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Despite tariff increase, liquidity challenges haunt power sector

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Akah

More than two years after the Federal Government handed over the nation’s electricity sector to private companies, liquidity challenges have continued to haunt the sector. Stakeholders are worried that if nothing is done to remedy the situation, the system may not witness any major growth in years to come.

The situation persists despite a Multi-Year Tariff Order (MYTO) review that saw consumers pay as much as 45percent increase in their electricity bill from February 1, this year. The sector seems to be in a dilemma, as no clear-cut plan to remedy the situation, seems to be on the table.

The situation is further worsened by the absence of a definite roadmap, to keep the operators on their toes and ensure financial sustainability for the growth of the sector.The operators are currently seeking a Federal Government sovereign guarantee, to enable them approach global lenders to secure the facility.

But the House of Representatives has called for the cancellation of a plan by the Federal Government to secure a N309b bond, to finance the shortfall in the Nigerian electricity market.

The Federal Ministry of Power, Works and Housing had initiated the moves to raise a Federal Government-secured bond of N309b using the Nigeria Bulk Electricity Trading Company (NBET), to address market shortfall.
 
Also, an analysis from the operators indicates that for Nigeria to achieve some level of stability in electricity supply in many parts of the country, the nation needs to generate, transmit and distribute 20, 000megawatts of electricity in the medium time.To achieve this, a whopping sum of $40b is estimated as requirement to boost investment and strengthen networks.It is not immediately clear where this fund would come from. Operators allege that they still operate at a high cost, despite the new tariff and other interventions from government.

The operators put the debt owed by Ministries, Departments and Agencies (MDAs) for energy consumption at N97b. Though this figure was for last May, officials said the amount rises every month. Managing Director of the Abuja Electricity Distribution Company (AEDC), Ernest Mupwaya, sought government’s approval to use the debts owed the firm as letter of credit, as part of efforts to address the liquidity challenges of the sector. The Disco boss is specifically requesting government’s no objection to the transaction.

To boost liquidity in the sector, he also called on relevant government agencies to change the practice of demanding payment for gas in dollars instead of naira. He explained how the current charge in Dollars hurt the industry.  “We have met with the FCT Minister who has committed to paying N500m of its outstanding MDAs’ debt. They have also promised to pay the balance after reconciliation of the figures,” he noted.

Head, Public Communications at the Bureau of Public Enterprises (BPE), Alex Okoh, said the utilities were still upgrading facilities and could not declare profits yet. “The Discos have not been declaring profits because they are still working on upgrade of their facilities and equipment for optimal performance. Don’t forget they were operating with non-cost reflective tariff until February 2016,” he noted.
One way of addressing this situation, according to the Minister of Power, Works and Housing, Raji Babatunde Fashola, is for the Discos to divest some of their shares to gain liquidity.

Fashola said: “Why can’t the Discos, for example, divest some of their shares in order to raise funds, to finance their businesses. Or better still, why can’t Discos have strategic shares arrangement in change for goods like meters, cables, and so on?”

Executive Director of the Association for Nigerian Electricity Distributors (ANED), Mr Sunday Oduntan stressed that their agreement at the point of sale does not allow them to sell more than five percent of their shares in five years.“Even if the Discos want to, there are legal constraints that they cannot circumvent. Since government owns 40 percent of the shares, government could consider divesting part of its own to help raise the needed liquidity in the sector.

“Government ought to have provided some funds to close the gap in the first two years after handing over, but that was not done.”On the poor state of power in the country, Oduntan said: “Discos can only distribute what they can get from the system operator. Vandalism has caused so much harm to the power sector. I apologise to Nigerians who are paying their bills on this. Until we get to 20, 000MW, power may not be enough for the current population.”

Oduntan called on the National Assembly not to cancel the N309b proposed bond, stressing that the fund was needed to support the sector, to come out of its liquidity challenges. He described the proposed bond as a legitimate one. Speaking on the MDAs debt, Acting Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Anthony Akah, said government has got to the point of helping the distribution companies to be able to have the debts taken care of. 

“ It has not been taken care of.  With the scheme that we are working with alongside the permission of the Minister of Power, the Minister of Finance and the Office of the Vice President, we are hopeful that the framework would come out in respect of the MDAs debts, both the accumulated ones and going forward.”Fashola, stressed the need for careful verification of the debts to ascertain the exact amount, especially considering that the amount stretches to several years.

He said:  “As for the MDA debts, what is holding us back is process. The commitment has been made. We need to verify the debts. Some of them stretch back to years.”A breakdown of the $40b required to guarantee at least 20, 000MW in the medium term indicates that the amount would be needed for generation capital expenditure, recondition generation equipment, recondition NIPP equipment, new power plants construction, new gas pipelines and buyout of NIPP capital.

In the transmission sub-sector, the amount would be needed for transmission capital expenditure, refurbish high voltage network, construct new lines and substations. $7.5b of the amount is needed as credit support for fuel purchases.Oduntan stressed that many global sovereign funds, private equity funds and hedge funds are dedicated to generation and energy infrastructure projects and looking for markets.

To access the facility, he said Nigeria must be able to convince investors that the country has changed and that investor’s principal would not be at serious risk of loss.He observed: “We must take two steps to address this issue. We must demonstrate integrity and transparency in the way we manage the funds and their deployment. We must hire big four-audit firm to audit and protect all funds from leakage.

“The Federal Government of Nigeria must provide a sovereign guarantee against loss of principal funds invested in public projects and all fuel purchases.”He went on: “To embark on the 20,000 MW vision, we must use Integrated Resource Planning. This involves detailed planning of all resources needed for a project, including its precedents and dependencies.

“All project capital and deployment tasks must be planned in an integrated way. Project completion dates must be realistic and completed around the same time, to avoid a situation such as the one we have with NIPP plants, which are constructed, but without sufficient fuel supply, fuel infrastructure, or evacuation capacity.”

He charged government to find a domestic solution team to address changes in policy, law and process; form an international investment team to market Nigeria for energy investment, with a focus on generation.On its part, the management of the Abuja Electricity Distribution Company (AEDC) says the metering gap inherited by Discos was too wide to be closed immediately. AEDC attributed the seeming slow pace to the huge gaps left behind by the old Power Holding Company of Nigeria (PHCN).

Head of Public Relations and Media at Abuja Disco, Ahmed Shekarau, told The Guardian that many of the Discos are doing a lot to bridge the metering gaps in their respective franchise areas. He blamed the delay on the lack of cost reflective tariff as promised by government.

On why the Discos have failed to meter their customers adequately, he noted: “The metering gap inherited by the Discos was too wide to be closed within a short period after takeover by the Discos. It is also pertinent to state here that the Discos have never been given any dateline on metering of their customers.

“Besides, metering of customers by Discos is dependent on a Cost-Reflective Tariff, which did not come into effect till February 1, 2016. However, AEDC has since December commenced a pilot scheme of its mass-metering project, and once satisfied with the performance of those meters being installed through the pilot, it will roll out en masse, by installing at least 100,000 meters per year, over the next five years.

In fact, the nation’s electricity distribution utilities explained that they had an agreement with government pre-privatization that there would be cost reflective tariff, but are disappointed that it took almost two and half years for government to come up with a tariff that was fair to them.

The Discos said instead of pronouncing a cost reflective tariff in the last two years, NERC was “just playing to the gallery”. But in a reaction, NERC said the Discos have not made significant investment in their networks and generally have poor financial conditions, to enter into contracts as required under the Transitional Electricity Market (TEM). Acting Chairman of NERC, Dr. Anthony Akah, blamed the operators for not living up to their performance benchmarks.

“The Commission has always supported the sector with tariff adjustments,” he told The Guardian.Akah said: “NERC has consistently addressed cost reflectivity of tariffs through its MYTO-2, MYTO-2.1 and MYTO-2015 Orders. Discos are simply finding it difficult to meet up with the performance benchmarks built into their tariff in line with the performance and sale agreements used for the privatization transaction. 

“The Commission in its bid to help address this constraint went beyond its regulatory landscape to initiate and play a pivotal role towards getting the CBN to advance money tied to key power development projects at good terms to the Discos and other segments of the electricity value chain.

“NERC also has been working to get the Ministries, Departments and Agencies (MDAs) to clear their huge debts to the power sector with the strong support of the Minister of Power, Works and Housing. Collection rate of the Discos even now that we have a mutually accepted market reflective tariff is far worse than before.”

He added: “What is fundamentally important is for all parties, inclusive of NERC, operators, among others, to remain focused and committed to playing their part. The Commission has stepped up its monitoring and enforcement with sanctions where necessary, to ensure that all operators in the sector play by the rules and operate strictly in line with our regulations. There is now a zero tolerance to fragrant disregard to NERC’s regulation and directives.

“The rate of remittances by Discos to the Market Operator for power wheeled to them for distribution to their customers, is generally abysmally low leading to a stunt to the development of the transmission and generating segments of the electricity value chain.”Also speaking on the issue, former Chairman of NERC, Dr. Sam Amadi called on the Discos to sit up.

He said:  “NERC has done what it ought to do and what any regulator anywhere in the world rightly does; to institute a transparent regime of rules and processes that ensure that any prudent cost of doing electricity by an efficient operator, is recovered in a manner that is fair and just to consumers. The Discos should sit up.”Oduntan also lamented how foreign investors were unwilling to commit money to the Nigerian power sector because of issues associated with energy theft, poor pricing and other related issues.

The ANED chief continued: “The issue of the industry is about the industry shortfall, which keeps growing. But that is one of the things.“The inability of the Nigerian banking system to finance the banking deficit, the shortfall over time happened because the business was not bankable. In banking, you only get financed if the financial institutions know they can recoup their investment.  It is a simple economics theory.

“The Federal Government needs to come up with mechanism to deal with the shortfall, which will now be financed long term.  The revenue shortfall has adversely impacted on the ability of the discos to make capital investments in the system like metering, network expansion, equipment, rehabilitation, and other works that are very critical for service delivery.

 
“The government of Nigeria, the ministries, departments and agencies, especially agencies like the Nigerian Military (the Army in particular) need to wake up and begin to have a culture of paying for what they consume. I have not heard that a brewery supplied military cantonment mess and they are not paid. So, if they are paying for the beer that they consume, they should please pay for electricity.  I am begging them to pay.

“If we don’t pay for this product, we can never have light in Nigeria. We should stop deceiving ourselves. What we are generating in this country is so low that we all need to increase that to have 20, 000MWs of electricity.”

“I can confirm to you that there are so many turbines lying idle right now because of poor gas supply. Shortage of gas means shortage of electricity. No gas means no electricity.  Vandalism in the Niger Delta means no light for Nigeria. Those playing politics with power supply need to do a rethink.” 


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2 Comments
  • KWOY

    The Guardian is one of the most mature & objective media houses in Nigeria, & I respect it’s views on many issues. But other media houses are not so objective. And 2015 exposed the media so much. This message is for the benefit of the public to witnessed the proganda of lies & wickedness perpetrated by the media in 2015. Please readers see:

    “Noting that the fourth estate of the
    realm has a big role to play in this crusade, he said he was also aware
    “today that most media houses have an editorial policy and clear leaning
    towards sectional and myopic perspectives. Tribal and nepotic leanings
    are present in most issues debated or reported in our media.”

    He said “The government-owned media
    showcase the activities of the government with little or no critique in
    contrast to the harsh realities faced by millions of subscribers of
    these news media.

    “Newspapers and media owned and operated by politicians are mostly
    reflective of the interest of their principals as opposed to the need to
    permanently side with the truth and Justice.

    http://www.thisdaylive.com/index.php/2016/09/18/ex-cjn-nigeria-became-more-divided-after-2015-presidential-election/

  • Maigari

    An interesting opinion but all this point to one unsavoury fact: The problem wasn’t the Tariff structure it is an entirely human isue that was swept under the carpet. Unfortunately because the ‘privatisation was not made with equity in the system, the problem persists despite all the extortionist Tariff Nigerians consumers have had to pay the new Capitalist Ventures under the ever increase compliant NERC.