Making Discos franchises work with limited rancour

The decision of the Nigerian Electricity Regulatory Commission ( NERC), the electricity sector regulator, to allow third-party investors to distribute power within a franchise area earlier ceded to an electricity distribution company (Disco), though belated, is commendable, even though it is ambiguous and leaves room for conflicts in the future.

One of the flaws of the 2013 power privatisation exercise was the poorly conceived geographical franchise areas allocated to Discos. They were unwieldy and unsustainable. Apart from Eko and Ikeja Discos managing Lagos, other Discos cover at least four states. Enugu DISCO operations cover the five states of the South-east and Ibadan DISCO cover seven states. A more pragmatic approach would have been unbundling PHCN assets along states. The proposed rules will even out coverage in neglected parts of a Discos franchise areas.

According to the 2017 Power Sector Recovery Plan, the national econ

omy is losing $29.3 billion annually due to the lack of adequate power. It also estimates that the sector will require approximately $1.5 billion annually for the next five years (2017 to 2021) to achieve sector viability. In view of this, grasping at any flotsam in this sinking sector is a critical necessity.

According to the proposed Franchising Regulation, Discos could grant a franchise to third parties (Franchisees) to undertake specific roles in the supply of electricity including procurement of additional electricity from embedded generators, management of metering, billing and collection activities, maintenance, upgrade and strengthening of the distribution system within the respective licensed coverage areas of the Discos. The franchisee will retain a portion of the revenue collected from consumers after deducting amounts payable to the Disco.

The proposed rules also allow any unserved or underserved community the option of exploring the provisions of NERC’S Regulation on Independent Electricity Distribution Network (IEDN) in ending their supply challenges as may be applicable.

The proposed rules vest ownership of all distribution networks in the Disco without explicitly including the fate of upgraded assets through investments made by a franchisee on the network. NERC needs to be explicit about this. Perhaps, it could assign some stakes to the Franchisee in the asset they help to upgrade to avoid litigation between the Discos and sub-franchisees in future.

The proposed regulation is not also clear on what kind of relationship Discos and the franchisee would maintain with the Bureau of Public Enterprise (BPE) and what becomes of the obligation of Discos under their Performance Agreements. What becomes of the obligation of Discos to NERC, under the Distribution Licence; and to the Nigerian Bulk Electricity Trading Plc. (NBET) under the Vesting Contracts? Will the sub-franchisee be allowed to invest in off-grid power? This is important.

The proposed regulation also does not provide clarity on whether a sub-franchisee would need to cut Aggregate Technical and Commercial Losses (ATC&C) losses as it is in India where the rules were copied from. For this to work, it cannot just be about Discos improving collections, It should also be about cutting losses, gathering data, metering and upgrading dilapidated assets.

Maharashtra’s distribution utility (MSEDCL) tried it in India in 2006. It chose Bhiwandi, a power loom town close to Mumbai with a population of 1 million, for appointing franchisee. Prior to these, MSEDCL had technical and distribution losses of 45% and collection efficiency of 68%.

It assigned Torrent Power as the franchisee for 10 years mandating it to perform its functions in the town. Torrent Power collected tariffs charged by MSEDCL, upgraded the networks and assets it created were taken back by MSEDCL at their depreciated value at the end of the contract. One year later, Torrent Power has been able to reduce losses by 30 percent, invested more than the minimum required and has replaced old mechanical meters with electronic meters outside the premise and in a sealed box.

This too can work in Nigeria but it starts with getting the policy right.