Electricity In Nigeria: Getting The Transitional Market Right (1)

(By Okechukwu Ebirim)

It must, however, be clearly stated from the outset that the principal goal of the power sector reform is not merely to change the character of the sector from being public sector driven to being private sector led. Rather, the target and expected outcome of the reform is to ensure improved service delivery. Thus, just as the liberalisation of the communication sector lifted the economy from 415,000 telephone lines to about 80 millions of GSM lines, it is expected that the kilowatt hours of electricity available to every house hold in Nigeria will quadruple. The Transitional Electricity Market being the flag off point for this new epoch must therefore be made to operate seamlessly.

THE ongoing power sector reform in Nigeria is clearly getting to its most crucial phase from where it will either fly or flounder. So much is at stake as the outcome of this process not only forebodes the economic destiny of Nigeria but also puts the trust factor between the government and people of Nigeria at stake. Promises have been made and monies have exchanged hands between the government and investors in the new power sector. It is worthy of note that on 21 this year, the curtain fell for the preferred bidders of the Power Holding Company of Nigeria (PHCN) successor companies to satisfy a condition precedent to their takeover of the assets for which they bided. It is confirmed by the technical committee of the National Council on Privatisation (NCP) that most of the preferred bidders for the successor companies met the deadline for the requisite payments.   The stage is therefore set for the Transitional Electricity Market to take off. The minister of Power is, therefore, being awaited to blow the whistle once the right signal comes from the Nigerian Electricity Regulatory Commission (NERC).

   It must, however, be clearly stated from the outset that the principal goal of the power sector reform is not merely to change the character of the sector from being public sector driven to being private sector led. Rather, the target and expected outcome of the reform is to ensure improved service delivery. Thus, just as the liberalisation of the communication sector lifted the economy from 415,000 telephone lines to about 80 millions of GSM lines, it is expected that the kilowatt hours of electricity available to every house hold in Nigeria will quadruple. The Transitional Electricity Market being the flag off point for this new epoch must therefore be made to operate seamlessly.

   The Transitional Electricity Market is a phase of the power sector reforms when all electricity trading arrangements will be consummated through contracts. Otherwise known as the bulk trader, the Nigerian Bulk Electricity Trading Plc (NBET) has a critical role to play with respect to contracting during this phase of the reform. The Electric Power Sector Reform Act imbues it with the powers and duties of bulk purchase and resale of electricity as well as ancillary services. Acting as a middle man, NBET is expected to have signed Power Purchase Agreements with successor Generation Companies (Gencos) and viable Independent Power Producers (IPPs) for the bulk purchase of electrical power. It is equally required to sign vesting contracts with the Distribution Companies (Discos) for the resale of electricity to these entities. The role of the bulk trader is primarily to facilitate the trading of electricity between power producers and distributors by enabling them overcome the inertia which may be caused by concerns about credit worthiness on the part of the power distributors. This is in view of the fragile financial state of the Discos which have not enjoyed transparent and efficient management under the old electricity regime. In other words, the bulk trader stands in for them with a view to purchasing the generation capacity of the Gencos and the IPPs. It is now left for the bulk trader as a special purpose vehicle to ensure that the Discos meet their credit obligations to it under the vesting contracts. Nevertheless, there is no inhibition whatsoever preventing Gencos or IPPs from dealing directly with viable Discos and eligible customers. This means the bulk trader is not designed to become another monopoly dictating to the sector but only a catalyst for the gradual introduction of competition into the electricity market.

   Under the Transitional Electricity Market, the Market Operator and the System Operator are saddled with enormous responsibilities. These are two departments under the Transmission Company of Nigeria (TCN). While the Market Operator is charged with ensuring a fair and efficient market settlement and payment mechanism, the System Operator has to ensure a well planned transmission system.   Thus, while the Market Operator will be expected to administer the market rules, the System Operator is expected to effectively operate the Grid Code.

   The market participants such as Gencos, Discos, IPPs and the bulk trader have the duty to furnish the market operator with details of the contracts they enter into. In this light, the market operator has an obligation to maintain a contract register. This register facilitates his market settlement functions. Participants are also to furnish the market operator with details of the characteristics of their equipment as specified in the market rules and provide updates as soon as changes are made to them. Participants are also under the obligation to maintain market settlement accounts as well as the requisite security cover. During the Transitional Market, the Market Rules require that the amount of security cover to be maintained by each market participant is the estimated total amount due from such person from the next three billing periods. The billing period is at the moment defined by the Market Rules as a month. In the operation of the market settlement system, the market operator is required to produce market settlement statements. There are the preliminary and the final statements. Participants have a right to point out any errors or discrepancies in the statement while the operator has a duty to verify and effect corrections where the complaints are genuine. The market operator is also to issue invoices to market participant who should be making payments based on their market transactions and issuing letters of credit to market participants who are to be paid for their market transactions.

   Market participants have a duty to the System Operator to obey dispatch instructions. Electricity producers with equipment having the requisite capacity also have an obligation to submit nominations to the System Operator for the purpose of dispatch scheduling. They are to provide, in addition, the ancillary services specified in the Grid Code. In relation to the market operator, market participants have a duty to inform it of any likelihood of default on their part in relation to the extant Rules. Market administrative powers also entail that the market operator has the power to issue disconnection, suspension or termination orders against any market participant who is in default of extant rules or the Grid Code and has failed to comply with the terms of any notice of default. However, all participants have a right to non-discriminatory system operation and market operation services.

To be continued.

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