Business Hilights
Tracking Nigeria's Headline Business News Online

Untimely, inappropriate privatization root of Nigeria energy crisis—Expert

Former Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr Sam Amadi has opened up on the exact root cause of the endless crisis rocking the nation’s electricity sector, saying “We are offering band aid to a mortally sick patient.”

Giving insights in a recent interview, he noted that “On whether the proposed policy will be sustainable solution depends on the other reform efforts, I think this sector is in a big mess and the bigger problem is the lack of adequate diagnosis.”

According to him, “The sector is very sick, even unto death. The sickness is because of untimely and inappropriate privatization. The entire reform is good and we could have turned better if we had intensified restructuring of the electricity market, namely strengthened commercialization and corporatization and also deepen effective regulation.

“As David Newbery argues in his book, there is no demonstrated evidence of difference in performance of state-owned utilities and privatized ones without introducing competition into the services supplied into the network. Changing ownership alone would not make any difference. Between 2013 and 2019, we have seen the limitation of privatization. The only sustainable solution is one that recognizes this result and works to undo the errors of privatization through radical regulation.

ANED logoExplaining critical issues on the planned introduction of new regulation against estimated billing of consumers, he averred thatI think the biggest setback for the sector is the low rate of metering.”

“That’s the source of the scourge of estimated billing. Estimated billing is a double curse. First, it means that customers are overcharged and don’t have any capacity to control consumption since the bills mostly remain the same.

“For the discos, estimated billing is arguable a means of loss of revenue. Everyone benefits when we have accurate measurement of consumption. So why does estimate billing persist? The answer is that the financials of the sector cannot sustain rapid metering of customers except there is a huge public sector financial intervention.

“That is not even possible or advisable in the context of today’s fiscal crisis. So, the best solution is regulatory control. When we were in NERC, we set up the methodology for estimated billing which tried to bring scientific methodology to controlling the reckless and self-serving behaviour of discos. The discos argued that the methodology was difficult to operate. We tried using CAPMI to bridge the metering gap.

The former NERC boss recalled that “In the 2015 tariff, we inserted a provision that anyone who pays for meters for three months and did not receive meter will no longer pay for power. This was a very harsh move against the discos.”

“NERC did not implement it when we left perhaps because they felt it could weaken the already very weak discos. Now is that the time to do something. I believe that the proposal to cap consumption by unmetered customers is the right policy. The guiding principle is to push the crisis to the discos who can best manage it. If discos lose money through capping then there will be strong incentives to meter their customers.

Dr Amadi revealed also that “Right now, they are not feeling the pinch. They should feel it. That’s why it’s called incentive regulation.”