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MARKETING ELECTRICAL POWER IN A DEREGULATED ENVIRONMENT:

NIGERIA AS A CASE STUDY

Tunde Salihu, Olusoji Olatunde, Gloria Chukwudebe

Abstract
The electricity power supply in Nigeria has become a major cause for concern for
government since 1999; whereas over $20 Billion has been expended on electricity,
there has not been any appreciable success. According to a publication of the
Presidential Task force, titled Electric Power Investors Forum, Nigeria has an
installed capacity of 8, 644MW but currently produce about 3,781.80MW for a
population of 160 million as at October 2013 (Premium Times, November 2013). The
Power produced is far below the countrys peak demand level forecast of 12,800 MW
of electricity. To solve the severe power problems in Nigeria, the government on
November 1, 2013 handed over 10 DISCO (Power Distribution Companies) and 5
GENCO (Generating Companies), to private companies in order to attract additional
investment and efficiency. In this paper, the survey of deregulated electricity markets
of various countries and the challenges faced by the government controlled power
sector will be outlined; to assist the new companies achieve better ROI (Return on
Investment). With the present electricity market structure, each of the Distribution
companies will operate as a monopoly in their various zones, which may lead to
severe customer dissatisfaction. To mitigate this, various innovative measures and
controls will be recommended in the paper for the regulator, the providers and
consumers to ensure improved performance and sustainability of electricity supply.

INTRODUCTION
Since the handover of distribution to11 private companies in Nigeria, there have been
series of complaints from consumers on poor service delivery (poor or no service in
some areas), excessive billing using estimated billing instead of metering and on the
part of the DISCOs, some consumers attitude to bills payment, inadequate supply
from Transmission company, sabotage by staff and consumers, old equipment, cost
of fund and inadequate finance to purchase equipments and materials needed to
sustain acceptable customer satisfaction level and good return on investment.

With these level of challenges it is proving increasingly difficult for the DISCOs to
market power efficiently and attain greater customer satisfaction levels noticed in
other climes.

Sustainable infrastructural development, such as adequate Electrical energy supply


will lead to massive growth in economies of African nations, especially Nigeria, which
would lead to reduction in unemployment and civil unrest. It is therefore important for
this sustainable infrastructure, electricity, to be adequate and readily available in any
country.

Whereas it is common knowledge that in a capitalist economy, competition is one of


the incentives that drives better values for consumers, each of the DISCOs operate a
monopoly as a result of technical and economic nature of the industry. However, as a
result of negative consequence to government of poor service delivery, certain
conditions are embedded in the sales agreement the companies had with BPE, to
make compulsory investments for higher customer satisfaction, which the companies
are finding difficult to meet.

We shall examine these challenges and proffer appropriate solutions.

The DISCOS are listed below:

NO Name Address STATES COVERED


Abuja Electricity FCT, Niger, Kogi , and
1 Distribution Company Wuse Zone 4, Abuja Nassarawa
Benin Electricity No 5 Akpakpava Street, Edo, Delta, Ondo, and part of
2 Distribution Company Benin-City Ekiti
Eko Electricity
3 Distribution Company 24/25 Marina, Lagos Lagos
Enugu Electricity No 12 Station Road, Enugu, Abia, Imo , Anambra
4 Distribution Company Okpara Avenue, Enugu and Ebonyi
Ibadan Electricity Capital Building, 115 Oyo, Ogun, Osun, Kwara and
5 Distribution Company Ring Road, Ibadan part of Ekiti
Ikeja Electricity Secretariat Road,
6 Distribution Company Alausa, Ikeja Lagos
Jos Electricity No 9 Ahmadu Bello Way, Plateau, Bauchi, Benue and
7 Distribution Company Jos Gombe
Nagwamatse Building,
Kaduna Electricity Ahmadu Bello Way, Kaduna,Sokoto, Kebbi and
8 Distribution Company Kaduna Zamfara
Kano Electricity No 1 Niger Street, P.M.B.
9 Distribution Company 3089, Kano Kano, Jigawa and Katsina
No 42 Obiwali Road,
Port Harcourt Electricity Rumuigbo, Port Rivers, Cross River, Bayelsa
10 Distribution Company Harcourt and Akwa Ibom
Yola Electricity No 2 Atiku Abubakar Yola, Adamawa, Borno, Taraba
11 Distribution Company Road, Jimeta Yola and Yobe
These challenges are with the consumers and DISCOS.

CONSUMERS
All the DISCOs in Nigeria carry the baggage of over 3 decades of extremely poor
performance of the previous companies, PHCN and NEPA who are re-christened as
Never Expect Power Always which has led to poor perception. Most Nigerians are
still seeing all the companies as government agencies instead of normal private
concerns. This is making some people believe that Electricity is their right that should
not be paid for. DISCOs cannot access some locations to carry out billing for fear of
been attacked, like some places at Lagos Island.

Many consumers tamper with the DISCOs equipment and materials. Some even
collude with PHCN staff to alter the equipment, such as meters. In addition, some
communities have Electricity committees who have made themselves repair men
who go to the sub-stations to replace materials with substandard and/or overrated
materials (e.g. fuses) that end up destroying Transformers and other materials.
As part of this paper, we carried out a study of payment of bills by Welders located on
east-west road between Rumuokoro to Rumudara junctions; Among the 10 welders
surveyed, only 2 regularly pay (Between N2, 000 and 6,000) bills, 1 pays once in a
while through his landlord, 2 does not pay at all and 4 pays to PHCN/PHED officials
who do not remit the money to PHCN/PHED.

Some consumers are not getting supply at all as a result of faulty substation
equipment, poor or old distribution cables and accessories and poor/no/inadequate
supply to certain areas for technical/economic reasons.

There is resistance to change within and without the companies.

DISCOS CHALLENGES
The problems of the DISCOs are many 8 and common but some are peculiar, but the
most pressing is that the current demand of 12,800Mw is higher than nationwide
production of about 3,700MW. This is directly affecting their income as the MD of
Kano DISCO, Dr Jawil Gwanma said in an article in Guardian1 that at purchase, BPE
guaranteed them 80MW of supply, but they are being given 40MW part of which
20MW is committed to Niger Republic, leaving only 20Mw to service 13 business
units in Jigawa, Katsina and Kano states.

The challenges in the area of poor supply from the national grid can be demonstrated
further from a global perspective by reviewing the table below using data sourced
from world bank2 and Wikipedia3 websites:

Country POPULATION 2011 KWHr/Person


Angola 20,609,294 5,651,000,000 274.20
Australia 23,496,100 252,572,000,000 10,749.53
Bangladesh 151,000,000 44,061,000,000 291.79
China 1,364,550,000 4,715,716,000,000 3,455.88
India 1,241,310,000 1,052,330,000,000 847.76
Iran 77,445,000 239,705,000,000 3,095.16
Nigeria 173,615,000 27,034,000,000 155.71
Pakistan 186,499,000 95,258,000,000 510.77
Poland 38,496,000 163,118,000,000 4,237.27
Portugal 10,477,800 51,884,000,000 4,951.80
Russia 143,700,000 1,053,116,000,000 7,328.57
South Africa
52,981,991 259,576,000,000 4,899.33
UAE 9,346,000 99,137,000,000 10,607.43
USA 318,070,000 4,326,625,000,000 13,602.74

Table 2: kW/h produced by some countries per person.


We have picked a few countries from different parts of the world and economic status
to demonstrate that Nigeria is actually performing badly when compared to other
countries of the world. It is particularly disturbing that Iran that has been under
economic sanctions for over 30 years is able to have 3,095.16KW/Hr per her citizen
as against Nigeria with just 155.71KW/Hr per citizen.

What is further worrisome is that the DISCOs are not able to deliver all these power
from the grid to their consumers because of commercial and technical losses as
stated in a publication of Sunday Punch of April 13, 2014, at page 25.

Vandalism of gas pipeline, electrical materials (Armored cables, transformer oil,


gantries and so on) and fixtures by saboteurs/vandals tend to disrupt supply and lead
to great losses in cost of repair and replacement.

It is more worrisome that the database and/or statistics available are grossly
inadequate and there are no plans/facilities to rapidly improve the situation. For
example, no DISCO in Nigeria can claim to have 90% valid information about their
consumers.

TECHNICAL LOSSES
The main reasons for technical losses are over age, weak and under-sized aluminum
conductors (wires) 4,8, and poor condition of the sub-station equipment, lack of and/or
shortage of replacement parts, very poor logistics equipment and poor response time
by staff.

There is a nationwide overloading of the system elements like transformers, feeders,


and conductors and so on.

Insufficient reactive compensation such as use of capacitor banks at appropriate


points in the network to reduce losses.

COMMERCIAL LOSSES
As demonstrated above, the DISCOs are not able to meter all consumers
appropriately because only about 25% of consumers are actually metered, as
demonstrated by a snap study we carried out as part of the this paper. In the same
publication referred above The DG of Bureau of Public Enterprises, the body that
midwife the sales of the companies said: The investment to be made by the DISCOs
must cover the commitment they have all made in the following arrears: metering
(about 6million meter), health, safety and environmental practices: reduction in the
number of customer interruptions due to network faults; new customer connections
and network expansions; and improving customer services and complaints.

Unfortunately, as a result of the type of loan capital that was used to purchase the
DISCOs, the fact that the ownership of the companies are not properly spelt out and
the non resolution of ownership in respect of the power equipment in the distribution
network owned by the State, LGA and some other government agencies, the DISCOs
are facing multiple problems keeping money aside to meet investment required to
improve their services to the consumers.
To bring home this point, the Senate Committee on Privatisation and
commercialization, led by its Chairman, Olugbenga Obadara, during a courtesy visit
at Government House, Port Harcourt as reported by Kelvin Ebiri, in The Guardian of
14 May, 2014, heard this from Governor Amechi:

We generate 545 megawatts, and we are also building another 180 megawatts, and
before the end of this year, we will have 715 megawatts. We asked them, how do we
get 24 hours power supply, and they told us, we should invest 13 billion naira more.
We have already paid 5 billion naira as take-off grant, and our target is that before the
2015 elections we should have regular power supply. We are funding now, and when
the project is completed, the federal agencies collect the funds and nothing comes to
us.
The privatization is not complete, the federal agencies collect the money we
invested and own the infrastructures or we are ready to buy you out and own the
power distribution network in Port Harcourt. We are tired of complaining about
power. On your way to the federal government Afam Power Station, also ask them to
show you the state government Afam Station.

As stated earlier, there is a great amount of energy theft by unscrupulous consumers,


which leads to low revenue collection, thereby making it more difficult for the DISCOS
to break even.

Some other causes of commercial losses are (1) insufficient billing (2) Low meter
efficiency (3) Faulty or non-reading of meters (4) Software errors (5) Prolonged
dispute (6) Inadequate revenue collection centers.

METERING AND PRICING


There have been calls by the DISCOs to increase the fixed and variable charges
contained in the MYTO II9 (Multi Year Tariff Order), in order to address some of the
issues addressed above, but we say clearly that increase would on its own not solve
the problems as demonstrated in Fig 1 below, which compares price and purchasing
power parity in some selected countries:
Fig.1 Cost of Electricity Power at 2011 in Cents/kWh in some Countries.

As can be seen above, the cost in Nigeria using the 2011 figures is the third highest
among the 17 countries surveyed at an amount of 29cents which is bigger than South
Africas own standing at 14 cents. Now, using the figures in MYTO for 2014 as
published by NERC, the rates has gone up; but Nigerians are actually ready to pay
more because the total cost (including noise and other inconveniences) of using
generator in Nigeria is by far higher than supplies from the DISCOs.
Also, the amount of funds required to fund the investment required to drastically
improve power is huge; for example, to purchase 6million meters at N35, 000 each is
an investment of over N210, 000,000,000.

RECOMMENDATIONS
As a result of neglect over the decades, investment in our Power sector has not
matched growth in demand due to increase in population and economic activities and
so the challenges faced by the DISCOs are enormous and require fundamentally
different approaches to enable them rapidly improve power supply to consumers in
the country.

We therefore suggest the following recommendations taken into consideration


worldwide best practices mixed with our local condition:

a) The DISCOs should be further broken down to smaller entities possibly


reflecting a company per state and in some cases breaking a state into two
and sold off with each state government encouraged to take up shares in
these companies.
b) The Federal government in addition to its pivotal role in generation and
complete (temporary) ownership of the Transmission company, must create a
special Power Fund, that must be resident with CBN and administered by the
Bank of Industry, with especially low interest rate and long term, that can be
accessed by the DISCOs to fund their capital investment
c) The DICOs need to embark on a massive campaign of re-orientation of their
consumers on the mass media, regular consumer meetings/interactions and
personal contacts
d) Each of the DISCOs needs to conduct thorough profiling of their workforce
and ship out those with poor attitude to work and customer. They should then
take the staff at all levels through TOTAL QUALITY MANAGEMENT and
reorientation training that would last a year with a view to making every staff
at all levels recognize that the customer is the purpose for their employment.
e) The government of Nigeria must highlight at international trade shows, our
embassies and at every opportunities that presents itself the great changes
that have taken place in our electricity regulations, to make the industry
attractive to investors
f) Provision should be made to allow for Business groups (Clusters) who can
pay in advance for guaranteed Service Level Agreement (Assurance). This
will make more funds available for Discos for Infrastructural expansion and
development. It will also motivate DISCOs to perform at a higher level of
service delivery and so reduce outage to consumers in general.
g) To break the monopoly, new big industries should have the option of choosing
a disco to be connected if they can contribute to linking transmission line to
their factory. Example an industry in Aba (or Aba-Port Harcourt Express road)
can join PH Distribution Company, instead of Enugu Electricity Distribution
Company.
h) Again to mitigate (minimize) the natural monopoly in power sector, license
should be given to new investors who may want to develop mini power grids
using renewable energy sources (for example, biomass, solar, wind) to serve
clusters of consumers who will be willing to pay for alternate power supply.
Also this will be very good for off grid locations in Niger Delta or other remote
areas of Nigeria.
i) Discos should strive for Quality Service Support Practice excellence, which
must immediately put in place Preventive Maintenance scheme, it will reduce
operational cost and technical losses; E.g. routine checking of transformers,
feeder pillars, line tracing, cutting of trees, replacement of wooden pillars,
crossbars, spoilt insulators and scheduled maintenance of sub-station
j) DISCOs should embark on massive campaign and customer forum sessions
to win consumers and get feedback on business improvement. They should
have functional Call Centers for fault reporting and intelligence gathering
(people can give info on illegal connection, bi-passing of meters, trees and
branches on lines, etc)
k) The regulators, NERC, BPE and so on should force the DISCOS to
aggressively install pre-paid digital meters in line with their purchase
agreement with government, to reduce estimated billing and thus encourage
consumers to pay their bills regularly

l) Discos should be compelled to have online portals for complaints and


commendations which the regulator, NERC can audit to use to monitor the
SLA for hours of blackout/outage. This portal should be both SMS and email
compliant. It should also be complemented with call Centre support. The
Regulator should also have a complaints\commendation portal for GENCOS,
DISCOS, consumers, TCN and all Stakeholders. This will help NERC to
release monthly report card for all players.
CONCLUSION
In spite of the numerous challenges in power distribution in Nigeria currently, a
number of countries in the world have achieved great results by privatizing there
electricity industry, thereby relieving governments of a major political problem.

We believe Nigeria can achieve great results by implementing the recommendations


above, followed by proper and coordinated monitoring by NERC and BPE.

May, 2014

REFERENCES
[1] http://www.theguardianmobile.com/readNewsItem1.php?nid=19902
[2] http://data.worldbank.org/indicator/EG.ELC.PROD.KH/countries?
display=default [3] http://en.wikipedia.org/wiki/List_of_countries_by_population
[4] Electricity Consumers Paying for Investors Losses-Source The Punch, April 13,
2014
[5] http://www.thisdaylive.com/articles/know-your-disco-ibadan-electricity-
distributioncompany/172333/
[6] Market Structure and Competition: A cross-market Analysis of U.S. Electricity
Deregulation December 2003, Jane Bushnell, T. Mansur & Celeste Sarava [7]
http://businessdayonline.com/2014/02/eko-kano-discos-open-new-path-seek-offgrid-
power/#.U3o1fCgcZYE
[8] Power Distribution Problems on 11Kv Feeder Networks in Akure, Nigeria
November 2013, A.O. Melodi, P.T. Ogunboyo
[9] MYTO 2 By NERC Nigeria
http://www.nercng.org/index.php/nercdocuments/MYTO-2/