Government actions will lower overall energy costs – Power Minister Adebayo Adelabu

 

Perhaps, next to agriculture, the most daunting portfolio in the present Bola Ahmed Tinubu-led administration is that of power, because, historically, the power sector simply hasn’t been able to deliver to the satisfaction of the Nigerian public.

 

In no part of the country is there a regular electricity supply for households or to power businesses and industrial concerns.

 

The current Minister of Power, Adebayo Adelabu, who assumed office on August 21, 2023, was spot-on recently when he put things in perspective: “It involves creating an energy system that is resilient, efficient, and environmentally friendly. It’s about utilising our resources in a manner that meets our current needs without compromising the ability of future generations to meet theirs.” He went on to promise: “By addressing the sector’s infrastructure challenges and embracing sustainable energy development, we are not only meeting our current needs but also paving the way for a prosperous and resilient nation.”

 

“We found that past efforts were unsustainable due to critical issues, particularly market liquidity.”

 

These words show a clear understanding of the challenges that must be met to satisfy the nation’s quest for a sufficient and stable electricity supply. However, will they translate to the ministry meeting the demands of the population?

 

 

In this exclusive interview with BusinessDay’s General Manager, Bashir Ibrahim Hassan, Mr Adelabu, a former deputy governor for operations at the Central Bank of Nigeria (CBN), assesses the performance of his ministry over the past year.

 

 

Upon assuming your duties as the minister of this important ministry, what was the situation on the ground that influenced the vision you developed to run the ministry?

 

When we assumed office, we found the state of electricity supply in Nigeria to be quite unsatisfactory. The supply was erratic, and Nigerians have long suffered from energy poverty. Many rural dwellers were either underserved or completely unserved, with numerous communities not connected to the national grid and lacking access to electricity.

 

The problems in the power sector have been persistent for over 50 years – from the days of the Electricity Corporation of Nigeria (ECN) to the National Electric Power Authority (NEPA), to the Power Holding Company of Nigeria (PHCN), and up to the present. We decided to take an unconventional approach to change the industry’s face and the narrative.

 

Our first step was engaging and consulting with key sector stakeholders, including power generation companies, distribution companies, transmission companies, consumers, investors, and power experts in Nigeria. We held bilateral engagements, meetings, and retreats to diagnose the causes of the power sector’s issues within the first two to three months. We have proffered workable solutions rather than idealistic ones in a comprehensive guide for the power sector.

 

We identified operational problems related to infrastructure, human capacity, and technology. We found that past efforts were unsustainable due to critical issues, particularly market liquidity. Lack of liquidity hampers any business sector, and several factors contribute to this in the power sector.

 

Debts owed to power sector operators have significantly impeded their operations. Generation companies are owed substantial amounts, with legacy debts totalling about N1.3 trillion. Gas supply companies are also owed large sums, including $1.3 billion in legacy debt. Businesses burdened with such debts struggle to operate effectively. We pressured the government to start paying down these debts, allowing operators to service their equipment and cover operational overheads.

 

Also, the current electricity tariffs paid by consumers do not reflect the actual cost of generating electricity. While it’s not mandatory for consumers to pay cost-reflective tariffs, government-promised subsidies must be adequately funded. However, a significant portion of these subsidies lacked proper cash backing, leading to debt accumulation. Given the competition for government funding, it’s practically impossible to continue subsidising tariffs at current levels. We proposed a model to transition to a full cost-reflective tariff over time, where consumers pay a commercial price for electricity. Our research shows that even with a 200 percent increase, electricity costs would be cheaper than generating power with petrol or diesel generators, which are also environmentally harmful.

 

By ensuring sufficient liquidity in the sector, we believe the economy will run more smoothly and power will be stable. Another critical factor is infrastructure upgrades. Even with adequate funding, we need to enhance the infrastructure to provide stable electricity. We prioritised investments in upgrading infrastructure and classified them into bands. We started with Band A customers, who have the infrastructure to enjoy a minimum of 20 hours of stable electricity, and we are working on migrating others into this band.

 

Improving infrastructure, especially transmission and distribution, is vital. We are working on numerous projects to achieve efficiency and effectiveness over time.

 

Do you feel there is improvement in the power sector? Additionally, can you clarify the importance of the cost-reflective tariff and how it benefits households, industries, and the economy?

 

As I mentioned in my speech at the recent BusinessDay power conference, there has been improvement. It was not accidental. We were intentional in all our activities, which directly resulted in the boost we have experienced over the past few months. The situation in February and March was unacceptable, and almost every Nigerian complained. We decided to take action.

 

 

First, we increased electricity generation from less than 4,000 megawatts to about 5,000 megawatts. We achieved this through improvements in the gas power plants and significant enhancements in the hydroelectric plants, particularly with the addition of the new Zungeru Hydroelectric Power Company, which added 700 megawatts to the national output. On May 3rd, 2024, we reached 5,000 megawatts, the highest in three years.

 

Second, we expedited action on the Siemens project, the Presidential Power Initiative (PPI), that started in 2018–2019 but slowed down due to COVID-19. Upon taking office, President Bola Ahmed Tinubu signed an acceleration agreement with the Chancellor of Germany in Dubai. We quickly moved on to the pilot stage of the project, which involved importing 10 power transformers and 10 mobile substations into the country. We have installed almost 70 percent of this equipment, stabilising our transmission network. As a result, we haven’t experienced a grid collapse in the last three months, significantly improving power supply across the country.

 

Third, we improved the activities of the distribution companies (DISCOs). We put them on their toes, and they have become more responsive and responsible. They are now investing more in upgrading their distribution infrastructure, including feeders, substations, transformers, and lines, and reducing the metering gap for households and businesses.

 

These three factors—increasing generation, stabilising the transmission network through the Siemens project, and enhancing the distribution companies’ activities—have led to the improvements we are seeing. The cost-reflective tariff or tariff increase is actually in the best interest of the people and is long overdue.

 

When compared to the cost of alternative power generation through generators, the new tariff is far cheaper. Households, companies, and industries will spend less, reducing production costs and inflation, and ultimately lowering the price of goods and services. This initiative is in the people’s best interest and is not anti-people.

 

Embarking on reforms or transformations can be turbulent initially, but we believe there is light at the end of the tunnel. Nigerians will enjoy better electricity supply services in the future.

 

How do you address the mixed testimonials – some people report lower energy costs while others claim that businesses are closing down due to the tariff increase?

 

Well, I would say the average cost of energy is actually going down. It’s going down because, while you pay more for national electricity, you are spending less on diesel and gasoline for generators. When you combine these costs, compared to what you were spending in the past, it is much cheaper now. For the SMEs that are considering closing down, they need to be patient.

 

They need to consider not only the electricity bill but also the reduction in costs for generators, fuel, maintenance, diesel, and so on. By comparing these expenses over one or two months, they will find that they are better off. Additionally, the inconvenience of noise pollution is also eliminated.

 

So, I believe that SMEs, large companies, industries, and institutions will enjoy lower overall energy costs in the end.

 

Furthermore, the initially increased tariff has now been reduced to N206, which is a positive development. Based on the movement in our currency, we adjusted the tariff model, resulting in a decrease of almost 10 percent. As we continue to experience improvements in the currency and other factors, the cost will likely go down even further.

 

In terms of our vision and the legacy we intend to leave behind, we want to be remembered as a bold and courageous ministry that tackled the root causes of the power sector’s problems head-on. Our goal is to achieve major improvements in electricity supply stability in Nigeria, thereby changing the narrative of the industry.

 

The improvements we aim for are measurable in three key areas. Firstly, we plan to significantly increase the generation output from where we found it. We have already achieved 5,000 megawatts, the highest in three years, within nine months of taking office. Our short-term target is to reach a minimum of 6,000 megawatts by the end of 2024, representing a 50 percent improvement in generation. This would be the first time in Nigeria’s history that our collective generation output hits 6,000 megawatts. We are committed to surpassing this target and will continue to strive for even greater output before leaving office.

 

Secondly, generating power is only part of the solution; it must be delivered effectively to users. We aim to leave behind a robust and high-capacity transmission network. We are strengthening the entire transmission network to reduce, and ideally eliminate, the possibility of grid collapse. This is being achieved through the Presidential Power Initiative and the efforts of the Transmission Company of Nigeria (TCN). We are also exploring the establishment of a supergrid as a backup to the existing transmission infrastructure.

 

Thirdly, we envision more responsive and responsible distribution companies that prioritise customer service and efficiently deliver transmitted power to consumers. A key part of this vision includes significantly reducing the metering gap to ensure proper metering of consumers, thus putting an end to estimated billing.

 

Our approach involves attacking each of these three segments with the full force required to ensure improved generation, stabilised transmission, and enhanced responsiveness and responsibility from distribution companies. This is our plan, and we are dedicated to seeing it through to fruition.

 

Other Major  News headlines today July 4, 2024:

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Citi sees gold outperforming other assets, despite high real interest rates

 

For more details on these and other Financial news headlines either get a printed copy of business day newspaper or better still visit their website

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