An “electricity” look at President Buhari’s Democracy day speech
As Nigeria’s electric power sector woes takes several turns, President Buhari’s speech attempts to give Nigerians hope with statements of progress.
It has become customary for the President of Nigeria to give a speech on the 29th of May every year since 1999 when the military government handed the reins of the country to the democratically elected government — beginning the fourth republic. The president in that speech usually assures the nation that the state of our republic is strong.
On Tuesday the 29th President Buhari gave one of those speeches. His speech touched on everything from the killer herdsmen to the kidnapping and eventually release of the Dapachi girls.
In my precious work on Nigeria I have addressed, usually from a big-picture-grand-scheme-of-things perspective, the country’s political and economic issues and how they intersect with its history. Today I address something more specific — electricity. I take my cue from President Buhari’s Democracy day speech.
Three paragraphs of his speech are under consideration here. I have also taken some time to explain certain terms that might be unfamiliar to those who think electricity is just what happens when light “shows up” at the flip of a switch.
Here we go. President Buhari said:
“In the area of power generation, Nigerians from all parts of the country continue to report better power supply and less use of generators. This underscores the effectiveness of the methodical plan to deliver incremental and uninterrupted power supply to our homes, markets, offices and factories.”
The concept of Reliability rings Yea and Amen in the walls of electric power utilities across the world. Reliability deals with the state of ON or OFF of the power system with respect to its duration, frequency and the customers affected. It could be defined as the availability of electricity in the quality and quantity demanded by end users [1]. For electric distribution systems, reliability can be calculated through certain indices as proposed by the IEEE 1366 Standard for Electric Power Distribution Reliability Indices. The standards present many indices that gives a picture of how reliable the system is. That is, how many times the system has been in a state of ON and OFF. Based on these numbers grid operators and their regulators can make plans and take the necessary steps to get better numbers when these indices are calculated another time.
While I do not expect the president to read out the SAIDI [2], CAIDI [3] and SAIFI [4] values for all eleven distribution companies (DISCOs) in the country, I believe that making a statement like “Nigerians from all parts of the country continue to report better power supply and less use of generators…” is at best partially true. Without the calculation of these numbers, the truth value I assigned to the president’s statement is a generous one.
Estimates from the World Bank show that there are over 32.5 outages a month in Nigeria, and the average duration of an outage is 8 hours. An October 2016[5] IMF report stated that the decline in economic activity since 2014 could, in part, be as a result of frequent electricity blackouts. In February 2018 another World Bank report stated that about 27% of Nigerian enterprises identified the lack of electricity as a major obstacle to doing business[6].
I decided to check if Reliability records for the DISCOs are kept. I was not able to find any. The Nigerian Electricity Regulatory Commision (NERC) is the agency responsible for regulating the entire electricity sector. Its distribution code states, as one of its purposes: “to enable the planning, design and construction of the Distribution System for a safe and economical operation with the specified degree of Reliability as stated in the Standards of Performance Code.”
It also states that “Distribution Reliability studies shall be performed to determine the frequency and duration of User Interruptions in the Distribution System, in order to assure the requirements stated in the Performance Standards Code are met. The historical Reliability performance of the Distribution System shall be determined from the Interruptions data of the Distribution System.” There is no mention of the IEEE 1366 Guide for Electric Power Distribution Reliability Indices.
After multiple searches I could not reliability or quality of service documents by the DISCOs. The best I could find were independent scholars doing reliability studies using different portions of the Nigerian electric power system as case studies.
These values are to be calculated every year and should be made public just by the mere fact that the government owns 40% of all the DISCOs and still pumps money into them to deal with their insolvency and structural issues[7]. These studies should also be open to comments and review by third party industry stakeholders.
It is through these values that the president can say, with certainty that “Nigerians from all parts of the country continue to report better power supply and less use of generators…” if the values show thus.
President Buhari goes on to say:
“The country achieved 5, 222.3 MW representing the highest peak of power generated onto the national grid and delivered to customers in December 2017. With new facilities, repairs and rehabilitations by Government and private investors, generation capability now exceeds 7,500 MW.”
5,222.3 MW and even the 7,500 MW may seem like large numbers, but they really aren’t. If Nigeria is to become a developed economy, raising over 95 million of its people out of poverty, those numbers have to go up by at least 1000%. Stay with me.
Electricity markets [8] differ from place to place. Usually in these markets, Market Participants (MP) offer for sale and bid to purchase various products — Capacity, Energy and Ancillary Services — to provide electricity in the quantity and quality it is demanded by end user — you and me. (remember our discussion on reliability?) Thus far I have had the opportunity of studying various electricity markets across the world. Hence, I make a few comparisons to show you why those numbers mentioned above are almost negligible in the grand scheme of things.
The Nigeria Electricity Supply Industry (NESI) vs the Midcontinent Independent System Operator (MISO)
Peak load or peak demand could be defined as the maximum load, or usage, of electrical power occurring in a given period of time, typically a day (Gary D. Price 2011)
As you would notice comparing the peak load of the NESI and MISO, Nigeria has a long way to go. Based on the population served, and by a crude direct proportionality calculation, Nigeria would need to have a peak load of 562,982 MW, to reliably serve it people. Now you see why I say that number presented by the President is almost negligible in the grand scheme of things.
On power, president Buhari finally says:
“This Administration is committed to lawful interventions to ensure the operators of the distribution business live up to expectations especially in the areas of distribution capacity, service delivery, collection efficiency, and metering to eliminate contentious estimated billing.”
The DISCOs get the most grief from Nigerians. They have issues with revenue collections due to fickle metering infrastructure and electricity theft. The DISCOs generally serve three types of residential customers: post-paid, pre-paid and customers with no meters. Since the DISCOs cannot recoup their investments through cost reflective tariffs they resort to estimated billing. Usually those customers without meters get estimated bills, but the DISCOs also do this for post-paid customers. For example, if they come to your house on a work day afternoon and no one is home, so they are not able to access your meter and take readings for that month they estimate your bill. And it is always higher than what you originally consumed. I have personally experienced this.
Recently, a bill to amend parts of the 2005 Electric Power Sector Reform Act, which would criminalize estimated billings by the DISCOs was brought before the House of Representatives. Among other things, sections of newly proposed bill include language like “estimated billing methodology is hereby prohibited in Nigeria.” It also gives Nigerians the ability to ignore an estimated bill without fear of disconnection, as long as an application for a meter had been made by that customer to the DISCO and no meter has been provided in the last 30 days.[17]
This smells like a political stunt and does not deal with the root cause. Nigerians have always suffered at the hands of the DISCOs, which through no fault of their own do what they can to continue operating. But politicians are paying attention now because elections are just around the corner. Criminalizing estimated billing does not in any way solve the problems. In fact it make things worse. Estimated billings, no matter how abhorrent it is to a customer, keeps the DISCOs running day to day. The other alternatives, as things currently are, would be bankruptcy or bailouts.
How can this problem be dealt with?
First, tariffs are not cost reflective. The average DISCO has to deal with bad metering infrastructure, illegal connections to its system, aging infrastructure, long lead times on components to replace old and bad ones, political violence in some of their service territories, etc. All these are costs. The rates they charge customers must reflect these costs. DISCOs have to calculate their rates using the Multi Year Order Tariff (MYTO) methodology developed by NERC and then NERC approves or denies. In many cases NERC foists rates that do not reflect costs on the DISCOs.
DISCOs should be left to design their rates using their own methodologies, then they file this with NERC in a rate case, making an argument for the costs they allocate, and the mechanism then intend to use to recoup those costs. NERC then reviews approves or denies.
Second, apart from political pressure, there are no incentives for the DISCOs to improve the quality of their services. This is in part due to the fact that the government owns 40% of these companies and they know that the government would never let them fail. The government has constantly pumped more money into these companies to ensure their lights stay on. They should be allowed to fail. When they fail, another group of potentially competent managers and investors come in, pick up the pieces and attempt to do a better.
The fear of extinction is what motivates companies to improve the quality of their services, reduce cost and eventually offer prices at market values. The DISCOs in Nigeria, their managers and investors have no fear of this.
Finally, I realize that there might be fear of political mayhem if a DISCO is allowed to fail, since this would plunged many Nigerians into darkness. This, based on current events, is an exaggeration. Nigerians are already in darkness, sometimes for many months. The entire Nigerian grid collapses many times a year. In January 2018 alone the grid collapsed six times in one week [18]. When these companies fail pressure, by the people, would be applied on the politicians, who would apply pressure on the regulators to design systems that allow the DISCOs to thrive.
Then President Buhari can confidently say: “Nigerians from all parts of the country continue to report better power supply…” and we can believe him.
References:
[1] What’s the Difference between Reliability and Resilience? By Aaron Clark-Ginsberg, Stanford University
[2] The System Average Interruption Duration Index (SAIDI) indicates the total duration of interruption for the average customer during a predefined period of time. It is commonly measured in minutes or hours of interruption. (1366–2012 — IEEE Guide for Electric Power Distribution Reliability Indices.)
[3] The Customer Average Interruption Duration Index (CAIDI) represents the average time required to restore service. (1366–2012 — IEEE Guide for Electric Power Distribution Reliability Indices.)
[4] The System Average Interruption Frequency Index (SAIFI) indicates how often the average customer experiences a sustained interruption over a predefined period of time. (1366–2012 — IEEE Guide for Electric Power Distribution Reliability Indices.)
[5] International Monetary Fund (IMF) World Economic Outlook, October 2016
[6] The World Bank Group, Environmental and Social System, “Power Sector Recovery Program,” February 2018
[7] Thisday (May 29, 2017): As Power Discos Get Lifeline. Retrieved from: https://www.thisdaylive.com/index.php/2018/05/29/as-power-discos-get-lifeline/
[8] An electricity market is a system for purchasing and selling electricity using supply and demand to set the price. In general, electricity markets include electric energy markets, capacity markets, and ancillary services markets, a part of which are regulation markets and operating reserve markets (NETL Power Markets Primer 2013).
[9] World Bank
[10] MISO — Market Overview: Western Area Power Administration. Retrieved from: https://www.wapa.gov/About/the-source/Documents/2016/discussion-markets-todd-ramey-MISO.pdf
[11] Nigerian Bulk Electricity Trading Company NBET (2014)
[12] NBET (2014)
[13] As stipulated by the president in his speech.
[14] MISO Corporate fact sheet
[15] The President’s speech
[16] Energy Commission of Nigeria (ECN)
[17] This day (2018), “Bill to Criminalize Estimated Billing System by DISCOs Introduced in House.” Retrieved from: https://www.thisdaylive.com/index.php/2018/04/06/bill-to-criminalise-estimated-billing-system-by-discos-introduced-in-house/
[18] Punch (2018), “Power grid collapses six times in eight days.” Retrieved from: http://punchng.com/power-grid-collapses-six-times-in-eight-days/
