We Will Create A Strategic Sector Profile – NERC Chairman

Sam Amadi is the chairman, Nigerian Electricity Regulatory Commission (NERC). In this chat with LEADERSHIP WEEKEND, he opens up on the crisis facing the electricity sector in Nigeria and says that the task of accomplishing set objectives is a must-do. He also speaks on planned tariff of the sector, saying Nigerians will have a say in the price to be paid for electricity.

Let’s start with the proposed privatisation of the energy sector. How ready is your commission for this?

The commission is not the transaction executor; it is the Bureau of Public Enterprise(BPE), that is executing the transaction leading to the privatisation, but as the only regulator, whatever the body does they inform us. So we are very ready because before now we had developed a structure that allows for fair pricing, standards enhancement, highest level of performances in the industry and some certainty in terms of entry and exit for the industry that give investors confidence to invest and also streamline process for issues about safety, development, capital/digital quality electricity installations. These have already been sorted out by the regulations, so we are very ready. The industry is not designed just for privatisation. We need a lot of strategy to bring the efficiency and induce competition in the sector.? We are ready to regulate the sector.

How convinced are you that privatisation remains the best option?

I am not ideological about privatisation, but I think that all over the world, ideologists have lost the debate. For me privatisation should be a pragmatic strategy. Sometimes people see it as a one-side fit, but that is not correct. You have to do a diagnostic of your situation and see what is reducing the inefficiency in this sector. I will assume that the policy makers decided on privatisation as a solution and would have done that after looking at various interventions, privatisation, regulation, improvement of public sector management, higher level of corporate codes, good governance, good corporate practice and all that.

So even in privatisation you can decide to totally sell off all assets in one bazaar.
?It also diverges shares gradually through infusion of private innovation equity, discipline and all that, and of course infuse private sector financing. What you should bear in mind is that across the world, privatisation has taken off within divergent cultural economic and social medium. Sometimes it’s a concern about budget deficit.? Strategically, it’s better to pull out from a subsector where there are ready primary sector funds to go in. That is why I said it is pragmatic. In other places like? Africa and Latin America, it has been on the wave of certain ideologies.

?The pragmatic way to go is to say that the history of government company business in Nigeria is disastrous for one reason or the other. Now, the question is: Do we fix the politics of public sector management, or do we lazily go away? ?

What I see in driving privatisation in Nigeria is that the government is incapable, inefficient, corrupt and unwilling to fight these ills. Otherwise there is nothing that says the public cannot own public enterprise, especially for utilities. In other places across the world? there is a growing sense of real marginalisation of utilities because there are also some advantages with public ownership of utilities. In places like India and Canada, some privatised entities are being taken over by unbundling.? Today, I think there is greater consensus that PHCN/NEPA has been a disaster. And I’m not sure anybody is convinced that if you leave it as it is, except there is a total drastic change and that change is hinged on the bigger Nigerian political economy, the private sector under proper transaction framework will bring in more efficiency and benefits.

Is the targeted 5,000 megawatts by December this year feasible, taking into consideration past failed pledges?

It is totally feasible, and if it is not feasible it is totally disastrous. Why should we be hung by just an additional 1,000 megawatts? That is the problem, and I think you are right. But we have to make a point, whether to be cynical or optimistic. We have to decide between being trapped to the sorry past of no improvement, being a victim of the past, or having some guided realistic optimism. I think they have to go and crosscheck on what basis this man is saying 5,000 megawatts.? I look at them, and as a regulator I see the framework because there are some plants that are due for commissioning,? either because there has been no sufficient gas supply facility for evacuation, or sloppy in effectively making distributions. If things work faster than usual we can get more than 5,000 megawatts. If it doesn’t work differently but? a little better than it was as we are trying to make it, we are sure that additional megawatts would come in from there.

What has been your basic challenge since you resumed office?

I think the first basic challenge is to really understand the sector in a superficial technical basis.? What is the pathology here, and what has been driving them for the past 50 years? As one who is trained in the public sector reform I understand that institutions are keen on performance. You look at the institutions, including the regulator (NERC). Why does this industry underperform? Why is this industry full of corruption? Is it in the nature of the industry, is it in its structuring, and is it in the engagement of the rules of engagement? What is really wrong? That is the first challenge against the task of managing this industry as NEPA MD or PHCN MD, or as the minister of Power.

?Recklessness is where Nigeria has problems. I won’t like to say Africa so that you don’t blackmail a race, but it seems that we lack understanding. This independence is a function of rules, not their absence.?? Independence is accountability, responsibility, and it creates a process that gives the confidence that one is not discretional and is not arbitrary. You don’t create the impression that he is doing whatever he likes, that is why we have a code of conduct and have publicly declared it. We are putting it to the industry.

Again, we have had to be efficient in the use of resource outcome and engagement. You know we want to make sure that we are sustainable and able to practise what the pricing system would allow them to recover. We want to make sure that the price tariff structure allows for this. ?

Cardinal to this is deregulation, and we take our model from America in a democratic regulation, where you don’t just fix the tariff. For the price tariff, you just have to get the consumer to key into the vision. We are going to have a public hearing before we finalise the tariff. We will justify why that kind of tariff is the right kind for you and the investor; and with this discipline the sector will change.

?Beyond this is what is really wrong with the sector, namely, governance, not technical. The problem is not because of lack of technical capacity, it is governance. Our education system is sunk in mediocrity. My priority is to reset the institution in the power sector through regular intervention.? That is one discovery and it is not just about hiring in the sector, it is not about engineers, it is not about lowering the sector and is not about raising the tariff. It is about creating all the specific disciplines that will ensure that once the investment is made, it is well managed, expanded and upheld in such a manner that even when we raise the tariff the proceeds of those tariff go to serve consumers.

Are you comfortable with the conditions the Americans gave for investing in the power sector in Nigeria?

The thing about America and business is a different ball game. You see, the American government does not fully know what their corporations do. It is true that if you look at the response in the power sector in terms of privatisation, Americans have not been in the front as the Asians who are more enthusiastic about investing in our project, obviously because the Americans are a little bit constrained by business ethics and structure in the country.? There are many things they will not do which the Asians will do very well.

Secondly, the American energy market is a big one, so they are probably busy at home. Though they want to go out, but they are not as foot loose as the Asians.? The point is that sometimes we are over responsive to foreign issues about investment in our country. I have always held this view that too much of this so-called lobbying and propaganda sometimes is a waste of time.? If you govern well and this place looks attractive, they will come.

The American government is not going to stop them; they didn’t stop them from going to Latin America when there was profit to be made. In fact, right now if you go to Iraq these guys are there, they are everywhere in oil business and reconstruction since there is money to be made. So if this sector attracts the Asians, then let them have the fair reward, especially if we improve on the environment, which is very critical because government policy gives the assurance of continuity. If government says we are going to continue with this policy but does not convince people for instance tariff, if it is not legitimately acceptable and it provokes civic unrest for example, then there will be no guarantee for that tariff to be there.

This is why policy makers need to be very careful. Yes the investor would like high tariff but most investors would prefer certainty about tariff and how it decreases and increases. His main concern would be that if I’m investing in, I’m recovering in. So one good thing about certainty is that the investor, the consumer,? the regulator, the consuming class, the policy maker are stable in their expectations. I think we should really focus on getting the basics right and create the right policy environment.

Could you shed more light on your recently introduced embedded generation?

The ‘’embedded generation’’ which we recently introduced to stakeholders is an attempt to deal with the energy crisis in the area of shortage of supply. One of the reasons we don’t have effective transmission is because of transportation constraint. We have a plant in Abuja and it cannot connect with Makurdi because of inadequate and may be the cost of transmission. And the transmission company cannot foot it. Now this embedded generation simply means that you can connect directly to the distributor who is connected directly to the transmission.? What that means is that if you have a plant here, say 10 or 5 megawatts, you can be in Garki? and draw power to connect directly to the distributor without going to the national grid; and that power would be dropped in Abuja.?? ?

You are not going to think about transmission cost because ordinarily, we have power. You are only going to think of how you are to evacuate it to the transmission point where it will be taken from you and put in the national grid and distributed to everybody. So the power that is generated here might not be the one consumed here. But now there is a dedicated power. The FCT minister, for instance, has said the power sector is going to have additional capacity to service industries, like in Lagos for instance, where you have industrial clusters. That is critical so that government can decide to have 24- hour electricity.? If such is connected to a good distributor who serves it under an agreement, cluster would be reduced. But there still needs to be regulations,processes, practices and some standards that will ensure that we can have a form of decentralising power system, where people can also site small power holding without having to go to the grid.? ?

The difference between mini generation and capital generation is that in the latter you are connected to the distributor who is connected with the transmission. And this law is also joined with other laws called independent electricity distribution network. So we also try to allow a process for independent distribution to address some of the problems we are witnessing in Lagos and Rivers states where they are saying they have the power or capacity to generate power. They want to have their own distribution company but we are saying no.

But we can now have independent distribution network, and that will be allowed where there is no distributive network like in some states where the state government can say, ‘‘this network is not extended to our state.’’? They can apply and be licensed to become independent distributors, but you must show that there is a need. Absence is there and the monopoly distributor is not capable of serving that site. These rules and regulations are aimed at creating an enabling environment that allows for increase in capacity, as well as proffer solutions that will overcome the constraints of transmission and distribution.

What is the place of the Code of Conduct Bureau you recently put in place in your commission?

As you know, there is a temptation for safe-dealing, but corruption is very high; for example,? in the area of tariff. Very soon we are going to enter into tariff issues where distribution companies will come to us and say, this is the tariff, or give us the tariff so you are not captured violating it in any way with lame excuses. For example, our law says do not accept any tariff above N35. If in any way you multiply it, there will be some kind of structure that will constrain you.

Like I said before, independence is actually based on rules. I remember the sign in Harvard Law School, I think, it says, ‘’Enter ye here to learn of those wise constraints that make us free.’’? Independence does not mean that you do as you like, but that you are guided by the rules. What we have done is to gather a staff that is ethical and honest, but we don’t want to leave it to their incorruptibility. We are going to constrain them so that they are bound, empowered to be able to say when someone is not doing what they should be doing and sanction such a person. These are the awesome powers of the regulator. What actually gives the market confidence is that this regulator is rule bound and has committed to some set of conduct such that it becomes a performance management issue. And we have a chief compliance officer. ?

The idea here is that a stakeholder can report back that his license has been delayed because XYZ made so and so offer and the person be sacked because it has been identified that this sector is dying because of corruption like every other sector in Nigeria.

Sadly, people who are supposed to manage the place are benefiting from that place, so they have no capacity to ask critical questions and make decisive and fair decisions.? What we are saying is that we cannot deal with corruption? in the industry if we have not reclaimed the ethical high ground to give assurance and confidence to our licensed sales representatives. Perception of credibility is critical, that is what it is all about. If people see that we are doing what we are asking them to do it would give them confidence to comply and have fair expectations that the regulator would be fair. It’s a really competitive market, so we want to be sure that the regulator is competent for the competition.

Recently, about 18 companies were said to have been granted licenses to come into the power sector. Could you categorise these companies?
We have awarded several licenses. In fact, in another couple of weeks we are going to hand over more to about 8 companies. The law allows for this kind of business, which is actually the core of regulation for entry.? Most of these guys have demonstrated the capacity to attack the finance, get their equipment procurement and customs work on the way, as well as some reasonable agreement on gas supply. They have also shown us trustworthy ability. We review them and send engineers and technicians, then we license them as part of our objective. The primary aim, however, is to ensure availability.

When you leave, what would be your greatest achievement?

There are three things I want to do, including creating an institution that is intelligent and incorruptible,?? critical, efficient and knowledge- based. Those would be the combination, but it is mastering the industry that is ahead of the curve in terms of knowledge.

You see, the regulating entities are self- interested entities, meaning that you must be smart. The failure of the regulator to be at the top of the game will spell doom because they are empowered to effectively promote development. That is why we have created a lot of knowledge platform and distance learning programmes, all learning platforms because we want to be coordinated and efficient.

?The second key objective is that I would want to see an energy sector that is transparent and accountable in three ways: the investor knows what the regulator is doing, the regulator knows what the investor is doing, and the consumer knows what both of them are doing. That is stakeholder engagement, not just engagement. We have started talking with NGOs to bring a coalition around the power sector so that we do not just give information but organise civic consciousness around the energy sector.? That is critical in the idea of transparency and accountability. So it’s not just a matter of ethics but that of efficiency and accountability.

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