The administration of Olusegun Obasanjo initiated a Power Sector Reform that ended the old Nigeria Electric Power Authority (NEPA) with the introduction of 11 regional Distribution Companies.
Despite all the hiccups experienced along the way, by November 2013, exactly eight years ago, the Power Sector was Privatised and there was a Paradigm shift from Public Sector driven Business model to a supposedly Private sector driven business mode. All the old NEPA Region Offices evolved to new management distribution companies, the old Yola Regional Office was also taken up by new core investors, known as Integrated Energy Distribution and Marketing Limited (IEDM).
An assessment of the general performances of the power sector shows a fluid and toxic picture and there is little or nothing to celebrate.
Today, after the Distribution Companies manages to pay the Salaries monthly Salaries of Staff, there is usually no other money to invest in Improvement of Network.
Since , the 2013 several DisCos claim that they don’t have the money to carry out customers enumeration, asset enumeration and enumeration of customers house holds, properties and landmarks using GPS and Remote Satellite for real time customers data.
According to president, Nigeria Consumer Protection Network, Kunle Kola Olubiyo, “As we speak today, Nigeria don’t have an accurate customers data, which is conservatively put at between 8 to 12 million Olubiyo said without a credible data, it will be difficult to plan and be taken serious because Tariff is usually tied to Customer’s Data.
The more the customer use in the fraction or Tariff Indicators, the lesser the Tariff, he said He said data is needed for Mass Meeting Roll out Value chain and Mass Metering Programme globally is usually driven by the funding with customers taking the lead particularly in a situation where there are fancifully , an uncommon higher degree of customers willing to pay for Pre Paid Meters.
“This to us an with all sincerity of purposes would have help bring money out of the pockets of End users and with a Proviso and Refund of Customers Payments for Fixed Assets of the Utility Companies captured under Refund of Capital Expenditure ( CAPEX) “
Olubiyo observed that the Indian Variants of Power Sector Privatisation exercise sold to Nigerian has intrinsically become worst than a Delta Variant of Novel Corona Virus.
The Post Privatization bitter experiences of the End Users of Electricity in Nigeria has been reduced to a Scam of sort, he said.
Yet the Downstream Power Distribution Companies surreptitiously uses the investment of Electricity Consumers in filing for CAPEX at Nigerian Electricity Regulatory Commission, NERC, he said.
Nigerian Electricity Regulatory Commission have been saddled with the responsibility of providing continuous evaluation of the Cost and Evaluation of Investment by 3rd Party in the Downstream and for 8 years and up till today and the nearest future NERC has found it convenient to put the faith of the process,
He also observed “Weak Regulatory Compliances and Near Zero Weak Regulatory Enforcement and Regulatory Subterfuge and Regulatory Inconsistencies..”
All these challenges may have negatively affected the Yola Disco from effectively deliveing quality service to customers and investing in infrastructures to remain afloat.
That perhaps resulted in some sort of downward performance such that within months of acquiring Yola Disco, IEDM “were forced to declared a force majeure on the ground that it was impossible to operate and access the assets of the electricity distribution firm in the North-east due to the Boko Haram insurgency”. This was in 21015.
So while the remaining 10 Distribution were facing their own challenges, but still seeing progress, Yola Disco was returned to the federal government as a “Department of the Ministry”. For another 6 years, no investor was interested until Quest happened.
It is at this point that the bravery of the management of Mainstream Energy Services Limited is to be taken note of.
Security situation in the North East Nigeria has not considerably improved, and in the situation that even the assets, and Electricity Distribution can be managed, the economy of the North East still remained a serious concern for a would be investor.
In a position paper by Mr. Adetayo Adegbemle,
Executive Director of PowerUp Nigeria, there is hope for a major breakthrough because the Management of Mainstream(MESL) themselves is not new to the electricity industry, as they are presently the concessionaires of both Kanji and Shiroro Electric Power Dams.
Adegbenle, said that their willingness to float Quest Electricity Nigeria Limited to invest in Yola Disco for N19 billion with further Performance Improvement Program investment of N28 billion is definitely an uncommon business bravery in the face of security and economic hopelessness.
Industry experts have noted with concern that with the process itself haven taken almost a year to conclude with the Bureau of Public Enterprise and the Labor Union, it is hoped that the Quest Electricity coming on board as new core investors of Yola Disco would bring succor for Nigerians in the North East, and the bravery of QENL to make such investment in the face of hopelessness, would ultimately pay off.
As the official taking over ceremony is billed for the 8th of November, 2021, 8yeara after other 10 Distribution Companies have been sold off, the management of Quest Electricity can only be It is equally reported that the aggregate technical, commercial and collection (ATC&C) losses for the 11 DisCos rose to 51% in 2020 from 45% in 2019. This high loss level remains one of the many reasons for the kickback from electricity consumers on tariff increases, especially in the absence of a significant and immediate improvement in power supply.
Agusto & Co,un a recent report notes that these challenges have not only weakened the ability of operators to meet electricity demand but also threaten their financial viability, with significant implications for the fiscal health of the country. Despite the series of amendments to the tariff structure, cash flows from MYTO (the Multi Year Tariff Order) have remained insufficient to fully cover the costs of electricity supplied.
The fear of the impact of a ‘rate shock’ on consumers and the accompanying loss of “political capital” has prevented the effective implementation of necessary amendments that will align the MYTO’s assumptions with economic realities.
Electricity has thus consistently been sold at a discount, with end-user electricity tariffs much lower than the cost of electricity supplied.
The shortfall from unreflective tariffs has been borne in large parts by the Federal Government through multiple intervention funds and payment assurance facilities from the Central Bank of Nigeria (CBN) totaling close to ₦2 trillion, US$4.9 billion as at the end of 2020, equivalent to 6 per cent of CBN’s balance sheet.
Despite this level of intervention, the generating companies had estimated receivables of over ₦400 billion in 2020 alone. Whilst the interventions have been central in ensuring the profitability of operators along the Industry’s value chain, they remain insufficient and unsustainable.
More recently, there have been notable efforts by the primary regulator NERC to minimise the challenges faced by operators in the Industry. In particular, tariffs have been raised to near cost reflective levels and adjusted to match consumption via an initiative dubbed Service Reflective Tariffs (SRT).
The new tariff model as the name indicates is expected to reflect and match the quality of service received by the ultimate consumers of electricity. Distribution companies will therefore discriminate in the application of tariffs; consumers who enjoy longer daily supply will be expected to pay higher rates and vice versa.
The SRT like other MYTO models has key estimates (and projections) for macroeconomic and industry-specific indicators including inflation, exchange rates and electricity generation.
Other company-dependent factors considered in the determination of tariffs include the amount of electricity received and the aggregate technical, commercial and collection (ATC&C) losses. Ultimately, tariff shortfalls (the difference between end-user tariffs and cost reflective tariffs) are expected to taper off by the end of 2022, with tariffs fully reflective and sufficient to cover the cost of production.
Whilst a number of the assumptions align with market realities, we note that the inflation and electricity generation estimates in the SRT model are much higher than the actual entries reported for the corresponding periods. In our view, these disparities have the potential to impair the attainment of cost reflectiveness.
Also, Agusto & Co believes adopting scenario analysis and modelling will provide a more robust framework to determine an appropriate tariff structure for the Industry in a dynamic macroeconomic environment such as Nigeria’s.
In addition to the SRT, the primary regulator – the National Electricity Commission (NERC) – introduced a minimum remittance threshold for each distribution company which stipulates a mandatory payment that must be made to the bulk trader for electricity received.
In February 2020, NERC introduced guidelines for ‘Merit Order Dispatching’ which involves ranking electricity generation and dispatch by the transmission company of Nigeria (TCN) in ascending order of costs with the cheapest electricity – such as those from Hydro plants with no fuel cost component – ahead of more expensive plants.
The order also provides guidelines on the alignment of invoicing for capacity charge and energy delivered as well as a framework for the settlement of any imbalance between DisCos and TCN.
The Merit Dispatching Order should eliminate the shift of responsibility for load rejection prevalent between DisCos and the TCN and improve the technical and operational efficiencies of these operators.
In August 2020, the Central Bank of Nigeria issued a circular that all deposit money banks are expected to warehouse and manage collection inflows from all distribution companies – DisCos, (including the collection agents of these DisCos) under specific guidelines as contained in the document. The objective of this ‘ring fencing’ is to secure cash collected from the DisCos and ensure that these distribution companies meet their mandatory obligations.
While operators are generally optimistic that the new tariffs and accompanying regulations would enhance efficiency and position the Industry on the trajectory towards achieving financial independence and ultimately improvements in the volume and quality of electricity supply, Agusto & Co remains cautious. In our view, to truly achieve the objectives of privatisation, reforms need to be accompanied by a strong and enabling regulatory environment.
Furthermore, improved access to finance, efficiency in billing and metering as well as consistent and secure gas supply are vital to reap the benefits of privatization in the long run. While the journey to constant electric power supply remains far and long-winded, Agusto & Co believes the initiatives undertaken by the primary regulator NERC if consistently enforced have the potential to move the Industry forward in the right direction.
LEADERSHIP WEEKEND reports that from NBET’s N142 billion budget N139 billion is set aside to be paid to Generation Companies GenCos to augment shortfall from remittances from the Distribution Companies, DisCo’s.
Of Its current N83 billion budget about N81 billion is estimated to be paid to GenCos for electricity supply to the Discos.
There is an estimated N150 billion yearly budget from 2022 to 2027 to support revenue shortfall of the Discos to ensure consumers are not allowed to bear the brunt of inconsistencies in the system.
NBET, says technical, transmission and distribution challenges have remained major challenges of the industry.
Ewelukwa, has decried ATC&C losses in the system as a key challenge for Discos which can be partly resolved by metering consumers to track revenue collection.
There is quick fix. Let there be a parallel market for Creditworthy customers that will offtake the stranded generating capacity. The Discos should not hold the market to ransome. NERC should work on the Competition Transition Charge – CTC, Tous, and Dous. This is one sure way of meeting the liquidity gap just to sustain the market for now.
NBET’s license renewal does not in any way change the status quo. Yeah, they have not fulfilled their mandate, but are these Discos financially viable to trade bilaterally? The answer is NO. We should be thinking of the way forward.
What is the total distribution capacity of all the Discos? What is their collection efficiency? So, we need to look beyond them and see how a parallel market that will serve thousands of industrial and commercial customers that are presently depended on self generation. If they are ensured of reliability, they will absorb the stranded capacity.
From Discos level, the mistrust that exists between them and the paying customers have to be eliminated. There is payment apathy and energy theft and no market will ever be liquid if this continues on a large scale. Discos are partly to be blamed for this. If you keep billing the customers wrongly, they will respond in the two mentioned ways.