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‘Government should explore subsidy option to address liquidity in power sector’

By Emeka Anuforo, Abuja
17 December 2016   |   2:01 am
The liquidity crisis is getting worse and a major reason for that is the foreign value of doing the business. No single Disco is making profit as at today, because we are only struggling to recover our cost.
The Executive Director, ANED, Sunday Oduntan

The Executive Director, ANED, Sunday Oduntan

Sunday Oduntan, Executive Director of the Association of Nigerian Electricity Distributors (ANED), an umbrella association of the country’s electricity distribution companies (Discos), in this interview with EMEKA ANUFORO in Abuja, proffers ways out of the current liquidity challenges in the sector, saying government has not done what it promised in nurturing privatised electricity as a developing sector

Is there any improvement in the liquidity challenge in the sector?
The liquidity crisis is getting worse and a major reason for that is the foreign value of doing the business. No single Disco is making profit as at today, because we are only struggling to recover our cost.The major part of the liquidity issue is that foreign exchange keeps fluctuating, especially in buying gas. As at December last year, it was N197, by June this year, it became N293, and now, it is N360 at official rate. This is a difference of N163.

What that means is that the cost of generation companies (Gencos) producing energy has increased because they buy the gas in United States (US) dollars. The invoice we get from Gencos for the same quantum of energy received has increase. Even if we are paying the same amount that was agreed in December last year, that amount is now giving a lesser percentage of payment. That is why the publication from the NBET, without explanation on how it happens, is misleading, because they have not told Nigerians that the cost has increased and Discos cannot pass that cost to the customers, and nobody is telling us how to resolve. For instance, average cost of electricity is N25 and the cost that comes to me is N48, and I am expected to sell that power at N25. How do I balance that?

What do you think are possible solutions to it?
We are not clamouring for a tariff raise, but we are saying government must step in and do something. Although the cost that comes back to Discos is higher, they are still expected to sell at the MYTO price, because it has not been reviewed. Cost of energy has gone up, but the tariff remains the same. The shortfall in the sector has reached N809.8billion and this is affecting every section, including the Discos.

The shortfall during the Interim Rule Period (IRP) from 2013 to 2014 is N85billion, which was not covered by the Central Bank of Nigeria’s (CBN) Nigerian Electricity Market Stabilisation Fund (NEMSF). They fixed the tariff in December last year, but in their wisdom, they suspended it to February. The month of January that was left out cost the industry N12.8billion, but nobody is talking about it. We all knew the tariff will commence and it should have been in January 1, last year and we would have saved that shortfall in the whole industry. Another solution is by selling the local gas consumption in naira. If that is where government should subsidies, then so be it.

The International Oil Companies (IOCs) do not want to sell in naira, because they will tell you that the production component of gas is in dollars. Government should look at a way of factoring this thing or getting it around. We buy gas in dollar and the IOCs do not sell at the Forex of N197 recognised by MYTO 2015, but we are compelled to still sell electricity by that N197 Forex in MYTO, while we buy from the IOCs at the fluctuating dollar price, and that is causing the shortfall. We are not passing the bulk or giving excuses; we are just in a helpless situation that needs help from government. It is not just about the Discos alone, but the entire value chain, because if Discos die, Genco dies and so with the other. We are all interconnected and have the same fate.

Are the Discos considering selling some of their shares to boost investment?
Asking Discos to sell their shares is a matter that has been in the public domain for some time now. We referred them to the Share Sales Agreement (SSA) to know how much of shareholding can be devolved in five years. If there is such a clause, then we feel we should wait till five years before saying that. For the government shares, only they can answer as to why not sell the shares. We are saying that subsidy is one of the many options they will need to explore to solve the liquidity crisis in the power sector. Some of these options include the sovereign guarantee on debts owed by Discos.

They have done that for some of the other players, like the Dangote Group. If they do that for the Discos, it will enable us to be bankable. If there is one, they can give a moratorium on interest until when the tariff becomes truly cost reflective. The present MYTO 2015 tariff says we can only under-recover in the first three years and over-recover thereafter. It presupposes that we will be carrying our deficits for three years from now and with that on our books, the business is not bankable and no bank will lend us money. Such guarantee on loans from CBN will give us moratorium on interest till four years or so when the tariff will have been genuinely cost reflective.

Why don’t the Discos deploy more meters to improve their revenue?
Deploying meters costs money. A Disco needs about N30billion to do meters, but our business is not bankable because of the huge debts. The Capital Expenditure (CAPEX) we have in the MYTO 2015 is capped because the regulator wants to avoid tariff shock. If the CAPEX is high, then tariff will be high. But they have to look at the situation of the market, as the maximum money allowed for Discos to make investment, like buying transformers, meters, among others, is not enough for metering alone. Our legs are tied, but we are being scolded for not meeting up with our investment plans.

What would you say about the planned minor review of tariff?
The issue of minor of review is 100 per cent at the doorstep of the NERC and the regulator. We do not partake in that. We don’t determine what the tariff should be; we only suggest that whatever tariff that will be fixed should take cognizance of the market condition and the economic condition in the country, such that it does not become a shock to customers, and we should not shy away from the alternative of funding the shortfall, such that the burden on customers could be reduced. In our clime, when generation goes down, it affects the whole structure of tariff. We should be more realistic in doing that forecast of expected generation level in computing the tariff. What we have on generation now is very appalling.

What is the update about the Discos accessing CBN’s NEMSF?
I wouldn’t know what is stopping the complete disbursement. Only the CBN can answer that, but like any other public agency, CBN should be interested in how best to nurture the industry. Every single Disco has made and is still making sure they put things together to be entitled to the funds.

You earlier mentioned the suspension of MYTO 2106 Tariff in January 2016. What was the effect on the market?
The shortfall when the tariff was not implemented in January caused a shortfall of N12.8billion. That is what we call regulatory inconsistency and incompetence. They ought to have known that they cannot leave a whole month in the industry without catering to it. They signed the tariff in December and said it should start in February. We are living with the inability of the regulator to know how to do its job, while determining when the tariff should start.

Are you saying the regulator, NERC, has been incompetent?
The regulator has been inconsistent. For instance, last year, it said we should meter all customers within 12 months, which is very inconsistent and at variance with the conditions of the performance agreement. We do not expect the regulator to be the one that does not know how to honour agreements. We don’t expect them not to know the practicability of metering, even when they know it is not possible. The Nigerian Electricity Supply Industry (NESI) should be nurtured as a developing sector. It is a three-year old and not a mature one where fines are slammed anyhow.

Are there aspects of the Electricity Power Sector Reform Act that require review?
If we look at the Act, there are areas that need amendment. What we have is still a working document, but the implementation by NERC is the problem. NERC is quick to slam Discos with fines of per day, which is not so in the law. The law allows some levels of discretion in the Act and they are capitalising on that to set the per day fine. People need to ask them what they do with the money, but as far as we know, the money has turned out to be their Internally Generated Revenue (IGR).

We believe that is wrong because the fund ought to be used for the rural electrification and we have no evidence of such. They are only quick to fine and rubbish us. There is an initiative like that at the World Bank but it has to be initiated by the Federal Ministry of Power, Works and Housing so the DisCos can have it.

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