As part of efforts to improve power sector delivery by way of creative thinking that proffer economic value creating solutions to stakeholders, the Nigeria office of the PricewaterhouseCoopers (PwC) organises an annual round table.
The 2017 edition as usual saw all the key players in the industry participating and speaking extensively on the way forward. It is however disappointing that few months after this brilliant minds that control the sector has identified the challenges proffered realistic solutions they have in recent times continued to engage in media war over the same issues they have tackled at the conference. This action, though open to various interpretations suggest that something must be very wrong with the system we operate. Hence the need to bring to the public what was discussed at the conference.
The PwC Point Of View
The report on the round table obtained by LEADERSHIP, showed that the conference organizers noted with dismay that five years after the privatization of the sector, it has continued to evolve in search of stability and self- sustainability. But observed that there are indications that key stakeholders in the sector are interested in improving the sector’s performance stressing that the increasing levels of intervention from the government, regulators and global development finance agencies as well as rapidly evolving strategies from the private sector participants illustrates such intent.
Emphasis was however placed on coordinated collaboration which was said to be sometimes lacking. There is no doubt that such collective push without decision makers working across purposes has continued to be elusive. The submission therefore was that absolute need to collaborate and refocus conversations in the power sector on solutions rather than challenges has never been more necessary than we face today. This is even as the end users in the power value chain are said to have being expressing an increasing sense of desperation for a sustainable solution to their power challenges as the euphoria of the privatisation exercise dissipates.
Investing In Recovery
Participants at the round table agreed that power is the lifeblood of any economy’s industrialisation program, hence the success of Nigeria’s planned economic and growth recovery is substantially hinged on improvements within the power sector. It therefore imply that expansion of the generation and delivery capacity and capabilities of the power value chain is at the heart of the power investment thesis.
Drilling further, some key solutions to the challenge at hand was identified to include, the expansion of On-Grid generation capacity by improving gas supply to eliminate non-operational capacity, replacing obsolete equipment at power plants to restore unavailable capacity, investing in the development of new power plants as well as the expansion of existing plants. Adding that this must be supplemented by alternative less traditional solutions. Off-Grid Direct- to-Customer solutions and embedded generation initiatives are also key to establishing immediate stability in the sector.
Need For Diversification Of Energy Mix
Experts have continued to raise questions on the rationale behind the power delivery mix in the country without taking into cognizance the challenges of loses incurred while transporting the product over long distances such as the case in Nigeria. The point was seriously highlighted at the conference as it was submitted that delivering energy indiscriminately through the value chain without a conscious plan around optimising energy mix and geographic coverage will create challenges of over-reliance on one fuel source and an unfairly skewed power delivery map. As such, diversification needs to be focused by enhancing the development of renewable energy alongside the gas-to- power program. Likewise, creative solar solutions which ensure rural communities feel the immediate impact of the power recovery program are also key for an enhanced standard of living for all Nigerians.
Substantially increasing the quantity of power generated and put onto the grid will result in massive system failures. As such investing in power cannot be contrived to mean only investing in power generation. It is imperative that the transmission and distribution capabilities within the power value chain are substantially enhanced. This means replacement and reinforcement of network assets as well as enhancement of people, processes & systems in transmission and distribution are an integral part of the solution. The considerable investment and enhancement initiatives articulated above does not only deliver value to power end users, but also to generating, transmission and distribution companies. Similar to the post privatisation growth in the meter manufacturing industry, Local industries adjacent to power will be created as a result of these activities.
Funding The Recovery
According to the conference participants, five years after the privatisation, financing has proven to be the leading enabler of sector stability that the sector stakeholders have not been able to come to terms with. Emphasis was placed on fact that the future of the sector only be secured when the power sector financing story is built around three key themes to attract the required funding partners to the table.
Firstly, existing power must be effectively monetised through the value chain. In essence, power generated and delivered through the value chain must be recovered at full monetary value. This requires the elimination of substantial cash revenue leakages across the entire value chain as a result of technical, commercial and collection losses as well as rebasing tariffs to reflect the full cost basis of delivering power. These solutions require discipline and resolve from both the sector players as well as the community it serves.
Secondly, historical financial obligations from sector deficits have to be restructured with a clear path towards resolution or elimination. New financing ought not to be encumbered by old obligations which will limit the value creation impact of funding new development programmes.
Thirdly, accessing new finance from existing and new funding sources must be tied to very clear development initiatives in the core value chain. Financing must be effectively structured around pricing, tenor and flexibility to enable required investments but also manage the risks of the financier. Financing strategy must be seamlessly married to business strategy, else the transaction will fail to close or the funding recipient will eventually default. There is absolutely no silver bullet for solving the financing equation. Professionally structured fit- for-purpose transactions with proper diligence of risk and reward are the way forward.
Implementing & Monitoring the Recovery
In the opinion of PwC, the power sector recovery will be driven by a complex web of interconnected initiatives and stakeholders. The failure of one initiative or stakeholder to deliver on its mandate will have far reaching impacts on the entire recovery programme. As such, it is imperative that all stakeholders and initiatives are well aligned, coordinated and managed. The success of any programme is significantly dependent on the strength and capability of the stakeholders who own and drive the initiative.
Given the nature of the power sector, with a multitude of stakeholders, it is imperative that there is clear ownership of the recovery programme by an individual or team with the requisite authority to act. Buy-in must be sought and obtained from all sector decision makers and stakeholders. There must be constant engagement between stakeholders to retain collective buy-in. It is on this basis that the key stakeholders will align, be monitored and measured in line with clearly articulated performance targets. Data analytics driven decision making must be at the core of the power industry. The sector will not achieve stability and sustainability as a whole if data isn’t consistently collected from all industry players, analysed and used to inform policy and decision making. All technical, operational, commercial, customer service and financial data need to be aggregated and effectively analysed on an asset and sector basis for the sector to improve its decision making and evolve.
The establishment and use of real-time or frequently updated data visualisation platforms by industry participants is a priority initiative for the sector. It was emphatically expressed that after five years of privatisation, the sector ought to have evolved to predictive data model which would help hedge against asset specific and sector wide challenges long before they occur. The conference noted that the journey to recovery is not a short one. Broader economic and market conditions will continue to evolve as the power sector embarks on its journey to stability. It is important that all stakeholders expect to encounter evolving dynamics and are flexible enough to adjust their strategies and targets to realign with sectoral and economic changes as they occur.
The Nigerian power sector will only witness the desired turnaround with careful and deliberate planning and implementation. Incentivising success and ensuring compliance amongst the large and diverse group of decision makers and stakeholders in power is paramount to a favorable outcome.
The Lagos State Perspective
Delivering his keynote address, Commissioner for Energy and Mineral Resources, Lagos State, Mr. Olawale Oluwo said the entire power sector value chain in Nigeria is plagued by challenges of infrastructure and funding, generation issues, gas supply infrastructure issues, evacuation, transmission and distribution, metering, administration of collected tariff, bad debt and enforcement, settlement dynamics, tariff determination and general lack of investment attraction.
He submitted that the Nigerian power sector is in a major crisis, stressing that it would have been expected that after privatisation there should be an increase in power, but that is yet to happen. He therefore argued that there is need to now work on a different path. “Based on my personal views, I believe the following restructuring have become inevitable: “Full privatisation of the Transmission Company of Nigeria (TCN); Complete privatisation of power plants nation-wide; Total divestment of government holdings in the generation and distribution companies through the Nigerian Stock Exchange; and Total privatisation of the restructured Nigeria Gas Company. “Others include the immediate implementation of the cost reflective tariff in major cities with customers who can afford the cost (Lagos, Port Harcourt, Kano, etc.).
This incremental revenue can help subsidize other states that are yet to bear the cost at this time; Focus should be on helping states as stand- alone or clusters to implement embedded power program; Foreign exchange is a bane in the power sector, and constitutes concerns for investors; and Creation of a window for the repatriation that will encompass the present and future windows in the Central Bank of Nigeria.” To stay above board, the Lagos State House of Assembly has worked on a bill that will ensure sufficient provision of electricity to industrial and residential consumers.
According to the Commissioner the Bill when it comes into operation will ensure that tariff will be cost reflective as the power program is off the national grid hence the Regulator will want to review the tariff charge.
An implementation committee, he said is being set up to come up with a tariff that will not constitute a burden to consumers. There will also be a Power Council made up of representatives of the power consumers including the NLC, TUC, NECA, NCCI, consumer associations and other Trade Groups who will focus on advocacy and protection of consumers’ interest, he explained. “With respect to power in Nigeria, I want to conclude that we will begin to find solution to the power problems in Nigeria if we focus on Lagos State as the best starting point. This will create a model and provide a workable and implementable plan that is sustainable.” According to him, “States that cannot afford the cost can then be subsidized by the Federal Government. Wrongly subsidising every power consumer in the country with the mindset that every Nigerian cannot afford power will limit investment into the sector, as well as ‘competition and supply’”.
Author: FESTUS OKOROMADU