amendment to the CFRN and the EA.

“Hence the Act mandates the commission to develop a transition plan and timeline for the transfer of regulatory oversight of the intrastate electricity market from NERC to EERC, EERB and OSERB upon receipt of a formal notification from the states”, the NERC order stated.

The directive took effects from 1 May 2024 in accordance with the Electricity Act 2023, the commission noted.

Speaking on the restriction placed on the transnational distribution of electricity and inter-state use of the licence, NERC explained that Ekiti and Ondo States have both complied with the conditions precedent in the laws duly transferring the regulatory oversight of the intrastate electricity market in the states.

NERC disclosed that it had also directed the Benin and Ibadan Electricity Distribution Companies to incorporate subsidiaries, BEDC SubCo and IBEDC SubCo, to assume responsibilities for intrastate supply and distribution of electricity in Ekiti and Ondo States from BEDC and IBEDC.

“A transfer of regulatory oversight notification shall be issued by the commission to the companies in the register whose activities are limited within Ekiti and Ondo States, informing the entities of the transfer/assumption of regulatory oversight for their activities by EERB and OSERB.

“EERB and OSERB shall have the exclusive responsibility of determining and adopting an end-user tariff methodology applicable within its area of regulatory oversight.

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“Where the SubCos receive electricity from grid connected plants, the contracts and tariffs applicable for generation and transmission services shall be approved by the commission.

“The final end-user tariffs approved by the Bureaus shall be the exclusive tariffs that apply in Ekiti and Ondo States and all tariff policy support for end-use customers in the states shall be the responsibility of the Ekiti and Ondo State governments”, the order stated.

BH reliably gathered that many states, including Lagos, Ogun, Rivers, Oyo and Osun have almost completed the modalities needed for the transfer of regulatory oversight of discos in their domains to the commissions set up by them.

However, while many Nigerians, especially electricity consumers and experts have continued to laud the initiative, distribution companies, our correspondent learnt, have lost sleep and are in perpetual fear of losing the monopoly they presently enjoyed in their area of operations.

According to sources in some of the discos, their management worries were borne out of the plan by state governments to licence new firms to generate, transmit and distribute power within the same operational areas currently controlled by the discos.

A source in the Ibadan Electricity Distribution Company said a section of the new Electricity Act that allows states to build power plants, operate mini-grids and discos to transmit power and distribute generated off-grid power, as well as fix tariffs payable by customers, is of particular worry to its owners.

According to the source, the news coming out of Abia State, where Aba Power, the newest power distribution company owned by Geometric Power Group, recently announced a downward review of electricity tariffs payable by customers within its operational zones, is a warning sign to the 11 legacy discos that they are in for a rough and patchy ride.

The Managing Director of Aba Power, Ugo Opiegbe, had on Thursday, May 30th, 2024, announced the adjustment in his company’s tariff. According to Opiegbe, Band A customers, who receive power for, at least, 20 hours daily from Aba Power Company, will now pay between N114.66 and N117.1 per kilowatt hour (KWh), from N109.79 KWh.

For non-MD customers in Band A, their tariff is pegged at a lower rate of N106.56/kWh.

“It is still the lowest in the country for that category of customers. Our Band A MD customers are primarily industrialists, who are, unfortunately, experiencing serious headwinds, and it is because of them that Prof. Bart Nnaji, the founder and chairman of the Geometric Power Group, established the 188-MW gas-fired plant in the Osisioma Industrial Layout of Aba”, Opiegbe had explained.

The tariffs charged by Aba Power contrast sharply with rates charged by the other 11 electricity firms in the country, which in April increased their tariff for Band A customers from N66KWh to N225KWh. The tariff was, however, reduced to N206.80KWh in early by President Bola Tinubu. NERC, while giving reasons for the increment on April 3, 2023, blamed it on the prevailing economic situation in the country.

The dependable source in IBEDC, who spoke to BH on the condition of anonymity, said that many state governors may start citing Aba Power Limited’s lower tariffs as an excuse to pull the carpet from under their feet.

“When Aba Power announced last week that it was reviewing its Band A Maximum Demand tariff to between N114.66 and N117.1 per kilowatt hour (KWh), many Nigerians became agitated, cursing the 11 legacy discos for extorting them.

“But what many of them don’t know is that what they are paying for is the inefficiency in the power system.

“Because Geometric Power Plant in Aba is not evacuating the power generated through the nation’s weak power grid, but through a reliable and independent grid, it gets most of its generated power to its end users at a much cheaper rate.

“However, we can’t say the same with power supplied to discos from the national grid transmitted by the Transmission Company of Nigeria (TCN).

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“I can tell you without mincing words that over 40 percent of electricity transmitted through the nation’s obsolete power grid are lost in transit.

“But unfortunately, power generating companies calculate the electricity that left their turbines through an efficient metering system, expecting us to pay for it by pretending that they don’t know that a large chunk of it are lost in transit.

“That is the inefficiency Nigerians pay for. You can imagine us generating power from Egbin in Lagos or Shiroro in Niger State, evacuating it hundreds of miles to the National Control Centre in Osogbo, Osun State, before transmitting it back to Lagos or Niger State.

“That is the cross we (discos) are currently bearing. For Aba Power, it transmits its power directly within Aba, thus reducing electricity lost in transit and saving a lot from transmission cost because of its proximity to its customers”, the source, a top management staff of IBEDC, lamented.

BH reliably gathered that since most of the 36 states of the federation and the Federal Capital Territory (FCT) don’t have dedicated power plants and mini grids to evacuate generated power like Aba Power, they will continue to rely on the inefficient national grid for their power supply.

“Though, most state governments are aware of this fact, I don’t think they’ll be patient enough with discos until the infrastructure needed to independently power their states are built.

“Our fears is that with the powers they now have to fix electricity tariffs, they won’t succumb to the pressure of rashly lowering tariffs in their states while pointing to the Abia experience as a yardstick”, the source added.

Apart from the fear of state electricity commissions arbitrarily fixing electricity tariffs in their backyards without recourse taking into factor underlying conditions, the 11 troubled discos, BH gathered, are also afraid of losing control of some of their licensed areas to newly licensed power firms.

Our correspondent reliably learnt that some power investors have approached the Lagos State government, proposing that some towns, cities, local government areas, as well as residential and industrial estates in the state be carved out of the old Ikeja and Eko Electricity Distribution Companies franchise.

They then offered to supply these newly established franchise areas power at a fee agreed to by both parties.

While the state government is at the final stage of setting up its own electricity regulating company, sources from inside government confided in BH that the state government is not aversed to the idea of splitting the state into multiple independent units in order to break the dominance of IKEDC and EKEDC.

According to a source in EKEDC, if the government goes ahead to sanction such proposals, it will surely lead to the death of the two electricity distribution firms operating in the state.

It would be recalled that a committee set up by the Federal Government had early this year reviewed the 10-year power old privatisation agreement which elapsed on November 1, 2023,

The committee, it was gathered, recommended the takeover of most of the 11 power power distribution companies from successful investors, claiming that the distribution sector is the weakest chain in the whole power sector comprising three arms, generation, transmission and distribution.

However, an independent review panel advised the government against going that route, warning of a prolonged and intractable legal disputes.

It advised the government to instead try to gain back control through the licensing of new distribution firms to operate ‘pari passu’ with the existing firms in their spheres of interest.

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“I begged to be corrected, but I strongly believe that this (takeover) and many more is what the government is trying to achieve through the Amended Electricity Act”, said a power consultant, Engr. Wale Oniyide.

Also, the Coordinator, Edo State Civil Society Organisation, Omobude Agho, who spoke to our correspondent in a phone interview, said the licenses of the discos should not be renewed over poor performance.

“The license is a five years contract, which expired on November 1, 2019. Another five years elapsed in November 2023.

“We are saying that it must not be renewed. The discos have not met any of the conditions of the terms of the contract agreement. They should be taken over by the BPE which should get capable investors willing to do business and follow the terms of agreement“, he said.

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