Explanations – 4: Hope, promise and a sour pot of soup
Did you miss the first three parts of this series? Find them here, here, and here.
That steady state market was achieved on 1st February 2015 when the Transitional State Electricity Market was declared by NERC. The same NERC stopped it on 24th March. Having barely got to that ideal state where we could say we had a true market, the market has fallen back and is frozen in that retrograde state. A regulator that issues three different tariff orders in 12 months without a material or devastating change in economic or technical conditions is not one that inspires confidence. It cannot lay claim to being credible. The pain and disappointment is very hard to describe. Nevertheless, as far as tariffs are concerned, Discos now have a very generous tariff that appears to exceed “cost-reflective”. The only fly in the ointment is a Federal High Court order restraining NERC and Discos from increasing tariffs. There is also news of a House of Representatives resolution that tariffs should not be increased. These are extra-regulatory interventions by third party stakeholders that raise a whole new dimension of uncertainty.
Does it mean that every time a tariff process is completed (these are long-running processes), a High Court Judge or the National Assembly can issue a stop-work order that effectively increases the losses being incurred by particular parties or prevents necessary capital expenditure from being undertaken until these interveners are satisfied (which could be whenever)? Both the legislature and the Judiciary look set to introduce serious but perhaps unintended dire consequences if the situation is not well managed. Surely, there must be a way to enable aggrieved customers have their day in court while also permitting the legitimate business of the electricity sector to proceed.
Today is the effective date for these new tariffs established by MYTO-2.3 to kick-in. I can’t say more on this now because that may amount to contempt of court. Suffice to say as a general proposition, however, that I am yet to see a court of law in a liberal economy (even one like ours) that could order the laws of physics, economics and finance to stop working naturally. That would be the definition of futility. So let’s wait and see if tariffs will be changed and, if they are, what the judicial consequences would be. Much wisdom is called for here. The situation seems to have reached an inflection point with major players in all 3 arms of Government – Executive, Legislature and Judiciary – seemingly poised to make far-reaching regulatory interventions; with what seems to be inadequate information and understanding of the Nigerian energy (gas-to-power) market. There is unbelievably much to do that has not started. Yet until this fundamental tariff matter is resolved, very little else will get done.
There is cause for grave concern. The biggest challenges in the Nigerian electricity industry today are poor communications, uncertain policy guidance, a regulator with ever-dwindling credibility that needs to be given capable leadership, deep distrust of the entire market by customers and a lack of clarity by most stakeholders about how the energy space from gas supply through generation, transmission and distribution to the customer is a closely interconnected matrix that calls for understanding and patience. We do not seem to realise the implications of the stark truth that what we have is a market that trades an average of less than 3800MW daily and collects less than 60% of the required revenue. In a country the size, population and ambition of Nigeria this is effectively nothing.
We have missed the bus of energy market growth and development each time it has come round to Nigeria since 1960. We are blissfully unaware that what we really need to serve us STILL DOES NOT exist and has to be built almost from scratch for decades into the future in order to catch up with our massive energy deficit. We do not appreciate that we do not possess the financing and management capacity internally to undertake this physical upbuilding. It cannot be done without significant financing and project/engineering management capacity, two vital ingredients Nigeria does not have. We stumble on, swearing by that dubious mantra: “we have a huge, untapped market.”
If we had the 150,000MW-plus market, that we would have now if we had enjoyed the benefit of focused, competent and honest leadership, if we had made sensible plans and used our resources in the right way, maybe we could afford the luxury of freezing our market in time for as long as we have, holding back the further development of the market and by implication the country itself. This cannot continue without grave harm to people and country. The need for upbuilding itself means a nuanced interplay between time, finance, law, regulation, economics, engineering, common sense and above all, honesty and good faith. Take one of these components out and we all have a serious problem, as indeed we have had for quite a while.
Electricity market reform is like a good and healthy pot of soup. You have to trust your chef to know what h/she is doing. If we all leave the dinner table and go into the kitchen to poke and tinker around and take turns at stirring the pot, its contents go sour and we all go hungry. At some point, electricity/energy policymakers will realise the harm being done to the country by the start-stop-change-delay-fight-for-turf style of management that has beleaguered the electricity sector since 2006. Will there be another chance to do the right things consistently and thus restore hope and fulfil our promise? That day will surely come and the penny will drop. Hopefully, it will not come too late.
