Nigeria: Ohiare - Why NERC Must Activate Funding Mechanism for Rural Electrification

20 October 2020
interview

Dr. Sanusi Ohiare is the Executive Director, Rural Electrification Fund and board member, Rural Electrification Agency. In this interview, he tells Emmanuel Addeh why it's unfair for the Nigerian Electricity Regulatory Commission to continue to delay the funding sources for the body

Nigeria recently celebrated its 60th anniversary. In your view, how far has the electricity industry come?

When we gained independence, what was the state of our power sector? As you may know, rural electrification started in 1981 when the then NEPA sought to electrify all the local government headquarters in the country. The aim was to reach all of them. If you are electrifying just the headquarters, you are not really getting to the rural areas. So, for a start, that was the objective under NEPA. Under the ministry of power, they had a department in charge of rural electrification. So, I will divide our history into two: the pre-reform era , which we can say is between 1960 when we gained independence to 2005 when we started the reforms and then from 2005 till now.

So, what were the features then? How's that era different from now?

It was a monopoly then, only government was funding that segment of the rural electrification space. A lot of investments came in from government, but there was no commensurate infrastructure on the ground for various reasons. There was no methodical way of citing projects. It was all based on political considerations and was supply-driven in the sense that I am here and I want it to go to my village, not caring how much it takes. There were no economic or viability considerations behind citing projects. It was more of political considerations and it made us to waste a lot of resources. It wasn't really our most efficient phase of rural electrification and it obviously led to corruption and lack of transparency and all sorts of irregularities. So, this informed the new phase, which is the reform phase, post-2005 when the Electricity Sector Power Reform was signed and in this new phase, government is now focusing on the REA through the rural electrification fund to provide some sort of more funding and investment to the sector, away from just government. As you know, the sector is highly capital intensive. If you want to provide electricity, we are now almost 83 million people that do not have access to electricity and government alone cannot do that. Government has realised that and has started the process of reform from 1999 till 2005 when the ESPRA was signed. When it was signed in 2005, nothing much happened in the rural electrification fund until 2017 when we were inaugurated. That was when we operationalised the fund and got the necessary documents and guidelines and then used the seed funding from there to pilot the rural electrification projects.

We did this by partnering with reputable developers and private sector players as a way of public private partnership where government is now bringing in part of the fund as grant and the private sector is bringing in its own funding from maybe its own equity or getting debts from commercial banks. This way, we are pulling in more funds and doing more projects as opposed to government in the pre-reform era doing everything. This phase is also informed by science and data. We want to see areas that are viable. We want to see rural communities that have productive uses. People who have some form of small or medium enterprises that with power they can use it and it will have a multiplier effect on their income and welfare and socioeconomic wellbeing. Though we took off late, this phase holds a lot of promise for the rural people as you can see from so many of the projects we have commissioned. Our solar home systems where the rural people are happy with the services they are getting and are paying for it which also means its sustainability in terms of how long it will last.

How has the collaboration with the private sector helped in this regard?

The private sector players are now on the ground, running and maintaining these projects as opposed to when government will just go and put a project somewhere without having a sustainability plan. Going forward, those projects that the government still does directly and we have the rural electric users' cooperative society where the cooperatives within the communities are the ones to take ownership and leadership in operating, maintaining and sustaining these programmes and projects. So, on the one hand, we have the private sector guys collaborating with government and on the other we have the cooperatives which help with the projects that we still implement directly so that it is sustainable. So, for us, sustainability is the key word. So, going forward into the next 60 years, hopefully we don't want to be in existence in the next 60 years because if REA is still in existence in the next 60 years, it shows we haven't made progress. In 10, 15, 20 years, hopefully we would have provided the necessary access to every Nigerian in terms of electricity supply and then we quietly cease to exist. We have a target of 2030 in line with the UN sustainable energy for all programme and hopefully when we hit that target and are able to provide 90 per cent of Nigeria electricity to Nigerians, then we can gradually start to plan our exit. So, there's a message of hope. We have started to deploy all sorts of the technologies and innovation for electricity access and we will continue to do more as we get more funding.

There are concerns that the deductions you are supposed to get from NERC have still not been sorted out. Can you speak on that?

As you know the ESPRA 2005, created the REA, NERC and all the other agencies under the NESI. It also states how the REA should be funded and the plan was for the entire REA to be funded through the Rural Electrification Fund (REF). That was the intention, just like you have in different sectors. In the petroleum sector, there's the Petroleum Equalisation Fund (PEF), the Petroleum Technology Development Fund (PTDF), then there's the ecological fund and of course TETFUND in education and all of these funds have sustainable funding mechanisms and sources. Sustainable in the sense that as you are creating the agency, you are tying it to maybe one per cent of consolidated revenue, a certain percentage of pump price, so that they will be independent in terms of funding. It is only the rural electrification fund in the entire country that doesn't have money even though it's called a fund. The only fund we have got so far is the budget which continuously keeps reducing. From the initial N2 billion we got, now we are getting N400 million in the budget, yet people without access are still 83 million Nigerians.

So, if we are serious about moving this sector forward, then we need a sustainable funding mechanism. The regulator (NERC) is responsible for four sources of our funding.

One, the Act talks about the yearly surplus of the regulator after the audited accounts. So, if NERC every year has any surplus left, because they get their own money from the tariff that everybody pays, then any surplus should come to us. Two, any licensee that is fined by the regulator, all the fines should come to us. Now, the Act also gives the regulator powers to determine a certain contribution rate that licensees and eligible customers should pay to us and this can only be determined if we can only have a small slice of what is being paid by consumers.

So, basically your sources of funding have not been activated?

Because that's the only sustainable funding that we can get, just like PEF gets a small slice taken from the pump price of fuel. That's our sustainable funding source, but this is yet to be determined because we keep getting the excuse that the market is illiquid and that people are not paying. That people are complaining about increase in tariffs, but these people are complaining, but you (NERC) are still getting your money as the commission. So, if you as the commission is still getting something no matter how bad the market is and you are only using the fund to pay for salaries and recurrent expenditure and take care of yourself and buy a big office, we that are the agency that should cater for the rural communities, we are not getting anything and you keep giving us excuses. For me, I don't think this is fair. NERC is also supposed to determine a certain rate that by the end of the year, the turnover of all licensees and eligible customers, they are supposed to pay to the fund. They are yet to do this. So, we have been trying to have a meeting with them. They just gave us an appointment. Hopefully, we discuss and find a way forward. Otherwise, we would have to go back to the national assembly and maybe the president and tell them that we are comatose and that we do not have any money and that we are just existing in name as Rural Electrification Fund (REF). The agency doesn't have any means of sustainable funding. Maybe they will look into our Act and see if they can give us another source of funding because the 83 million Nigerians that do not have access at all, which is half of our population, in terms of those connected to the grid and those not connected. You can't be spending all of the money on the grid, 40-45 per cent Nigerians and then the remaining 50-55 per cent, no source of funding for them at all. The NERC, TCN, the NBET, MO all are focused on the grid and they all get a slice of what's going on with the tariff, but the Rural Electrification Fund that is taking care of half of the people's needs don't get anything.

For me, we need more people and more advocacy on this and then we are going to engage them and give them the facts. Whatever, it is, if it's bad, let's have something, then when it gets better things will improve. But the rural people cannot continue to suffer and wait endlessly because of excuses from the regulators who should do their job.

Are there other areas you think, you need the support of the National Assembly?

Like I said, this supposedly source of fund from the market is not forthcoming. So, we need the regulator to help us determine another source of fund, maybe from the consolidated revenue , maybe from petroleum sector, something like renewable energy development fund or charge or maybe something similar to stamp duty or VAT. The National Assembly will have to empower us to have something from the tariff being paid because the NERC is not going to determine this tariff as the Act has empowered them to do. The National Assembly should look for another way to empower us so we can have sustainable funding. It doesn't make sense to say you want to provide electricity to 83 million Nigerians and then you are defunding the agency or not even make any effort. We don't want it to get to the state where rural people will start protesting or causing problems or people going on strike before we rush to do this. It's very important. These are Nigerians who voted government and they are at the bottom of the pyramid. The same people those in the national assembly are serving and all of us are serving. We shouldn't take them for granted. We need to take them seriously and provide a sustainable source of funding for them.

What level of intervention would be required to reach the target you have set for yourself?

We have a target set by government through the Rural Electrification Strategy and Implementation Plan. The plan is to do 1.1 million households every year for the next five to six years. So, for a household, if we are to use the current rates, we will need say about $600 to provide a mini grid electricity to a household. And if you have 1.1 million households, just do the calculation. It depends on how fast the government wants to do this.

If it's a priority which I know it is, because the president has emphasised the need to provide all sorts of infrastructure to rural community, including power, then we should look at how this funding will be provided to meet this target. We already have the skills and the innovation because we have tried all kinds of technologies and we have the people, the local market, local contractors and developers that can carry this on. All we need is the funding to scale up because we have done all kinds of pilot programmes. We have tested our business model, but if we don't have money to scale up, it will only continue to drag and linger for the next couple of decades. But the plan is that in line with the United Nations sustainable energy for all, let's try to provide energy for all.

How does the rural electrification fund impact rural economies. Can you break it down?

So, the fund we provide is to promote productive use and viable businesses. So, when we advertise, we look for developers that have track records and have the objective of staying in the rural communities to grow with them, economy wise. We ask them to go to communities with thriving agriculture, but no processing for instance. How do we take agriculture from that subsistence level to commercial and still employ people in the rural communities and bring about innovation in terms of productive use , processing and generate income for them. For SMEs, it's the same thing. To provide sustainable, uninterrupted power and raise businesses because it's cheaper than running diesel generators. So, it enhances business and productivity, create jobs and improving their general wellbeing. Same for healthcare and education. If you have power in those communities, people stay in school for longer hours. At night , they can do their assignments and they can catch up with their contemporaries in other parts of the world and then you can have telecommunications people come in with base stations.

Any form of collaboration with state governments by way of funding or provision of facilities?

We currently liaise very well with the state governments and the rural communities where we have projects. One of our criteria is that any developer going into any community will have to do some sensitisation in collaboration with our promotions department. We have offices in all the geo-political zones and they reach every state within the zone. We also allow developers have relationships with communities and have agreements signed in form of power purchase agreement in which can say whether they are happy with the developer or not. We haven't had cases of communities not wanting to work with our people.

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