Before he finished his tenure, the former Chairman of the Nigerian Electricity Regulatory Commission, Dr. Sam Amadi, told The Interview that a tariff hike was inevitable in 2016. He explains why and touched on a few other controversial issues during his tenure.Amadi Says Power Supply Will Improve, But The Price Might Shock Consumers
At a recent Senate hearing on power, the former minister of power, Prof Bart Nnaji, blamed the epileptic power supply in the country on poor regulation. As head of one of the regulatory agencies of the power sector, what is your reaction to this and what is NERC doing to improve the country’s power situation through regulation?
I am not sure Bart Nnaji was properly quoted or quoted in context. I think he knows that the problem of power supply in Nigeria is not regulation. It is actually project management and policy in the industry. If you ask me, I think policy has been a problem. Let’s take, for example, the critical problems now with supply in Nigeria. First is gas supply; is that a form of regulation? Except we are talking about regulation of the petroleum sector. There has never been any structured, coherent, effective policy for gas supply. All over the world, the regulator’s job is to set up the framework. NERC has set up a bankable, cost-effective tariff for gas supply. It is a ‘pass-through’ cost to consumers. That means our job is done. Our job is to ensure that the tariff structure improves incentives for more gas supply to the power plants. Now, if you have a disarticulated gas to power policy framework where until recently we were not talking to each other, where investments are made in power generation by the NIPP without perhaps effective gas plans and even where there are plans, they are not executed, that is not a problem of regulation; it is a problem of policy. It is a problem of policy implementation. The second problem of power supply today is project management, the NIPP. If we had the 4770mw of NIPP plus the existing 4000mw, we’d be talking about 7000 or 8000 mw of power. And from the improvement of power supply now at 4000mw, we know that at 8000mw it would be huge. It would be a great relief, but NIPP has not been able to deliver.
By now, it should have taken off, but it hasn’t, because of poor contracting and projection management. That is the second problem. Now to the third problem – transmission. By now, we should easily be generating 6000mw or 5500mw, but transmission cannot carry beyond 5000mw. Who was managing transmission all those years? Is that regulation? Today, regulation provides for investment in transmission and returns on investment. Regulation provides the distribution code and market rules. Everything that creates coherence, stability, bankability and credibility in the existing market is there. The issue here is project management failure, because when Bart Nnaji as minister of power set out to do ‘X’ and it was not funded or the contract was procured wrongly and not delivered on time, that was not regulation failure. That was project management failure. Essentially, the various problems - gas supply, insufficient gas, transmission failure and uncompleted NIPP projects - are not features of regulation failure; they are features of policy and project management failure. What NERC is doing about these failures is that we are designing regulation to deal with some of them. I will give you an example with gas supply.
The problem with gas supply is that first we need to have a good tariff to attract investment in gas. Also, you need to deal with the overhang of debt to gas suppliers and increase the tariff to $2.50. We have approved 80 cents for transport as an incentive for investment in the new power plant project that the NNPC is bringing on board. Second, we realised that you have owed gas people for the past 20 years. You are not paying them. You are not bankable. You are not creditworthy. So we engineered the $2.3bn CBN intervention primarily to address debts owed to gas companies, to encourage them and to free up more gas for the network. Now think about the NIPP. It started without our license, but since we licensed them, we have been struggling to bring them under regulatory control. Today, we have a more orderly procurement process. We have enacted bulk procurement regulation, which subordinates bulk procurement within an orderly, cost-efficient manner, in such a way that the megawatts you will get in the next three years can be predicted. This is because everything that needs to be done - fuel source, funding, transmission capability – must be in place before you are licensed for independent power production. These are the regulatory processes. We have also imbedded generation regulation that allows distribution companies to overcome the transmission constraints and immediately procure power for their network. These are regulatory interventions that now make it possible for us to overcome the acute generation capability problems arising from weak network, transmission failure and poor project management.
You spoke of debts incurred by companies to the gas suppliers. These are privately run companies. Do you think it would be fair to ask consumers to pay these debts?
The debts were incurred before privatisation, but the truth is that it is the consumer that pays for everything in the network. That is the purpose of a tariff, the consumer who benefits from everything. The ‘consumer’ also includes those who run DisCos and GenCos, because they are also consumers. Primarily, there is no other way to pay for services except by tariffs. That is except government intervenes with support systems and subsidies and organs of public financing. But then, why should they pay? These are costs from gas supply to generating plants, maybe due to bad governance or maybe the tariffs were not cost reflective. That is, consumers were not allowed to pay the full cost of their service, these debts were left behind and we couldn’t privatise. These debts are owed not to government institutes, but to private entities. And the beauty of it is that these are the guys we depend on for our gas supply. Our power plants, about 85% comes from gas. So if we do not have a creditworthy relationship we our gas suppliers, it will hurt even future consumption. It is in the interest of consumers, actually, that regulators find a way for us to create creditworthiness with gas suppliers and continue to serve the industry. And that is what we have tried to do, working with the CBN to provide that kind of debt buy-back. In a sense, CBN buys the debts that consumers owe and the distribution companies will pay CBN within a ten-year framework.
Nigeria still has a large population of unmetered electricity customers, even though it’s clear that having a fully metered customer base will make billing by distribution companies more transparent and acceptable to consumers. And this is despite several pronouncements by NERC on the need for improved metering. Why can’t Nigerians have the meters they want? What is being done to solve this problem?
We have long identified metering as a critical problem. It is one of the three legacy problems I just wrote to the Speaker of the House of Representatives about, proposing how they could help. First is the gas supply problem that has affected generation. The metering problem has affected both revenue collection and customer satisfaction. In 2011/2012, we set up a committee to go round the country and ascertain the state of metering and all the issues around metering. That committee came back with a damning report that less than 40% of customers were metered. So this is a legacy problem. For many decades in Nigeria, no consistent effort was made to meter customers. So you now have a huge backlog of close to 60% of customers not metered today. It doesn’t take rocket science to know that metering is good for the consumer and good for the distribution company, but the problem is that metering has to be financed. There is a financial and logistics component of it. If you have five million customers and half are unmetered, it means you have to provide 2.5million meters. So you need a stretch of time.
These distribution companies sign with BPE a five-year plan to reduce losses, which includes a five-year plan to fully meter their customers. The metering problem is that NERC is making it mandatory; it is part of the conversation we are having with them. We are saying you cannot do less metering than you committed to in the business plan. Actually, you should do more. We are under no illusion that the DisCos alone can cover the metering gap year to year. That is very ambitious. It is not doable. It requires huge financial resources and logistics, procurement, installations and all that, then synchronising with their platforms. Secondly, many of them are also saying the meters they even have - the so-called meters - are so useless that they are by-passed and that constitutes revenue loss instead of revenue gain. People by-pass them; they change and alter them. They clone them and they can be made to run at a snail’s pace, so the consumer can use more power than is recorded. Now, they have started to develop advanced metering infrastructure to enable smart metering. That entails additional costs. There is a financing problem here. There are also logistics and incentives problems. Some people believe the DisCos prefer not to meter, but to resort to estimated billing. What we are doing as a regulator is to mandate aggressive metering. We should be mindful of the contracts they have entered, where they indicated how many meters they would provide every year.
We are also thinking outside the box and telling government that there are other ways through which metering can be outsourced, so that we are not constrained by the financial limitations of this market. Some service providers could take on metering, raise credit and finance it on their own and get their money back over time. That means we would bypass the financial limitations of the DisCos and create alternative financing options. That is why NERC came up with a process whereby customers can advance money for meters and be refunded through energy discounts. That works, because instead of depending on borrowing, customers can lend the DisCos the money and they would repay them over time. Some are doing this, but some are not. It is voluntary really. Some customers are cynical about that option. But what we have been doing is to creatively find a way to overcome a legacy problem. We made the mistake of three or four decades of electricity distribution not focused on metering customers. That is why we have huge connection losses. That is why government, in the first place, wanted to privatise, to gradually reduce those losses. The losses can be put into figures; they have naira and kobo value. If you say you have to provide five million meters, for example, in a place like Yola, in the first year they are targeting 56,000 meters. If you look at how they spread it, they want to finish the metering in four years. We want them to do more in the first phase; they say they can’t. So there is a constraint there. The other thing is those who paid, but were not metered. NERC has come out to strongly state that if 60 days after payment you still have not been metered, you are not supposed to be billed anymore. That is part of the intervention we have.
You mentioned estimated bills; to some people they are just crazy bills. There is also a fixed charge said to be a compulsory levy on all power customers by the distribution companies. What is NERC doing about these?
The first is estimated billing. We track and monitor these bills. Estimation is inevitable at the market development stage. We have about 50% of the customers not metered, so we expect some degree of estimation. But hopefully, in a couple years it will be phased out. Two, we conduct snapshot monitoring. Three, we receive complaints from customers who feel their bills are excessive. We have zonal offices where they are supposed to go to complain and find redress. Based on these, we conduct special monitoring of what DisCos are billing their customers. In the cases of Ikeja and of Abuja, we saw clear patterns of exploitation and abuse and we fined aggressively. In the case of Abuja, we asked them to make refunds to about 32,000 customers, ranging from N5, 000 to N15, 000. Our job as regulator is to set rules and monitor compliance. And when we discover a violation of the rules, we fine the DisCo. The fine conditions them to compliance. But ultimately, our focus is to think outside the box and make sure there is metering of every customer. The long-term plan is for everybody to be metered and in the short term, sanitise estimation through strict enforcement of the methodology for estimated billing. On the fixed charge issue, we know it is a huge problem for consumers, primarily because there is instability in power supply. Take, for example, the usual N750 fixed charge across all the DisCos. That would not be a lot of money for some consumers, if they were getting a steady supply of power. If you have steady power, the N750 will be invisible. What we have done is to mandate a 30% reduction of all fixed charges across board. Once the new tariff comes up, you will see that the fixed charges will drop by 30%. But going forward, as we attain more reliability, there will be no need for a fixed charge. It will be bundled into the tariff. There will be no feeling of being billed without consumption.
Do you think it is unrealistic to accede to what consumers want and remove the fixed charge completely?
The problem with removing the fixed charge is that it would lead to revenue loss, because if you think about, if there is a problem with the supply of power and you generate fewer megawatts, it means you will not be able to pay some of your fixed costs.
Following the reforms in the power sector, Nigerians have complained of having to pay more for power without commensurate improvement in its supply. Is there an explanation for this perceived lop-sidedness?
Well, Nigerians are right to complain, but they are wrong to assume that you pay more when you have more power. You pay less actually. For example, if you are generating 20,000mw, the unit cost will be less. It is the same line you use to take power to a place; it is the same line you connect to convey power, whether it’s 10,000mw or 5,000mw. Invariably, as you become more efficient and develop more capacity, there is a reduction in the unit cost. The average tariff will go down, because you are distributing a larger amount of power to customers. On the bills, our tariff is still not cost effective; it is way below the cost. The cost of producing power and distributing it is huge, because of high losses - technical and commercial losses - and because we are still generating a very low amount of power. Nigerian consumers are not happy, because unfortunately, people spend hours without power. Some people happen to enjoy more power, like in some parts of Abuja where people say they have almost 24 hours power. Such a customer will notice that his bill has increased, even with a prepaid meter. Why? Because you are consuming more. Nigerians should also be alive to the fact that when we have regular power supply, our bills will improve. All over the world, energy bills constitute a significant portion of household expenditure. So we hope to improve power supply. We hope to improve reliability, but that will come with an increase in overall billing. The good news is that people spend more without grid power. People spend more running generators and diesel plants. And of course you can’t discount the social, health and environmental costs associated with the individual provision of electricity through diesel and other plants. People pay more per kilowatt-hour. It is about N60 per kilowatt-hour for those who use diesel generators. So far, even with the increase in tariff, the critical issue is to make power more available. That is what I call the power sector conundrum. How do you increase reliability and capacity without investment? How do you invest if the return on investment is very low? For us, it would be a wonderful day if it were possible to freeze the cost. In fact, pay nothing until we improve the supply of electricity. But the reverse is actually the case. You need to pay, because that is the process by which improvement comes.
There has been a lot of back and forth between NERC and consumers over electricity charges – to raise or not to raise them. Should consumers expect to pay more in 2016?
The answer is that they should expect to pay more, but the debate is how much more? What should be the percentage of increase? What NERC is doing is to ensure that the consumer will not have to pay much more, at the same time, however, structure it. There is a tariff design we are working on. The idea of the tariff design is to ensure that first, the revenue side of this adds up. Any investor looking into this market should see that within 10 years, the cost expended to produce and transmit electricity is covered. The second question I ask myself is what is the desire? Within what period would recovery have taken place? We have moved from five years to 10 years to allow a longer period for recovery and therefore, a smoother tariff hike, so that there will be no big bump. The idea of that really is to create flexibility so that distribution companies can afford not to increase the tariff as they ought to in the first two or three years. So what you are going to see in the new tariff is what we call ‘sculpting’. We sculpted it like a sculpture in such a way that we cut back on what the tariff should be in the first two years, with the idea that investors will recover more in the future when power has improved. So customers should expect an increase, but it is not likely to be as much as it would have been, because of the work we have done to ‘sculpt’ the tariff. The bottom line is the integrity of the process; investors want to see integrity and that within the 10-year window all costs are recovered. And the DisCos would like to see that their sensitivities and sensibilities were factored into the designing of that tariff.
When it comes to the cost of electricity, what power does NERC have? After all, power supply is no different from petroleum products. Increasing the unit price is really for the president to decide, isn’t that so?
This is one of the few properly regulated sectors in the country. You’ll discover that in the petroleum sector, the NNPC has joint venture partners. Its regulation is different from what we have here. We are an all-out regulator with independence. NERC was designed to be thoroughly independent. We have what you call autonomy of decision-making. So the tariff does not have to have executive approval as such. The tariff actually has huge socio-economic implications. It has implications for the consumption pattern of citizens. If the tariff is high - very high - it takes a chunk out of disposable income. A cost-related tariff would affect investment in both the upstream and downstream sectors. So the implications for public policy are huge; for social policy in terms of how affordable it is and will there be a rate shock? If there is a rate shock, how should government be prepared? These various attributes of a tariff make it sensible to run a socio-economic analysis of intended tariffs. That is what we do continually with people in government, with the vice president, with the minister of power, with the people in finance and other agencies in the power sector. But ultimately, it is the chair of NERC, after approval by the commission, who will sign off the tariff. So it is not like an administrative policy, it is a quasi-legal act. We sit as a panel and review the final submission and decide to approve the tariff. And once it is approved, it becomes law.
There are allegations that distribution companies are milking consumers dry. They are not reinvesting in the companies or making improvements. Will consumers end up paying for these inefficiencies in the long run?
In the very long run, they will not pay the price. That is why we have regulation; it is to stimulate competition. Competition is presumed to drive efficiency. In a market like ours, the retail side of it is not yet competitive, because distributors have the monopoly. The way to stimulate competition is through regulation. This tariff is going to come with what we call a service level agreement. It is what triggers or tells you whether the tariff should be continued. If we approve a tariff for you, there is a quarterly review of your key performance indicators. We will specify, for example, how many meters you are going to roll out in the quarter. If you do not roll out the meters and you do not perform to a certain level, it may trigger a reduction of that tariff. As regulators, we are not going to sleep at the switchboard. We are going to monitor their behaviour and ensure that through regulatory intervention, they perform as expected. The tariff is not going to facilitate inefficiency.
What is the projected generation and distribution target for 2016?
We expect that by the first quarter, which the vice president has addressed himself, we would have removed all the bottlenecks and crossed the 6,000 mark. So we should be expecting to generate 6,000mw. We should be thinking of generating and transmitting that amount and distributing it. Hopefully, if we deal with some of these issues, we can start the year somewhere close to 5,000mw. Right now, we are doing 4,700mw. We have done 4,800mw so the next 200mw is just around the corner. But we could do exceedingly more than the 6,000mw if gas goes to the NIPP and if they are able to repair their broken-down towers and transmission network.
For the long-term target of 40,000mw, how much investment is needed and are any of the existing companies showing the potential to raise such funds?
They can raise the funds. If you are going to borrow money, they want to see bankability and it is basically on projected revenue. That revenue is underpinned by a tariff framework. With the new tariff and with the government improving the environment for business with the increase in gas supply, a bigger transmission network and service availability, these components can raise the funds. If you think about it, the mathematics of power supply in Nigeria is good. We are talking about 170million people with only 4,000 to 5,000mw every day. That tells you a story of great opportunity for investment. They have seen some evidence of policy consistency and stability. They now want to see the components, a good balance sheet and art of recovery not just in tariffs, but also in actual collection. That is why we are working hard to ensure that the debt overhang owed by ministries and agencies of government is paid. Then we can develop a culture of the prompt payment of bills. That will stimulate confidence in the balance sheet of the companies and they can access more financing to improve the network.
A major complaint of the generating and distributing companies is that they were not permitted to perform proper due diligence on the assets. They signed the contracts under duress, if you like. Is that correct?
It was not necessarily under duress. But essentially, they did not have a stable environment for proper due diligence. That is correct, because the electricity workers unions were up in arms against the takeover. So they could rightly say that the desirable level of due diligence was not conducted. But they didn’t sign off under duress. They wanted to take over quickly and government facilitated that, so that they could start taking care of the issues.
There is still concern that if a gas master plan exists at all, it is at best ad hoc. Can we seriously expect any improvement in investment in the sector in 2016 or any time soon without a gas master plan?
Well, there is a gas master plan, but essentially, how robust is it? For us in power, I think the gas master plan is good enough for what we need now. What we need really is to deal with the governance issue around gas supply in Nigeria. The policy and regulatory framework for gas, the PIB, perhaps is dead. It needs to be revitalised. Beyond the PIB, there is the need to rethink the governance architecture of the oil and gas sector. For us in power, we want clarity on the role of the Nigeria Gas Company. The intermediary agencies are creating distortions in the policy framework and architecture of gas supply. So I think there is the need to look at the governance of the gas arrangement for power, within the context of tweaking the gas master plan. For us, if we are not going to have a single regulator, as we most likely may not have for gas and power as they have in the UK and other places, then there should be a strong regulator of gas transportation. There should be a strong policy on gas transportation. What matters to us is gas and gas transportation, not the commercial value chain of gas like LNG and supply to industries, which is profitable for the NNPC and the country, but not really relevant to electricity supply.
What are the three biggest worries as a regulator in the New Year?
First, the biggest worry is how customers will react to the tariff increase. The problem of tariff increase is serious. How do you ask customers to pay more for what they are receiving less of? If customers can be made to understand the reason why not just the tariff, but also the payment of bills is critical to improvement of service, that would be a big relief. The first problem in 2016 will be the push against tariff increase. The second big problem for power generation is closure on the past. How do we bring closure to the issue of privatisation? You can see several probes. My view about these so-called probes is that at best, they are ill defined. Take, for example, the probe of NERC. An honourable member was going to the National Assembly, bought Daily Trust and saw the headline ‘NERC board approves N2.7bn’. He walked straight into the National Assembly and then proposed a motion. That was not the way to go. What that honourable member should have done was what the president did, for example, when he heard the story. He called the secretary to the government and asked whether that was how it was. The secretary to the government called the permanent secretary and the permanent secretary called NERC. We gave a report and they are working on it. So what the honourable member should have done was to go back to his chambers, consult with his legislative aides and maybe make a request for documents to go through. All these kneejerk probes are baseless, if you ask me. A proper probe starts with an in-house audit. You start a probe before you see the documents, without having any idea about things? I have worked as a special adviser in the National Assembly, to the Senate President. I have also seen how it is done elsewhere. You do the work, staffers do the work and they review things. If there is nothing to probe, sometimes all you need is a change of policy. Sometimes what you need is a better framework. But the whole thing turns into probes. All the intricacies around it deny us the opportunity to focus on critical areas to drive change. So one of the big issues for 2016 will be how quickly we can close down the past and get over the itch to sensationalise and scandalise, and then understand that the past wasn’t perfect. But there are things we can pick out and change the dynamics. Take, for example, project management. We can do lot of good with the NIPP, TCN and other projects with greater discipline, zero corruption, better procurement and now we have zero budgeting. That is a really good idea for transmission projects. It means you will be looking at project-based budgeting. If government identifies a project and they say we’ll fund it 100% and the project comes alive, you will have capacity that is not constrained. In the past, it was not like that. There is lots of room for improvement. Thirdly, I think the real game changer for 2016 will be project management, in terms of both the private sector and the government. Are we going to see power plants that are about to take off commissioned quickly? Will we see improvement in gas supply?
There's been a mesh of suggestions about which sources to harvest power from to make up the heavy shortfall in supply. The Vice President recently signed a contract with a solar company in the UK. Is solar energy the direction we should be looking towards, considering the high cost of delivery and limited use?
I think we have no option other than to keep our eye on solar. Solar could be a blessing in disguise. One of the things we have learnt with innovations is that late starters in technology, like Nigeria, usually have the advantage of leapfrogging. We see massive improvement in the technology of solar. Today, technology and innovations in solar have created the option of people storing power. Solar energy’s weakness was the lack of storage. We have seen technology in Japan where they are building big batteries that can perhaps store 300, 500, 1000mw of electricity. We are a country with strong radiation, so we should be a solar energy country. We have seen work being done in Rwanda, creating large solar plants. Here at NERC we have licensed several solar project developers. We have finished work and published feeding tariffs for renewables, which brings contractual discipline and procurement certainty to solar business, to renewables. The key issue here is recognising that in the short term, solar comes with a high price in terms of tariff. And solar is still not ‘there’ as a base, like gas, coal or nuclear power. So it will be more or less supplementary for communities that are off-grid or for communities that are in clusters. The mechanism for pricing to enable discount of costs - maybe free land, physical support for solar developers – will further reduce the cost. I see the prospects of solar and other renewables as very strong in Nigeria, especially within IT. Do not forget what we did with telecommunications. We moved straight from no lines to mobile. We did not have to build lines. I can see the future of electricity generation, so we can move quickly from low capacity to becoming a solar country where individuals have 5mw on their roof and will sell back to the grid.
Recently power supply dropped as a result of maintenance work at Egbin and also a fault in one of the units. When will the country get to the point of planned maintenance?
We actually require all the companies to send in their maintenance plans, which means we schedule them so that we create support for you to provide alternatives. That leads also to scaled outages for customers. If you know you will be out, we expect less power supply and we prepare. Maybe, also due to poor project management, we need to develop the capacity to thoroughly manage the licensees too, so that they can follow their plans. Oftentimes, there are slippages. They don’t plan well and sometimes, there are ‘acts of God’ - unexpected developments.
Babatunde Fashola is combining Power with two other key ministries. There have been concerns that this might affect his efficiency. Do you think the concerns are valid?
I have a different view. The minister’s work is policy. It is not building houses, carrying about wood or pliers or climbing towers. Many countries have a Ministry of Infrastructure. In fact, maybe we are following the Japanese example. For many years when the Koreans were trying to invest in export, it was their foreign policy and external trade. So it was like their focus. Positioning one man to run power, roads and housing might be a blessing in disguise. There are three permanent secretaries already working there. He has managed a state. Think about it; running Lagos is no less challenging than running those three ministries together. If he is the person I think he is and can delegate, really, all he needs to do is define things. Think about the sector; NERC is independent and Fashola is not going to tell DisCos what to do, but he will be speaking with NERC and reading our process and seeing where we need to be primed for optimal outcome. As a leader, his job is to go through our process, have conversations and pick out what is not working. He will give what should work and then develop a framework to see it through. If he sets a target and sees we are not performing, he will step into the game. So I think he can do it. I think it needs a high level of intelligence. It is not a job for dummies. He has worked for people who have bigger bandwidth.
A number of the distribution companies claim to be running at a loss. Is that how you see it and does NERC have the authority to carry out yearly financial audits?
We do. If they are running at a loss, that means they are not recovering all their investment. It is expected. In the power business, you may run at a loss for some time. That is why the most important thing is to recover investment within a period. We do regular spot checks. Some of them are scheduled annually; they have to submit their reports to us. We know the investment they make, we know their finances. We monitor them. That is why we can design some intervention to assist them. That is where the idea of N3bn comes in. That is why we are working on N2.13bn and why we are working on other initiatives to support them.
There are discrepancies between the amount of power generated and what is actually transmitted. Who is to blame for this?
It is called losses. It is the weakness of the network. All over the world there are losses, it’s just that the losses in underdeveloped markets like ours, weakness of the network, poor lines, long distances over which power is carried all contribute. For example, you are taking power from generating plants in the South. Our generating plants are in the South, primarily the South-South and Southwest and our load base is the other way. That means having to carry power over long distances. Losses are inevitable. But there are commercial losses. People are not paying. People are bypassing. For some DisCos, half of the customers do not pay. At the beginning, they had to change management and re-train and other things. They are moving to a level where they will reduce it to 20%. They are losses that were already there and not of their own making. NERC’s position is not to reward them for losses that they cause, but we should allow them recoup losses that are systemic and that they met.
There are also constant disagreements between the government and Manitoba Hydro, the company that manages the Transmission Company of Nigeria. Are you interfering in its operations?
No we are not. TCN is a regulated entity. They are our licensee. Manitoba is just a management contractor. They have a contract that is clear. We focus on the key performance indicators required of the transmission company. That is what we think about. We make sure that they deliver on the commitments on their license. That was the agreement. As long as the TCN is working in line with the law, we have no problem. Government is at liberty to hire a management consultant. For us, we have what we call guidelines on a fit and proper person. It provides for who is fit to manage a network. If Manitoba is going to send an engineer as CEO or executive director for operations, NERC will insist that the person is someone who has the competence, who is qualified and skilled enough to run the network. We do not care whether he is from Manitoba or elsewhere. The owner of the entity is the government of Nigeria and has the right to hire whomever it wants as managers, as long as they pass the technical and experience test.
Are there plans to privatise the Transmission Company of Nigeria?
There are many options available to the new government. The act says it will be owned by government and at a stage, NERC will create conditions for the unbundling of the TCN into independent operators and transmission service providers. We are working on that. With a new minister, I think that in the months ahead there will be better conversation. But we shouldn’t privatise or concession in a hurry. We should study all the implications. Transmission is a bit tricky. It is a highway. There are many examples all over the world. We see examples in America where you have ISOs, independent operators. We have seen the problems and the pluses. We have seen the model. The issue is whether we need to have a privatised and unbundled network when we are dealing with only 4000 or 5000mw of power. So I think it is also a case of where you want to invest your energy and resources. Should you bother about privatising or building a strong and efficient network first? Sometimes in policymaking, you get attracted by the niceties, the flashy things about models, rather than looking at whether they make significant additions, considering the downsides. These are conversations we need to have with the new minister in the days and months ahead.
What is the average cost of generating electricity in the world and what is the difference between what a consumer in Nigeria and what a consumer in South Africa pays? Are Nigerians paying too much?
Before we did the last tariff review, we were one of the lowest tariff paying countries in the world. Today, we are in the middle in Africa, not even at the top. So we are not paying more at all. Our generation tariff is about N10. If you compare that with the dollar, it means we are doing well. We are not outliers at all. Retail tariff, the unit for distribution companies for now is about N14.50 per kilowatt-hour in Abuja. If you compare that with the average globally, it is not high at all. It is probably at middle level. I think there is room for improvement. We are actually at the bottom and moving towards the middle. With the new increase proposed, maybe we will be somewhere in the middle and tending towards the high side. Our neighbours pay more than we do, in Niger and all those areas.
Do you consider the power sector reform a success and why?
I think it a success for two reasons. We have successfully created a new architecture, a new framework. We have not yet supplied power to all Nigerian homes. We have institutionalised a model that has capacity for geometrical increase in generation in the years ahead. Today we might not be doing 6,000mw, but I can assure you that, and with the way the new government is also working on this, in the years to come, we’ll be doubling or adding 3,000 or 4,000mw of new power every year. That is success. It is not today, it is in the future. So the model has been built and the framework is good. We have seen small improvements. Before the reform, there was not a single kobo of private sector investment in this country, whether from institutional investors or private equities or individuals. It was all government. Today, we have seen amounts of foreign investment, local investment and we have over 134 IPPs. If we push them to financial closure and construction, we’ll be talking about having over 40,000mw available. For the past five decades, we couldn’t grow up to 9,000mw. If you look at it from that perspective the reform is a success, but a lot more can be done to begin to cash out value in the short term.
It recently came to light that the management of NERC awarded itself an exorbitant N2.7bn severance package. Is this in line with recommendations of the Revenue Mobilisation Allocation and Fiscal Commission for public officers?
First, there was no N2.7bn. It is fictitious, because the commissioners made it very clear that N2bn is actually reasonable provision for all staff pensions, based on the new pension act that requires you to provide a sinking fund for those contingencies. So it went through due process and valuation established that amount as required, to fund eventualities. That was an entirely false story. On the issue of Revenue Mobilisation, if you look at it very well, it has a mandate to provide for severance for certain named public officers. The pension act reform says any organisation can, in addition to its pension contributions, provide other gratuities or severance packages for its employees, according to its revenue base. That is what covers severance across the public service of Nigeria. Everything we did was in line with the law and is applicable in similar agencies across the country. Once in a while, you expect an error by a newspaper house. It was a baseless report. The facts could have easily been gotten, but we have gone beyond that. There is no N2.7bn for NERC commissioners.
The lack of transparency is creating the impression that you are doing something wrong.
You are right. We were the first to sign up to the FoI Bill. By the way, the reporter that covered the story called me at night, 8pm. I told him to come over in the morning and get data and he said that was a good idea. He called again about one hour later to say that his boss had asked him to go ahead with the story. The best you can do is to make data available. You cannot force anybody to look at the data and change their bias.