More blackout looms as DisCos fail to buy power from GenCos

A few days ago, reports emanated that the amount of electricity generated by the nation’s 27 power stations fell below 3,000 megawatts because low load demand by distribution companies continued to limit generation. This development has led to constant blackout in some areas. Babajide Okeowo takes a look at how the failure of Distribution Companies, DisCos to buy power from the Generating Companies, GenCos, is contributing to the constant epileptic power being experienced in the country.

Lekan Raji has not had power for the past two days in his community and he is fast becoming impatient with Ikeja Electricity Distribution Company, IKEDC, which services his area. As he is grappling with the effect that the scorching heat is having on him, he heard a “shocking” piece of news on his transistor radio.

According to the news, power generation had fallen to 2,970MW based on low demand from Discos. The report from the system operator showed that a total of 2,159.7MW generation capacity was lying idle as a result of low load demand by Discos. What this means is that 2,159.7MW of power was available to be distributed but the DisCos were not buying. Raji was disgruntled and he could not hide it.

“How can a total of 2,159.7 megawatts of electricity be idle while Nigerians are clamouring for improved power supply and a place, as mine has had no power supply for two days over the weekend?” he asked no one in particular.

The above scenario is what many people are grappling with in different parts of the country, as the reality of constant blackout bites harder.

A few days ago, the Vice President, Prof. Yemi Osinbajo, lamented the inability of the Discos to distribute available grid power to consumers, describing the distribution capacity of the 11 Discos as significantly low.

“Despite the availability of about 8,000MW of generation and about 7,000MW of transmission capacity, lack of DisCos infrastructure to absorb and deliver grid power to end users has largely restricted generation to an average of about 4,000MW,” he said.

Similarly, the Transmission Company of Nigeria, TCN’s Managing Director, Usman Mohammed, said there is a need for the Federal Government and investors in power distribution companies to recapitalise the firms to invest adequately in the networks of Discos.

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He said, “Another new dimension that speaks to why the distribution arm must be recapitalised is the fact that when it now rains anywhere across the country, the distribution network collapses like toilet paper. Even Abuja that was built as a modern city, three times it rained in Abuja for not more than 10 minutes, I drove around Abuja city centre and more than 90 percent of Abuja has no electricity,” he said.

Also, former Minister of State for Power, Works and Housing, Mustapha Shehuri, at a point had decried the inability of Discos to distribute available power to consumers.

According to him, “Generation capacity has improved; transmission has improved, but the distribution companies are not taking power from the transmission company.” The minister lamented that the attitude of DisCos was frustrating the essence of power privatisation because they are not meeting their part of the bargain.

Why power generation will continue to be erratic -Expert

According to a power sector analyst, Kalu Ukoha, a lot needs to be put in place if the issue of blackout in the country will be eradicated.

“For there to be constant power for Nigerians, there is a value chain that begins from power generation to transmission and down to distribution to homes. The Distribution Companies, DisCos, are the direct interface to the final consumers. The Discos are responsible for giving you power, while the customers pay to the DisCos, the DisCos also have to transmit this revenue they collect from customers across the value chain; the tariff is the only source of revenue for the entire value chain. So, when the Gencos and Transmission Company are ready to give the Discos power to the customers, the DisCos are also expected to transmit the revenue earned from customers across the value chain. So, if a Disco takes N1 worth of power from the GenCos and receives only N2k from the customers, this means the entire value chain is going to suffer and this is where we are right now. The price is not right, the collection is very poor and the DisCos are supposed to be the cash cow of the entire sector.

“The fundamentals are still not right. If you are not able to recover money for 1,000 megawatts, there is no need to add 20, 000 megawatts. We have a sector that is still struggling for financial viability and until we sort that out, it is not going to matter whether we add 20, 000 or 40,000 megawatts. We are just going to continue to have shortfalls down the line. There are critical issues that needed to be dealt with; the tariff is one of them, and it is a very tough decision that needs to be taken. Is the tariff right now?

“We all know and agree that the DisCos have their own issues, ranging from their financial structures, their management make-up or their capabilities, if we do not sort out the DisCos, we will not be able to solve the power problem in Nigeria. So, no matter how much power generation you do, no matter how much power you transmit, the direct interface to the customers is the DisCos, who are facing a lot of issues. Price is one; the financial structure is another. DisCos cannot even borrow money because of the way their balance sheets are at the moment. There are also insinuations that these DisCos just bought the companies without having first-hand knowledge of what the business was all about. We need to restructure the distribution companies and set them on the right path,” he said.

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Speaking further, he said another reason power will continue to be erratic is due to the weak infrastructure.

“Another reason epileptic power supply will persist is because the infrastructure is weak. The infrastructure to distribute power like the transformers, transmission cables are weak so the reliability is very poor and the way out is just to fix the infrastructures. If it rains for one hour, you can be sure that there will be no power supply for the next 24 hours because the infrastructure is very poor. So, the distribution companies need money to upgrade the infrastructure so that their reliability can improve. So, how can they raise money? If they go to the banks the banks will ask them for their future cash flow. Their future cash flow will include the tariffs; if the tariffs are not cost-reflective it will pose another problem. There needs to be a financial re-engineering of the structures of the DisCos. Some people have argued that we need to bring in new equities, new shareholding so that they can get fresh capital,” he added.

The task before the new Minister of Power -Ukoha

According to Ukoha, there is a lot of work ahead of the new Minister of Power, while he expressed his satisfaction that the Ministry of Power has been carved out and made to stand alone.

“It is a good thing that the Ministry of Power is on its own and also has another Minister of State for the ministry. The sector first needs to agree on what the strategies and priorities are. That is one, two, three issues that are topmost with the power sector and find a coordinated sector-wide plan for it so we would not be having different plans here and there. The sector needs a clear plan of where we want to be in five years. The issue should not be about strategies but how to execute the strategies. The execution of strategies has always been major issues. We need to get the strategies and at the same time, follow it through. Continuity is also key when a new minister comes in. There is always a tendency for the new man to feel that the former minister did not know what he was doing and stop everything that the former person has put in place and start his own.

“When Yar’Adua came in, he stopped the Obasanjo power sector reform, and started his own. The subsequent government came in with a plan of their own and when this regime came, they felt that they were not doing it right and started their own. In all these, one or two years are wasted. So, I believe continuity is key, instead of stopping what the former regime had done, try to follow through and see how you can tweak it along the way. We do not have time, time is not on our side, and 4,000 megawatts is very poor,” he said.

He further called on the Minister to do all he can to align the power sector value chain.

“Also, the minister needs to align the value chain. The GenCos have told us that we have the capabilities of generating 13, 000 megawatts, the Transmission Company on their part claims that they have the capacity to transmit 7,000 megawatts. We have not tested this; we need to test this claim. If we have transmission capabilities of 7,000 megawatts, how can we get the distribution companies to distribute this? This is what we need to concentrate on. If we are able to push out 7,000 megawatts to consumers consistently for six months to one year, you will see the ripple effect in the economy and we can start talking about the other issues. Also, we cannot talk about this if we do not talk about the issue of the market shortfall, the issue of the tariff, there is a decision to be taken and leadership is needed here. The current tariff has to be adjusted or we change the model that we are building. The model we are building is that the tariff must pay the value chain, so if the tariff is not cost reflective, there is no way we can move forward,” he said.