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Future of Power Sector Reform. Nigeria tackles Challenges · Global Business insights

• 0:05
  SPEAKER_02: Today, we examine global changes in the power sector with a focus on the potential for reforms in Nigeria to address decades of epileptic power supply.
• 0:19
  SPEAKER_02: Geopolitical factors are raising energy costs, making renewables and cleaner energy economically attractive, and energy source diversification key.
• 0:31
  SPEAKER_02: Rising demand from artificial intelligence advances, also encouraging renewed interest in nuclear power, safety and affordability improve.
• 0:43
  SPEAKER_02: The main challenge is finding affordable solutions and reform interventions, noting that households all over the world already face many cost burdens given stickiness of inflation and new drivers of costs from the Iran war.
• 1:02
  SPEAKER_02: In Europe, a major overhaul is underway to break the link between the rising and volatile cost of gas and electricity prices.
• 1:12
  SPEAKER_02: This is prompting a deep structural rethink of the sector supply chain and the way energy is delivered across the continent.
• 1:21
  SPEAKER_02: For developing countries, the narrative is different but equally compelling.
• 1:26
  SPEAKER_02: The vast gap in stable power supply presents an enormous opportunity for investment, especially as reforms accelerate in key markets like Nigeria and South Africa.
• 1:40
  SPEAKER_02: South Africa, for instance, is undergoing a transformative overhaul of its power sector, aiming to end the monopoly and resolve long-standing load shedding.
• 1:52
  SPEAKER_02: Turning to Nigeria with the new team of accomplished technocrats now at the helm, headed by Joseph Tegbe as power minister and supported by Alan Rivalola, former power minister and current special advisor, Nigeria's power industry could be poised for revival.
• 2:11
  SPEAKER_02: This team is expected to bring the speed, urgency, and delivery needed to not only reinvigorate the sector but also to reposition it for a future that looks dramatically different from today.
• 2:28
  SPEAKER_02: Hello, this is Global Business Insights where we bring perspectives that help to navigate the more challenging context.
• 2:38
  SPEAKER_02: In Nigeria, the inability to sell more than 40% of generated electricity to consumers leads to structural challenges and creates various liabilities and an array of revenue shortfalls.
• 2:51
  SPEAKER_02: To make matters worse, the supply chain is riddled with not fully quantified inefficiencies, leakages, and losses that consumers or government subsidizing costs should not be paying for.
• 3:06
  SPEAKER_02: Analysts say the sector has not significantly improved in tackling some of these inefficiencies.
• 3:14
  SPEAKER_02: Tariffs are therefore not cost reflective but still perceived as high.
• 3:19
  SPEAKER_02: Lessons must be learned and corrections made, especially regarding the sector's privatization, which faced several execution issues.
• 3:29
  SPEAKER_02: Ababa Miola Nemoye is a partner with Anderson Consulting.
• 3:33
  SPEAKER_02: She comments on the outlook for reform in the sector.
• 3:37
  SPEAKER_02: Engineer Chino Falui is national chairman of the Nigerian Institution of Safety Engineers with over 30 years of varied experience in Nigeria's energy sector, argues that more needs to be done to improve the sector's efficiency and reduce losses.
• 3:57
  SPEAKER_00: It appears that we are heavily or over reliant on gas for power generation.
• 4:03
  SPEAKER_00: A situation where 70% of our power comes from thermal and with global gas prices trending up becomes a challenge.
• 4:14
  SPEAKER_00: Also, we have a very fragile grid, and overhaul is needed, but it's difficult to fund because power prices are not cost-reflective in Nigeria today.
• 4:27
  SPEAKER_00: And there's underinvestment in our transmission, infrastructure, and our distribution needs also need to be addressed.
• 4:36
  SPEAKER_00: There's a lot of revenue shortfall, severe revenue shortfall, if you call it that, particularly at the distribution point due to theft, vandalism, poor metry.
• 4:52
  SPEAKER_00: So you could also say that there's a liquidity crisis at the generation, transmission, and distribution levels.
• 5:01
  SPEAKER_00: Government needs to fund an overhaul of the power infrastructure.
• 5:09
  SPEAKER_00: There's a business case to be made for decentralization with mini-grids beginning to come up now.
• 5:16
  SPEAKER_00: And I believe that we will see the emergence of more increasing mini-grids and uh increased use of alternative power, largely solar.
• 5:28
  SPEAKER_00: But there's a need to coordinate the grid and manage the increasing fragmentation of the grid.
• 5:34
  SPEAKER_00: Now that a law has been put in place that allows states to generate and to distribute their own electricity, at least 22 states have signaled an interest in doing so.
• 5:47
  SPEAKER_00: They need to be coordinated.
• 5:49
  SPEAKER_00: So if you ask me what reforms are needed, um we need tariffs that reflect the inputs, and we also need to close the mid trim gap so that we can adequately charge for power usage.
• 6:07
  SPEAKER_00: There's also a need for improved oversight, regulatory oversight or coordination.
• 6:13
  SPEAKER_00: Now, like I said, the states have begun, have signaled interest and have put in place the plans, have arranged to generate their own power, there's a need to coordinate the activities.
• 6:28
  SPEAKER_00: There's also a need to scale up the active operations of decentralized grids.
• 6:34
  SPEAKER_00: Decentralized grids are good.
• 6:36
  SPEAKER_00: Our grid is very fragile.
• 6:38
  SPEAKER_00: We need all the help we can get.
• 6:40
  SPEAKER_00: So if we can bypass the national grid to generate, transmit, and distribute power, it's a welcome development.
• 6:50
  SPEAKER_00: But there's a need to put in a place that not only encourages or promotes the operation of such mini grids but monitors them.
• 6:58
  SPEAKER_00: At the same time, we need to strengthen our fragile grid.
• 7:03
  SPEAKER_00: We also need to rapidly scale up usage of renewables.
• 7:08
  SPEAKER_00: But gas will continue to be the main source for now.
• 7:12
  SPEAKER_00: I advocate it.
• 7:13
  SPEAKER_00: Uh, but government needs to do what it can to ensure that more gas plants are set up so that more gas is available to generate more power.
• 7:26
  SPEAKER_00: And there's a need ultimately for government to work towards full privatization.
• 7:31
  SPEAKER_01: Now, in the first part, what is the first thing to do?
• 7:36
  SPEAKER_01: We should do a quantification of what the full liabilities are.
• 7:41
  SPEAKER_01: When we say that there was um uh six trillion of debts on paid debt, that is unpaid debts.
• 7:49
  SPEAKER_01: That there are more liabilities that um are still in coat, maybe uh to say that uh the CBN had put in intervention funds of over 2 trillion, 2.3 trillion or thereabouts.
• 8:01
  SPEAKER_01: Um there are other uh power sector investments, um, transmission distribution that have been uh loans have been taken uh from foreign uh development agencies.
• 8:12
  SPEAKER_01: And these ones are liabilities for the sector as well.
• 8:15
  SPEAKER_01: Uh in addition, there are uh car purchase agreements, there are gas supply contracts that have take or pay provisions, and these ones, they're all liabilities that are they could crystallize, and so there's something that needs to be done about them.
• 8:29
  SPEAKER_01: So that is one of the things I would say is an immediate um uh order of business for that committee that they need to uh quantify what that amount is.
• 8:38
  SPEAKER_01: And then another thing that now needs to be done is that start to do some more energy accounting at the feeder level.
• 8:46
  SPEAKER_01: Now there's so much loss, and uh we we need to actually quantify what that volume of loss is, and uh this has to be at the cold face, where it is that uh we're asking the distribution companies that they need to step up technically and tell us what it is that is the actual energy delivered so that we'll be able to account for it.
• 9:09
  SPEAKER_01: In the medium term, uh, I believe we now start, need to start thinking of a national loss reduction program.
• 9:18
  SPEAKER_01: Now, the the NERC, the NEC, they ask the distribution companies um to publish what it is that they'll say their losses are ATC and C losses.
• 9:27
  SPEAKER_01: They publish it, they report it.
• 9:30
  SPEAKER_01: But what tends to happen is that it is just something that it just sounds like is aspirational.
• 9:36
  SPEAKER_01: We need something that will have NEC to be more activist in their interventions, not just report what those losses are, but the distribution companies should start talking about their engineering plans to reduce the losses.
• 9:54
  SPEAKER_01: And then it's those engineering plans that we will say we'll be monitoring.
• 9:57
  SPEAKER_01: So uh I'm saying in the midterm, this is what we now need to start looking at.
• 10:02
  SPEAKER_01: The engineers in those companies should start saying what it is that they intend to do when it comes to reducing the losses, the technical losses, commercial losses.
• 10:12
  SPEAKER_01: So both distribution and then also generation, um, in terms of how much is it that it is costing to generate each megawatt of energy?
• 10:23
  SPEAKER_01: Uh is it something that they really absolutely cannot control?
• 10:28
  SPEAKER_01: The second thing that um I think in the medium term that this team needs to do is that they need to start doing a life cycle cost analysis.
• 10:37
  SPEAKER_01: There need to be cost-reflective tariffs.
• 10:39
  SPEAKER_01: But really, an engineering, from an engineering standpoint, we want to do a total cost of ownership, do a life cycle cost analysis of what it is that the investments that we are making are.
• 10:51
  SPEAKER_01: So that it's not just tariffs that we are saying, we're talking about what the impact is, what the effect is on delivered energy, on the maintenance, on the revenue recovery.
• 11:05
  SPEAKER_01: We want to see what the total cost of those investments are.
• 11:11
  SPEAKER_01: The third thing that I'll say that they should also uh start looking at is how it is that we can start optimizing capital allocation.
• 11:20
  SPEAKER_01: Optimizing capital allocation.
• 11:22
  SPEAKER_01: Much of the time we're looking at the and we've heard about different things, where it is that uh we'll say that there will be uh investments in um uh transmission lines or distribution uh infrastructure.
• 11:35
  SPEAKER_01: But really, what is the result or what is the impact that is going to get?
• 11:42
  SPEAKER_01: We need to start thinking about the whole sector as a business and not just as a social responsibility.
• 11:51
  SPEAKER_01: We need to start thinking how much money is it going to bring back for those investors and start tracking that it is the most efficient returns that we can get as a country.
• 12:02
  SPEAKER_01: So, whenever it is that uh we're asking the distribution companies, for example, that they want to do something, they need to publish their scorecards that will tell us clearly what is the performance of what they have put so that we will then be able to say that there will be rewards that will be allocated based on this.
• 12:25
  SPEAKER_01: Um, just having them report it on their scorecard by NERC, and then the government having other initiatives to say uh the NBED or that there is a subsidy that is more or less rewarding inefficiency, uh, we need to move away from that.
• 12:42
  SPEAKER_01: In the long term, though, what I think is that we need to go to what it is that Mr.
• 12:48
  SPEAKER_01: Babola spoke about, and that is our market design.
• 12:52
  SPEAKER_01: What was not foreseen was that that bulk trader, that single trader, embed, was going to last this long.
• 13:00
  SPEAKER_01: It has become cost permanent.
• 13:01
  SPEAKER_01: In the original design, it was supposed to sunset in three years.
• 13:06
  SPEAKER_01: But because we said that the market had not yet achieved a stable market, and so the embed continued, we need to definitely say that we do not shield the distribution companies from any inefficiency.
• 13:23
  SPEAKER_01: We need to make sure that whatever it is that is the requirement in bilateral contracting, we will be able to do that.
• 13:32
  SPEAKER_01: The second thing that I'll say in the long term is that uh in power planning, past sector planning, we now need to start thinking on a broader scale as well.
• 13:43
  SPEAKER_01: I've talked about life cycle cost analysis, is that whatever it is that is going to be installed, it should, there should be a policy document that is saying at the government level, we're looking at what are the returns, what is the life cycle cost and the returns on that.
• 14:02
  SPEAKER_01: Whatever it is that we are planning, whatever it is that we are developing, whatever investment that we're making, we need to do those investment appraisals to see what it is that will be more or less a risk-adjusted investment appraisal.
• 14:15
  SPEAKER_01: That's where is it that we should invest first to get the most returns so that people will see it at their benefits.
• 14:23
  SPEAKER_01: I want to believe that in the long term for uh the power sector, so we should do an economic and social investment appraisal.
• 14:33
  SPEAKER_01: Uh, a lot of the uh problems that we have been hearing the reports on is that the impact on the citizens of the power sector has not improved.
• 14:47
  SPEAKER_02: Well, that's it for this special edition of Global Business Insights and Bodio Shosami.
• 14:53
  SPEAKER_02: Don't forget to subscribe and hit the notification button.
• 14:58
  SPEAKER_02: Bye bye.