DisCos fail to collect N75.5bn electricity invoice in 3 months


June 20, 2017 | 1:10 am
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Nigeria’s eleven electricity distribution companies settled on average only 31 percent of the N111billion worth of electricity invoice from generation companies, failing to collect over N75.5billion from January to March 2017, BusinessDay analysis has shown.

This further worsened shortfalls in the electricity market, currently valued at over N1trillion. Experts have questioned the efficacy of the Nigerian Bulk Electricity Trader, (NBET) a market operator established to enforce compliance with rules in the sector.
According to data obtained from the NBET website, in the month of January, electricity worth N32.4 billion was supplied by the GenCos, while the DisCos paid only N10.2billion, translating to 31 percent of the invoice.
In the month of February, GenCos generated and sold power worth N37.3billion but the NBET could only retrieve 33 percent of the cost, translating to N12.6billion. Invoice settlement fell back to 31 percent in March, to N12.7billion against an invoice of N41.2 billion.
Abuja, Eko and Ikeja DisCos met up to 40 percent of their invoice payments within the period, while Kaduna and Kano DisCos recorded less than 20% settlement. Yola DisCo didn’t even make any payment in March.
Experts say lack of enforcement of market rules contributes significantly to the liquidity crisis in the sector.
“The major problem in the electricity market in Nigeria is that NBET has not played its role as a market operator, as it should. It has failed to call the DisCos to order and enforce market rules, hence contributing to the liquidity problem in the market,” said Chuks Nwani, energy lawyer and vice president of PowerHouse International, an energy advisory firm. Set up in July 2010, NBET entered into power purchase agreements with generation companies and resells power to distribution companies through the vesting contracts. As at 2014, the company has been recapitalised to the tune of $800 million, to enable it drive investments into Nigeria’s energy sector.
But investments into the power sector have been too few and far between. Barth Nnaji, former minister of power at the time of the sector’s privatisation, said critical issues that need to be addressed include the absence of a cost reflective tariff, removing gas and transmission constraints and value chain misalignment.
“Nigeria pays some of the lowest tariffs in Africa and it is not the poorest country. The transmission infrastructure cannot wheel the quantum of power generated. If you don’t get the entire value chain right, then there won’t be a solution to power, and no investments,” said Nnaji in a keynote speech at the Nigerian Gas Association business forum held in Lagos on June 15.
Commenting further on the DisCos challenges, Nwani said, “although DisCos have been hit by all time low collections, as a result of low load allocations and general disaffection of customers, occasioned by poor service, even if they are to achieve an impossible 100 percent collection and commit all collections to payment of their energy bill to the generation companies, without making reservation for operational cost, it will still not be enough to pay fully for energy received because the cost of energy generation has not been reflected in their tariff.”
The DisCos also decry the huge debts owed them by government ministries and departments. Babatunde Fashola, minister of power, in March, said payment of about N60 million would begin, as soon as the debts were verified, while also charging the DisCos to improve collection.
Fashola said while there has been so much talk about cost reflective tariff, DisCos have to do more to improve collections. He said if they currently have six million people paying for electricity and are able bring another six million, that will increase collections by 100 percent.
The inability of the DisCos to reduce their ATC&C losses is inspiring calls for the dilution of their 60 percent holding. Since they are technically insolvent, Odion Omonfoman, an energy consultant and the CEO of New Hampshire Capital Ltd, said, “A practical way to force Discos into bankruptcy and eventual receivership, is for NBET to trigger the activation and drawdown of the Discos’ payment security to NBET/Gencos in the form of three – months Letters of Credit (LIC).”
Omonfoman further said, “If government is going to commit to US$7.6bn of investments in the sector under the power sector recovery plan, then urgent, radical changes in the operations and management of Discos need to happen.
“Government needs to either exert control of the Discos, or hold accountable their Core Investors, with a view to making Discos more efficient in their operations. Else, the proposed $7.6bn funding for the power sector may turn out to be a mirage, with the current state of affairs and management of many of the Discos. It’s a potential debt trap for Nigeria,” Omonfoman said.





June 20, 2017 | 1:10 am
  |     |     |   Start Conversation

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