Nnaji: Why DisCos Failed to Provide Adequate, Stable Electricity Supply to Nigerians after Privatisation

Chinedu Eze

The Chairman and Founder of Geometric Power and former Minister of Power, Professor Barth Nnaji, has identified a combination of severe infrastructure deficits, massive revenue collection losses, liquidity crises, and systemic bottlenecks across the entire power value chain as the factors responsible for the failure of the Electricity Distribution Companies (DISCOS) to deliver stable electricity to meet the expectations of Nigerians after the privatisation of the power sector in 2013.

Delivering a keynote speech during the Business Forum 3.0 organised by the Club in Lagos at the weekend, Nnaji cited the government’s refusal to allow the power companies to operate cost-reflective tariffs as the main reason the companies have been unable to actualise the goal of providing adequate and stable electricity supply.

He said many investors invested in the power distribution companies during the 2012-2013 privatisation based on the government’s promise to allow cost-reflective tariffs, but the government reneged on this promise, leading to the current epileptic power supply 13 years after the privatisation exercise.

“I can tell you because, well, during privatisation, I went to the President (then President Goodluck Jonathan) and I told him that no investor will come to Nigeria to invest unless we do something about tariffs. Many of us may not remember that the tariff before June of 2012 was N6 per kilowatt hour,” he said.

“So, a levelised cost-reflective tariff was introduced and raised the tariff from N6 to N22 for certain categories of Nigerians, while the poor retained N6 and the rural dwellers were given N4 per kilowatt-hour.

“But we did one thing that helped us. We recognised that the vast majority of people who take power actually are small off-takers of power. The urban poor and rural dwellers, and the amount of power they were taking, was small in comparison to the rest – the middle class, the upper middle class, the industries. So, we said, ‘Okay, we are going to lift for those people who can afford to pay N22 and reduce the urban poor and rural dwellers from 6N to N4.”

Nnaji said that after this, the problem remained unsolved because even the new tariffs were not cost-reflective.

He disclosed that many investors came from different parts of the world to bid for Nigerian power assets, but the absence of a cost-reflective tariff became a disincentive to investment.

Nnaji emphasised that if the government would not approve a cost-reflective tariff, it must be prepared to pay for power subsidies for the DisCos to run efficiently.

“As we know, payment for subsidies is a difficult journey undertaken by the government. Government power subsidies are worse than fuel subsidies—for example, a subsidy of merely N50, just N50 per kilowatt hour for just 5,000 megawatts.

“Remember, we have installed a capacity of 13,000 megawatts, but we can put about 5,000MW on the grid. So, let me use that 5,000 MW. So, N50 subsidy for 5,000 megawatts in a month is about N180 billion.

“In one year, it is N2.16 trillion, just N50. So, you can imagine having to subsidize 10,000 megawatts, or if we get there, 20,000 megawatts. And this is why the debt owed to Genco is over N7 trillion today,” Nnaji explained.

He noted that electric power plant costs were massive, disclosing that it costs more than $1.5 million to install one megawatt of a power plant.

“Almost everything we use in power plants – distribution and transmission networks – mostly everything is imported. This means high cost, given the Naira exchange rate to the dollar, pound or euro. It costs Aba Power, the Geometric Power Distribution subsidiary, about N50 billion to provide over 96 per cent of our customers in the ring fence network with smart meters, because we found out in Aba Power, this is very important,” Nnaji added.

The former minister said the bankability of DisCos was key to the success of the power business because investors would be attracted when such investment was run efficiently and profitably.

“There are two other impediments to sustainable power supply. The government’s risk guarantee has not been provided. The suspension of the partial risk guarantee instrument in 2015 has made it impossible for investors to invest in national grid power. There was only one power plant built with a partial risk guarantee, and that is the Azure Power in Edo State

“What happened is that when the government of 2015 came, they looked at how much money you have to pay per month for grid power from Azure. They said, ‘No, we cannot continue like this’. But actually, that is what the electricity business is about.

“I can tell you that since 2015, not one single power plant except what we have there, the Aba project, has been added to the grid. This country continues to grow in population, and we desire the businesses to grow. But there is no investment in new power plants, none. For 11 years, no new power plant has been built. And that is because that partial risk guarantee has been wiped off,” he said.

The former minister also said ExxonMobil wanted to build 500 megawatts and Century Power also built 500 megawatts, but the projects were suspended because of the lack of a partial risk guarantee.