‘Nigeria Can’t Tackle Liquidity Crisis In Power Sector Without Cost Reflective Tariff’


Mallam Abdul- Azeez Abdullahi, Head of Corporate Communication,Kaduna Electricity Distribution Company, in this Interview with MOHAMMED SHOSANYA, spoke on  the issues in the nation’s power sector, his company’s performance and expansion drive in the future. Excerpts:

Five years after privatisation of Nigeria’s power sector, how would you describe the journey so far?

It has been very hectic, challenging and exciting. Since we took over in 2014, we have had to do a restart of our operations starting with an ‘As Is’ study to determine the true state of our network and infrastructure and also conduct an ATC&C loss study to find out the exact loss levels of the company.

These were painstaking exercises that had to be done so that we can focus on the future with a certain level of assurance.

The task then for us was to blend the few old staff we retained and the new that was brought in. We also have had to deal with the challenge of re-orientating customers to see electricity as a commodity and begin to pay their bills regularly.

Sadly many still see it as a social service hence are reluctant to pay. This of course is detrimental to us and  the entire value chain.       

Nigerians are worried that electricity discos got government intervention fund despite failure to guarantee uninterrupted power supply. What is your take on the development?

The CBN intervention in 2015 was meant to augment the shortfall in tariff which the discos were suffering.

As you know we still do not have a cost reflective tariff so in order to cushion the effect of that on our operations, government gave that intervention through the CBN which was in fact a loan not a freebie.

The idea that government gives intervention to discos is actually erroneous as there have no such free money given to discos by the government since privatization.    

There are worries by some investors that the nation’s power sector would collapse if the current tariff reversal is sustained.

Why are the Discos contemplating on tariff hike when they ought to have done due diligence on the asset and the structure of the nation’s economy before acquiring same?

With regards to tariff, I believe every right thinking person recognises that no business can survive when the cost of producing its product is far higher the price it sells it. You cannot produce a product at say N100 and sell it for N60 and expect to be in business for long. That is the situation we are facing and I think even the Federal Government recognises that as both the vice president and minister of power have made pronouncements to that effect in the past.

The challenge for the government I think has always been how to pass the burden on the masses without any political consequence. But that does not mean we should close our eyes to the harsh reality that this business is not sustainable with the current tariff regime in place. If this is not addressed, we will continue to grapple with the liquidity issue bedevilling the sector at the moment. 

What is your position on the capital expenditure benchmark of N50billion set for power distribution companies by NERC?

It does not help the business particularly in this current situation where customers are not paying their bills as they should. Our operations are diverse and costly. If you take metering for example, every customer yearns for a meter and discos have come under a lot of criticism for not metering customers but no one cares to ask what the cost of metering is.

When we procured about 50,000 meters in 2016, it cost us N25 billion which is half of the set benchmark. We have to also undertake other capital projects like network expansion and upgrade invest in ICT, buy operational vehicles and equipment.

All these cost a lot and cannot be fully financed under the capped amount.

It will interest you to know that even the benchmark was arrived at based on certain parameters which include a cost reflective tariff being in place with the assumption also that discos can be able to improve their collection efficiencies significantly.    

How do you see the current drive by government to increase power generation through solar and nuclear power projects?

I would say it is a welcome development. We need all energy sources to be harnessed so that we can have electricity sufficient for our needs as a nation.

It is sad that a nation of nearly 200 million people is grappling with just about 4,000 MW when countries like South Africa, Egypt are doing nearly 20,000 to 40,000 MW.

To what extent has the current foreign exchange scarcity affected your operation and what have you done to mitigate its impacts?

Our business relies a lot on forex particularly when we need to purchase meters from abroad, so the scarcity is indeed a bottleneck. Remember also that generation companies pay for gas they buy in dollars and any fluctuations in price of the dollar or its availability is transferred to us when NBET invoices us for electricity supplied to us. When the Federal Government banned some sectors from accessing forex at CBN , we were shocked at the start when the power sector was not included in the list of those to be given access to it by CBN, it took some lobbying before that was done which is a relief. 

How far about your metering projects?. How many customers have you metered since the new management took over and many do you intend to meter on the long run?

Despite the challenges with cost of metering, we have done our utmost to meet our obligations to our customers.

We have a metering plan which we have started implementing and are trying to adhere to. But like I said earlier metering is very expensive and with the liquidity crisis in the industry as a whole it is difficult to put a timeline to when or how many customers we shall meter in the future.

Like you know, the Federal Government also recognises this challenge that is why it has come up with the meter asset provider regulation where independent meter providers will be licenced by the federal government to provide meters to customers after signing agreements with discos.

However, provision of meters is not going to solve the problem so long as customers do not change their attitude of tampering and bypassing meters. Once this attitude continues the metering exercise becomes a waste and does not achieve its objective.

It would interest you that not long after we metered customers we found out that many of those meters have been tampered with or bypassed.

So, customers who are calling for meters have to understand that it comes with a responsibility on their part to ensure they allow the meter function as they should.

What’s your company’s degree of patronage of local meter manufacturers?

We have a good relationship with local manufacturers. Just before the Meter Asset Provider was announced, we had signed MoUs with five local manufacturers including Mojec, EMCON, and others for the provision of meters. We see them as partners in progress and shall continue to work with them.

How much are you currently being owed by customers?. Who are your huge debtors?. Are you contemplating mass disconnection in order to get them to pay their debts?

We are exposed to the tune of nearly N80 billion with the bulk of it being from post-paid non MD customers. Due to this high exposure we are left with no choice but routinely embark on disconnection exercise to compel customers to pay up. We regularly hold engagement sessions with community leaders to impress it on their residents to rethink their attitude towards payment of electricity bills but there isn’t much success. 

Tell us the secret of your company’s crusade against cable vandals in recent years. How many vandals have you prosecuted and what do you think should be done to nip the practice in the bud?

This is really one area that is negatively affecting our operations and costing us a lot of money.

We have been doing our best to educate customers on the effects of this sabotage and the need for them to collaborate with us in apprehending these criminals.

While we have recorded success with some communities who have helped in arresting some vandals, they challenge is still there.

We have had successes prosecuting many who have gotten prison sentences and fines but a lot more can be done. Earlier this year, we held a workshop for judges, magistrates and prosecutors to enlighten them on the harm that vandals do to society and the need for them to be given harsher sentences to serve as deterrent to others.

We are glad the Federal Government through NERC has proposed a bill to NASS for jail term of up to seven years to vandals and energy thieves, this is a step in the right direction.    

What is the place of corporate governance in your operation?

Our board and management take this seriously and have undergone trainings on how to effective implement it.

We have enabling processes and procedure guiding our operations and abide strictly with procurement guidelines and keep our obligations in terms of the necessary remittances to appropriate bodies.

What are your Corporate Social Responsibility programmes and what impacts have they had on your customers and the company?

Funding for CSR is usually gotten from a percentage of a company’s profit. However because we are not in a position where we can set aside such an amount, we have devised cost effective CSR interventions which are helping us connect positively with our customers.

We have made donations of relief materials to IDPs, orphanages and hospitals. We have also conducted mentorship programs for tertiary institutions and set up energy clubs in secondary schools. We also donated furniture to schools among others.   

What are the projections of your company in the next few years?

We are looking to the future with excitement as we first of all hoping to conclude our enumeration exercise early next year so that we can know the exact customer count we have.

We have made strides in ICT by created several Apps which will revolutionize the way we work. These apps include, bills distribution app, meter reading app, enumeration app

All these will fully come to effect soon and we will begin to reap the benefits. We are  investing in our people by giving them the necessary training and developing their skills to meet the challenges of the future.

Authored By: Mohammed Sosanya



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