Discos and the new market rules

THE panic among electricity distribution companies (DISCOs) over the commencement of the Transitional Stage Electricity Market (TSEM) is understandable given the less than average performance by the firms since they came on stream roughly a year ago. Not meeting the set target and the sanctions, which such default could attract are enough causes for worry.

   The Nigerian Electricity Regulatory Commission (NERC) threat of punishing errant operators, is not out of place as that might compel the DISCOs to increase their efforts at satisfying market demands with better performance. And the companies ought not to fret since whatever demand is being made on them is within the terms of the contractual agreements.  Above all, electricity consumers across the country are bemoaning the outrageous bills they are made to pay without a commensurate service rendered. So, whatever happens, electricity supply to citizens should improve and an appropriate billing system should be put in place to ensure a functional as well as appropriate pricing in a correct demand and supply regime.

   Under the new power regime, the electricity firms are expected to pay for energy bought from the generating firms. At the same time, failures in deliveries on the privatisation performance obligations will now attract sanctions in line with market rules and contractual obligations. There are, however, indications that liquidity constraints hampering smooth operation are a major concern for most DISCOs. And this constitutes a major challenge, which could force the firms into breaching contractual agreements with other stakeholders. To the long-suffering citizens and other electricity consumers, however, energy should simply be made available at the appropriate price and in needed quantity. Which is why it is assumed that all due diligences had been done before now.

   The new order is directed at all relevant market participants, service providers and the Nigerian Bulk Electricity Trading Plc. From last month, the market was billed to be governed with the strict application of the terms and conditions of the Multi Year Tariff Order 2.1 (MYTO 2.1), which was approved on December 24, 2014 and became effective from January 1, 2015. According to NERC, the new order ensures that market participants now have a cost-reflective tariff. That would be different from what is currently obtainable, whereby the DISCOs impose tariff arbitrarily on electricity consumers.

   Furthermore, NERC explained that one of the implications of TSEM is that the gas bottleneck, which had hampered electricity supply, would be reduced, as gas would be supplied to electricity generation firms on a legally binding basis as regards delivery and payment. Recently, the Central Bank of Nigeria (CBN), in a bid to resolve the cash liquidity challenges in the power sector, released N18.26 billion as loan to five power firms, certainly a commendable proactive measures if only the money would be applied judiciously.

   Going by the worsening electricity supply situation in the country, whatever measures could be applied to bring about change by way of improved supply is desirable especially since Nigerians had expected to see improved performance under the DISCOs regime so far to no avail. While it must be acknowledged that efforts are being made by the NERC to bring about a new regime of improved power supply, getting the full benefits of the new order remains an illusion.

  Among other things, for instance, shortage of gas, which is a critical factor in the operation of most power plants in the country, has remained something of an insurmountable obstacle. And the blame game over this gas shortage phenomenon is played by all sides with aplomb.  Whether the new MYTO 2.1 would guarantee steady gas supply to the power plants at reasonable cost and by extension improve electricity supply is now a desire yet to be met.  

  Without adequate and cost-effective gas supply, the DISCOs would operate at a loss, which would in turn be passed to consumers and it is not clear how NERC intends to enforce the new targets on the DISCOs. Although sanctions have been reeled out, such must be compelling enough to achieve the desired results of enough power and at the appropriate price.