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Power Supply: NERC’s Reversal Of Eligible Customer Regulation Sets Economic Growth Backwards

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By DAVID SAMSON, Abuja

One of the biggest threats to Nigeria being able to take a leading role and benefitting maximally from the African Continental Free Trade Area (AfCFTA) is the energy poverty crippling manufacturers and providers of goods and services which hinders economic growth.

Boasting the continent’s largest population, most immense diversity in mineral resources and abundant talent is constrained by the absence of power supply required to transform them into productive endeavors in terms of value and commodities that can be exchanged across the borders of the continent with competitive advantage.

Towards promoting improved power supply to industries and large power users, the Nigerian Electricity Regulatory Commission (NERC) rolled out the Eligible Customer Regulation (ECR) in November 2017.

With about 2,000 megawatts (MW) stranded power available from the Generation Companies (GenCos), the regulation provides that industrialists and large power users with capacity to consume two megawatts per hour and above, could become eligible customers for direct supply from generating companies.

Such customers could be connected to get their power needs directly from a GenCo if they are no longer satisfied with the quality of services from the Distribution Company (DisCo) serving them. The scrapping of the eligible customer regime depicts another policy summersault and regulatory inconsistencies in the power sector. It initially generated hiccups and was hotly litigated. It was initially introduced during the administration of Raji Fashola as the then super Minister of Power, Works and Housing. Few years later, the policy implementers and bureaucracies suddenly realized the policy was hurriedly implemented at the time they did and have now decided to back-off.

As one of the sector experts, it my considered view that this is another avoidable acrimonious policy distortion. Without doubt, one of the best policies promoted so far in the Nigerian Electricity Supply Industry (NESI) is the Eligible Customer Regulation 2017 (ECR).

Already there have been trials of this regulation by some willing buyers and willing sellers of electricity. According to the records of the Nigerian Electricity Market (NEM) for the year 2018, some operators of industries including members of the Manufacturers Association of Nigeria (MAN) had approached the Transmission Company of Nigeria (TCN) to enable it to transmit power to their facilities from GenCos based on the eligible customer regime.

To be specific, about ten companies have enjoyed this process of ECR so far, connecting their facilities directly to GenCos. This is seen as a turning point in the history of the Nigerian power sector and NERC deserves an accolade for initiating healthy competition in the business of power supply.

Power sector officials who are privy to the Eligible Customer Regulation progress say the policy has attracted huge investments in the power sector as new industries that are springing up now build 132kV and 33Kv network facilities (investments that the DisCos were not able to make to improve the quality of service to these customers) with the hope of connecting to power directly from a GenCo. It also provides opportunities for licensed generation companies with un-contracted capacity to access un-served and underserved customers and improve the financial liquidity of the electricity industry.

However, NERC, in what appears to be a setback for the sector, has issued a directive stopping TCN from recognising large power users who already had bilateral agreements with GenCos as Eligible Customers.
DisCos feared all maximum demand customers may leave their networks. This is despite the fact that there is a provision in the ECR that customers can compensate DisCos if there is evidence that DisCos are losing revenue due to the regulation. While the DisCos’ argument is that the EC regime encourages ‘cherry picking’ of their most viable customers, the fact remains that some of the customers are opting for EC/off-grid solutions due to poor DIsCo services and not a function of “cherry picking” as widely claimed.

NERC began the move to realise this in August 2020, when it held a consultation meeting where it declared that consumers leaving the network of the DisCos may have to pay the Competition Transition Charge (CTC) meant to sustain the operation of the DisCos who would be losing such large customers to the GenCos. According to the regulator, any affected DisCo will apply to NERC for approval to charge the potential Eligible Customer (EC) the CTC within 30 days.

The fact of the matter is that the DisCos are not totally excluded from the opportunities in the ECR as they can get customers who will opt to have dedicated power supply to them as an eligible customer, which is a win-win situation. In such a case, the DisCos will earn a Distribution Usage of Service (DUOS) charge from such customers with guarantee for its revenue monthly and improve its remittances in the electricity market which is currently around 30 percent.
This is the right way to go according to the ECR regulation.

However, some of the DISCOs have been unwilling to participate in negotiations bordering on compensation as regards customers leaving their network and as such are equally not leveraging on provisions of DUoS and CTC charges provided for by NERC to better their business fortunes.

All these notwithstanding, NERC had in a recent letter in July directed that TCN should redirect all eligible customers from their contracted GenCos and revert them to their respective DisCos.

According to the letter dated July 7, 2021, Port Harcourt Electricity Distribution Company (PHEDC) had written a letter to NERC in June complaining that a company left its network and was recognised as an eligible customer by TCN.
NERC in its reply to TCN, indicated that it had reviewed the complaint and found that it was against the provision of the ECR.

NERC therefore mandated the GenCos ready to enter into an eligible agreement to provide evidence that they have capacity more than what they had contracted with the Nigerian Bulk Electricity Trading Plc (NBET) as grid supply. They must also have an executed bilateral agreement with a DisCo for the construction of a distribution system (DUOS) to supply the customer where applicable.

While NERC said TCN should revert the billing of such customers already with a bilateral agreement with GenCos to the DisCos, it also indicated that the customers must complete the eligibility process at its office. As a consequence, TCN in a letter dated August 3, 2021 to all the Eligible Customers, notified that the companies will have their power connection terminated immediately.
Rather than go back to the being at the mercy of uncertain power supply from some DisCos, many of these maximum demand customers will prefer to migrate to self-generation/gas companies like Greenville resulting in loss of revenue to the entire NESI. There are already several cases that highlight this in Kano, Sokoto, Maiduguri and Lagos.

Interestingly, while Nigeria would appear unwittingly to be halting a process that could hasten more power supply to industries to increase production that would stimulate growth at a time when inflation is at a peak, Ghana is already considering this option to boost its power sector liquidity. The Ghana Grid Company (GridCo), the power distributor is attempting to sell power directly to industry (at a cheaper tariff) in order to cover debts owed it by the Electricity Company of Ghana.
Ghana of course hosts the secretariat of the AfCTA.

Truth may be difficult. But it is time someone tells the NERC that Nigeria may very well miss the AfCTA first movers train simply because NERC has chosen to drive policies that stunt the growth of an already troubled electricity sector. These policies also have direct impact on the local economy, obstructing the possibilities of manufacturers being able to cut down costs of manufactured items by discarding the self power generating alternatives they currently rely on which account for almost 40 percent of their production costs. Sadly, Nigeria seems to be taking 10 steps forward and 90 backward in terms of crucial issues of overall national productivity, including in crucial sectors like power and manufacturing.

-David Samson, A Power Sector And Economy Analyst, Writes In From Wuse 2, Abuja

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