By Victor Ogiemwonyi
In the past few days, the nation has once again been thrown into darkness due to another collapse of the national grid. This has become a consistent problem, underscoring the fact that the national grid is no longer fit for purpose. To accelerate “light-up” of Nigeria, we must act quickly to build new transmission grids that can distribute the power being generated and deliver electricity to the country. The need for electricity is so vital and urgent that the government must do everything to accelerate this process.
This acceleration is achievable, we simply need to focus on it. No other infrastructure project is more critical. The benefits of moving forward with this now, far outweigh the delays in other areas.
No budget allocation for this project would be too big, because if we can light up Nigeria, all other infrastructure deficits will be halved. When there is electricity to power our industries and workplaces, the cost will be quickly recovered, and the increased productivity will positively impact the economy in every way.
Luckily, a very comprehensive Electricity Act has just been signed into law.
A few years ago, the main obstacle was thought to be insufficient electricity generation. To address this, electricity generating companies were encouraged and incentivized to produce more power. We hear that over 12,000 MW of electricity is being generated today. Unfortunately, less than half of that power is delivered to the national grid, which is supposed to transmit it to the Distribution Companies (Discos) that ultimately deliver it to consumers across Nigeria. The national transmission grid is now the weak link in our electricity supply chain. It is so critical that the Federal Government of Nigeria (FGN) retained it and refused to privatize it, unlike the distribution end of the value chain. However, the FGN’s decision to hold on to transmission and not privatize the national grid is now the reason we are constantly in darkness.
During the past week, before the most recent grid collapse, I read somewhere that unless the estimated N2 trillion that the generating companies claim the Federal government of Nigeria owes to them is paid, it will be “lights out.” Energy executives recently met with President Tinubu to present this claim, and the President promised to look into it.
This bill is a source of anger for some Nigerians, who argue that we have not seen the value associated with this N2 trillion claim. Some even say that the Power Purchase Agreements (PPAs) signed by the government to incentivize generating companies with a guaranteed “power off-take “ are a scam. They argue this, because more than half the power generated isn’t distributed and, since electricity cannot be saved, it goes to waste while the government still has to pay for it.
Let me state right away that I am not in the camp calling this a scam. There are existing agreements, signed and executed by the government, to pay for the power generated. If you are one of those who want the government to be consistent in its policies and follow through on its promises, we should ask the government to find a way to pay this debt and create new agreements going forward that incorporates the lessons learned from the existing ones. Not paying this debt also has implications for our banks, which provided loans to support these electricity generating companies based on the government’s assurance that it would purchase and pay for the power generated.
So, the conversation should be, how do we pay these debts and make it productive? Whether we admit it or not, the policy objective to generate more electricity has been achieved. The PPA is not the problem. The new, unforeseen problem is the transmission of electricity. This is where the focus should be: getting the generated electricity transmitted and distributed.
In my article last week, I asked the electricity generating companies, “If you produced other products and no one was paying for them, would you continue to produce?” Of course, the answer is no. Electricity generating companies must realize that the solution must include them if they are to remain in business. They cannot continue to generate electricity and dump it into a national grid system that cannot transmit it.
..,.,Retrieving gas to turn it into electricity and then discharging it into a non-working grid doesn’t make sense….
….We are finally making use of gas that we use to burn off, but we are now throwing away the electricity generated from it, because it cannot be used….
The generating companies must work with the government to ensure that what they produce is transmitted and distributed to consumers. If they continue to produce electricity that goes to waste, their business is threatened, and they will eventually go out of business. The PPA agreements will expire, and no one will renew them. The banks also cannot continue to give loans that are not being serviced or repaid.
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My suggestion is to focus on paying this debt in a creative, value-adding way. We should create a fund that securitizes this debt and establishes a new, market-driven funding avenue focused on the rapid development of our electricity markets. Monies from this fund should be used to support new electricity grid development throughout the nation by states and regional governments. A matching grant format could be used to attract investors to this sector.
The government can use a recoverable debt instrument to inject money into the rapid development of our electricity supply. This could be done by creating a discountable instrument backed by the Federal Government, with incentives like tax-deductible interest receivable, and selling it to the investing public—similar to how Federal Savings Bonds are sold today. This would be a perpetual instrument that does not add to the government’s debt because it pays for itself. This would be the best way to create an acceptable revenue fund to solve our electricity problems once and for all.
Its repayment would be tied to a 5% reserve fund collected from all electricity revenues throughout the value chain. This would allow the existing debt to be paid from this fund on a scheduled repayment plan, with a tradeable value that allows the investor to hold it only as long as they want. It would be a readily acceptable instrument to discount and trade.
The need to quickly solve our electricity problem is urgent because everything else in the economy will work better if this works. Ask anyone in Nigeria today about the impact electricity would have on their lives; everyone will agree it is significant. So, let’s focus on it.
The current national grid is a “dead horse.” If we are not careful, it will become like our refineries that continuously gulp billions of dollars for turnaround maintenance that produces nothing. Despite the contract with Siemens of Germany in 2020, I hear we have only achieved 40%, and instead of things getting better, they are getting worse, which suggests this is not the right solution. We are too large a country to have a centralized electricity transmission system. Regional grids would ensure that when Boko Haram sets fire to parts of the grid in Gombe, the entire country is not thrown into darkness. It would make it easier to have right-sized grids. For instance, Lagos cannot have the same grid size as Osun. Lagos will have a grid that can handle its load and work efficiently and effectively.
We must also accelerate the development of solar grids, for areas that are most suitable for them, such as rural areas. This can be done quickly and also funded from the fund I am proposing here. It is only when we take all energy options into consideration, that we will get to the quick solution we need.
Victor Ogiemwonyi is a retired Investment Banker, and writes from Ikoyi, Lagos
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