Thisday ‘Regulation Requires Strategy and Communication’ 28 Jan 2014 Dr. Sam Amadi, Chairman, Nigerian Electricity Regulatory Commission (NERC) while highlighting the major challenge for a private sector electricity market explains how to ensure a balance between commitment to financial viability for the operators and quality of service for consumers To what extent did the NERC participate in the privatization of PHCN over which a few still have questions with regard to its transparency? The main agency for privatization is the BPE, under the supervision of the National Council for Privatization (NCP). NERC is a regulator and our mandate goes beyond ownership of the asset. Yes, we were involved in the privatization to the extent that we helped to review documents, conduct asset evaluation and provided technical support. But it is NERC that signs off on the big decisions. Having said that, I believe that the process was credible to the extent that the rules of engagement earlier proposed by the BPE were largely followed. From NERC’s observatory, it is the best shot we have had at privatization. On a personal note, before I took this job I wrote a book critiquing privatization exercises in Nigeria. I was perhaps, one of the few legal scholars of privatization. This present exercise somehow avoided some of the errors I mentioned in my book. Yet, it was not perfect. What are your major challenges as the regulator of an industry that has just transmitted from a government to a privately run utility? The work of regulation does not differ much in spite of the nature of the ownership of the assets. The electricity industry in Nigeria is a regulated industry and the EPSR Act 2005 and the various regulations NERC has issued out stipulate entry and exit from the market, defines rights and obligations of all stakeholders, including private operators and set out quality of service which NERC enforces. The major challenge for a private sector electricity market is how to ensure a balance between commitment to financial viability for the operators and quality of service for consumers. Regulation is seeking the reasonable and pragmatic balance between competing ends or values. The bottom line for private operators is to recover their costs of business and also get a healthy return on investment. The consumer wants to have quality service at affordable prices. In real life, these ends may be in tension. The challenge is to manage these expectations during transition. It is a work of strategy and communication. The regulator must ensure this balance. Would you say there was adequate preparation for this privatization? It depends on what you are looking at. The decision to privatize is always a political decision. Once made the rest is mechanics. The decision was made since 2001. Since 2001 BPE acting under the instruction of the NPC had been laying out the framework of the privatization. So, I would say there was ample time to plan the process. But any student of privatization will tell you that you can never be sure that everything is fine. Professor Stiglitz, the Nobel Laureate put it nicely, privatization is rarely done well. I think we have tried and the outcome is satisfactory. This is a good effort judged by the outcomes. Since the takeover, there has been a drastic drop in power supply. Some have said that Nigeria move from low supply to zero supply. The drop in supply condition is not a product of the handover. We should always remember that we are dealing with structural problems that are not solved simply because you sold the network to private firms. The problem of supply shortage relates to many issues. One of them is the lack of adequate supply of gas to power plants. The problem of gas supply is structural. It has to do with the low commerciality of gas to power. The problem is being addressed and would not just go away because new owners are on the block. I sympathize with Nigerians on the poor quality of service. But really, we have made progress in overcoming these structural constraints. Unfortunately, the results are not always instantaneous Our investigations show that the DISCOS receive nearly one third less power since they took over in November owing to near collapse of the Grid. What is NERC doing about this? We don’t have enough gas going to the power plants, the generation level is not as desired, at least it has fallen from the high point of 4,500mws from December 2012. If we don’t have enough gas the power plants will produce less power. This means there will be less power to be sent to DISCOs. The perennial problem of shortage of generation is what NERC seeks to address by establishing a regulatory framework that continuously incentivizes investment in generation. The good news is that soon we will exit this acute shortage and have enough power for the DISCOs to trade. But first, we start with fixing the gas problem. Since both generation and distribution have been privatised, is it not a setback that transmission is still in the hands of government with all the draw backs associated with this? Transmission is a highway. It is the quintessential public good. The sunk costs involved in creating and managing the transmission network is that none of the private firms engaged in generation and distribution will have sufficient incentive to make those investments. This is why it is a public good. Now, it does not mean that the private sector cannot be involved in transmission business, they can. It depends on the model of transmission services operative. We have a TCN that includes both the networks and the system operations. In the future we can unbundle the transmission such that whilst a government owned company build and maintain the highway, an independent non-profit may become the System Operators. So, what we have today does not undermine the reform. How will you support the DISCOS to collect monies from Ministries, Departments and Agencies who are some of the most notorious defaulters in terms of payment for electricity consumed? All consumers of electricity are obligated to pay for services they receive from the DISCOs. The idea of privatizing the DISCOs is to reduce losses (including collection losses) and make the network efficient. The message to all public institutions is that if they fail to pay for services they receive, they will be disconnected after due process. There are no more sacred cows. This is a new electricity market based on payment of bills for services received. Should the former employees of PHCN go ahead with their threat to cripple electricity installations around the country, how prepared is your Commission to deal with the problem? There is no reason for anyone to attempt to cripple electricity supply in Nigeria in the midst of the reform. I am a labour and worker enthusiast. I believe that the present reform has catered sufficiently to the interests and welfare of electricity workers. They should not abuse the compassion of President Jonathan. Whatever problems remain about payment of entitlement can be resolved without resort to strikes and disruption. Comrade Ajaero is a patriot. He understands that. How does NERC intend to handle the issues of technical losses and bad transmission lines? Privatization was based on the commitment to reduce losses. The firms were selected because of the commitment and demonstrable ability to reduce the losses in the network and make the NESI efficient and competitive. NERC will hold the utilities to their business plans and ensure they comply with the KPIs in the industry. Transmission is a service that has been priced in the MYTO. We expect efficiency in that sector too. We will continue to monitor the performance of the TCN in line with its license terms. When will the lights stay on without a blink in Nigeria? Smaller and less endowed countries have it! Soon .The lights will be stable. Till then a lot of work has to be done to create a stable and reliable electricity industry. I believe we are moving in the right direction.
Posted on: Tue, 28 Jan 2014 10:08:13 +0000
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