In 16 months, the 11 distribution companies (DisCos) in Nigeria lost the ability to pay 484.993 billion naira out of the 1.084 trillion bills they received for the electricity they received from generation companies. electricity (GenCos) between January 2021 and April 2022. .
This development once again confirms the concerns of experts about the degraded state of the Nigerian electricity sector, which is facing a liquidity crisis, resulting in poor supply to consumers.
Daily Trust on Sunday Analysis of the latest Nigerian Electricity Market (NEM) payment receipt data from the Nigerian Bulk Electricity Trading Plc (NBET) shows that almost all DisCos are in crisis. The crisis has become evident among six DisCos over the past eight months, prompting the takeover of Abuja DisCos by United Bank for Africa (UBA) following a default in November 2021.
There was a similar case with Fidelity Bank regarding Benin, Kaduna and Kano DisCos in July 2022, as well as Ibadan DisCo and Assets Management Corporation of Nigeria (AMCON), on behalf of the defunct Skye Bank. And the Port Harcourt DisCo had its top executives and board replaced this month to avoid collapse.
How the N485 Billion Debt is Driving the Electricity Market
The 11 DisCos received an energy bill of 1.08 billion naira in 16 months and on a commercial basis they were expected to pay this bill 100%. However, they paid 599.4 billion naira, or 55% of the total sum, and left a 45% debt of 484.9 billion naira.
According to a breakdown of payment on a monthly basis, DisCos received a higher energy bill during the May 2021 billing cycle at N71.98 billion, but the highest payment they made on the electricity market during the period was 40 naira. 2 billion in October 2021. While they received the lowest energy bill of 62.3 billion naira in September 2021, the lowest payout from DisCos was 31.1 billion naira recorded in August 2021 .
DisCos woes and benchmark failure
In an attempt to address liquidity issues with DisCos, the Nigerian Electricity Regulatory Commission (NERC) in 2021 introduced Minimum Remittance Order (MRO).
The MRO stipulates an amount that each of the DisCos must contribute each month from payments received from the more than 10 million registered consumers to settle the energy purchase bill of the generation companies (GenCos). On average, NERC constrained DisCos to about 75% of each monthly electricity supply bill they receive from GenCos, compared to 35% or less they paid in 2020.
Even at that, analysis of payment data from this document revealed that DisCos could not meet the government threshold of 813.781 billion naira or 75% minimum rebate for energy of 1.084 trillion naira they received from January 2021 to April 2022.
The 11 DisCos fell short of the 214.3 billion naira debt called the Market Deficit (MS) assuming they complied with the figure (813 billion naira) that NERC forced them to pay during the period of the order, but they only handed over N599 billion.
When trolling the DisCos, the MRO figure (N813 billion) was N270.6 billion lower than the total energy bill of 1.084 tr, further breaking the cash cycle and leaving it as a huge tariff deficit (TS) which is a gap that could be filled in subsequent tariff revisions.
Explaining this in more detail, the NBET payment note states: “This is the part of the bill that is currently being borne by the Federal Government of Nigeria (FGN) through various instruments implemented by the NBET until the market becomes fully competitive and a cost reflective tariff is adopted.
In summary, the tariff deficit of 270.6 billion naira and the market deficit of 214.3 billion naira represent the entire debt profile of 484.9 billion naira of the 11 DisCos during the period of 16 months under review.
The highest debt profile of all this N35.6 billion profile was recorded in January 2022 when DisCos received an energy debt of N72.3 billion and managed to erase N36.6 billion. naira, or just over 50%.
A new policy to the rescue?
On July 1, 2022, NERC activated a new electricity market regime based on contractual obligations to secure approximately 5,300 megawatts (MW) of daily electricity supply, while penalizing operators for default.
Although the target was not met, at least five DisCos had their boards and management reshuffled, based on insolvency and underperformance, which are measures to clean up the industry, according to experts.
UBA had in December taken control of Abuja DisCo due to default on the 2013 privatization acquisition loan. In the latest action, Fidelity Bank announced the takeover of Kaduna, Benin, Kano DisCos. Furthermore, the government (NERC and BPE) said that it reset Ibadan DisCo after its takeover by AMCON and also restructured Port Harcourt DisCo to stop its crash.
According to a NERC New Contract System Implementation Report, the average electrical insurance is expected to be 5,000 megawatt hours (MWH). Based on this, none of the 11 DisCos are expected to have at least 70% of their grid allocation each day, which is a guarantee to increase the power supply for the more than 10 million registered electricity consumers in Nigeria. .
But a NERC official told our reporter that the 5,000 MWH/H may not be reached immediately because hydroelectric companies expect the water level to rise from August, when they will increase the production.
He said, however, that NERC was working with the CBN to tap into an emergency power stabilization fund, which will increase DisCos’ revenue capacity to pay monthly energy bills.
“The GenCos will now have more funds to increase the gas supply to their power plants and improve the production of energy to be transmitted by the TCN,” noted the NERC official.
An analysis of network data indicates that the network is gradually recovering from the abyssal state it was in a month ago after the major system collapse. From 3,000 MW of peak generation on July 1, the grid gradually increased to reach 4,102 MW on July 8 before a slight drop to 3,992 MW on July 9. As of July 14, peak generation was 4,115 MW while baseline generation was 3,770 MW, approaching the baseline generation of 4,000 MW projected in the new dispensation with daily peak generation of 5,350 MW.
Debt trend must stop to improve services – Experts
Electricity sector experts and analysts have called on the authorities for tougher reforms to ensure the accumulation of energy debt stops by getting better managers to operate DisCos and improve energy supply services. electricity from Nigerians.
According to the moderator of the Nigerian Power Consumers Forum (NPCF), Mr. Michael Okoh, since the intervention of the CBN in escrowing the accounts of the DisCos, their leaders may have devised a way to under-report remittances.
He said they had paid the supposed sum they would have collected from consumers each month into the CBN fund, from which the apex bank allows them to pay salaries and other expenses before they can now pay for energy in bulk supplied to them by the GenCos via the NBET. .
“If NERC is strict with the contract-based electricity market, DisCos must be held accountable to pay the energy bills they receive and be penalized if they fail; and they have to supply consumers,” Okoh insisted.
Meanwhile, Prof Yemi Oke, an expert in the power sector, expressed concern that more of the 11 DisCos are experiencing a crisis other than the five that were so dealt with in the recent reshuffle.
“80% of DisCos are technically insolvent; therefore, power sector problems may persist. We will continue to experience an average of five to six national network or system failures per year,” Oke noted.
Nigerian Consumer Protection Network (NCPN) Chairman Kunle Olubiyo said electricity consumers applauded the actions taken by NERC and BPE but blamed authorities for failing to carry out a major review. , five years after the start of the privatization of the electricity sector.
“Under the current circumstances, we are on the same page as relevant stakeholders in the current effort to clean up the mess and unleash the economy held at its jugular by underperforming public services,” Olubiyo said.
This story was produced as part of Dataphyte’s 2022 Media Fellowship.