COVID-19 Debts Power Sector, Shrinks DisCos’ Revenue

There were indications on Monday that the coronavirus pandemic may unsettle the nation’s power sector for the rest of the year.

A report by Agusto & Co Limited, a management consultant, obtained by Daily Independent, said it expect­ed a decline in collections in 2020, given the significant slowdown in the economy following the outbreak of the coronavirus (COVID-19) with the attendant lockdown order im­posed by the Federal Government on economic activities in H1’2020.

The report said its pessimism for DisCos’ collections was based on several factors (outlined in the report), including the ‘no discon­nection’ measure implemented by the DisCos during the COVID-19 lockdown period.

The report said the ‘no discon­nection’ position would affect in­ternally generated revenues such as disconnection and reconnection fees.

It said: “Moreover, the Nigerian Electricity Regulatory Commission has commenced the enforcement of the minimum remit­tance order (which stipulates the minimum remittance ob­ligation for a DisCo having adjusted for tariff shortfall). 

“This order is expected to end the erstwhile discretion­ary remittance regime by DisCos and should constrain the DisCos’ earnings in the short term.

“Low remittance has ad­versely affected the ability of the Nigerian Bulk Elec­tricity Trading Plc (NBET) to honour its financial obligations to the GenCos as well as constrained the ability of other service providers such as NERC to perform their statutory ob­ligations.”

NERC had, last year, reported that the eleven Electricity Distribution Companies (DisCos) in Ni­geria suffered huge revenue shortfalls to the tune of N1.67 trillion in the past five years.

This was contained in the documents published on the website of Nigerian Electric­ity Regulatory Commission (NERC) titled, 2016 – 2018 Minor Review & Minimum Remittance Orders for the 11 DisCos.

According to the data con­tained in the report, all the 11 DisCos in Nigeria recorded an average of N152.3 billion revenue shortfall between 2015 and 2019. A closer look at the report shows that Ibadan Power Company (IBDC) had the biggest share of the reve­nue shortfall.

The agency noted that it computed and recognised the sum of N235.5 billion as the tariff shortfall for IBDC between 2015 and 2019 to date.

Ikeja Power Distribution Company followed IBDC closely with the sum of N188.5 billion as revenue shortfall between 2015 and 2019.

Benin DisCo recorded N164 billion revenue shortfall to rank third, while Kaduna DisCo’s shortfall was estimat­ed at N164 billion.

Others include Abuja (N154.3 billion), Eko (N145.2 billion), Port Harcourt (N143.3 billion), Kano (N140 billion), Enugu (N140 billion), Jos (N126.2 billion), and Yola (N74 billion).

Tariff shortfall recorded by the DisCos came from individuals, firms, and even government agencies who are consumers of electricity services.

Since privatisation in 2013 till date, the power industry has remained constrained by insufficient revenues, weak cash flows, high leverage and low liquidity due largely to unreflective tariffs and low generating capacity.

While electricity demand is estimated at 25,790 mega­watts (MW), the highest pow­er generation has stagnated at about 5,375MW.

Unreflective tariffs also impede the ability of indus­try operators to generate sufficient cash flows and heighten the liquidity chal­lenges in Nigerian Electric Power Industry (NEPI).

The Federal Government recently approved N600 bil­lion for injection into the country’s electricity market. According to NERC, the in­tervention fund was for the payment of the shortfall in electricity invoices for the entire market.

The government made in­tervention payments in line with the Power Sector Recov­ery Plan (PSRP).

According to the plan, all accrued liabilities in DisCos’ financial records arising from tariff shortfalls shall be transferred off the bal­ance sheet and fully settled under the financing plan of the PSRP initiative.

The NERC document reads: “All funds retained by the DisCos as represented by excess of market (remit­tance) shortfalls over tariff shortfall are to be recovered as a full liability of the Dis­Cos, including applicable interest thereon, in line with the provisions of the Sup­plementary TEM Order, the Market Rules, and respec­tive industry contracts with NBET and the MO.”

Besides, last year’s report by the Association of Nige­rian Electricity Distributors showed that the Distribu­tion Companies (DisCos) in Nigeria recorded 8% growth in their revenue collection in 2019. The eleven DisCos grossed N473 billion in 2019.

The growth in the DisCos revenue compared to that of 2018 is reportedly a new high in the electricity industry, having recorded a growth of N35 billion last year to hit N473 billion.

Also, the DisCos set an­other record in December 2019 after collecting about N42.1 billion, while the col­lection efficiency for the fourth quarter set a new re­cord of 71.4%.

But the latest Agusto’s re­port said Nigerian Electric Power Industry’s (NEPI) strengths include assured electricity power demand with Nigeria’s growing pop­ulation, operators’ access to several intervention funds such as the Nigerian Elec­tricity Market Stabilisation Facility (NEMSF), the Pow­er and Airline Intervention Fund (PAIF), and the Pay­ment Assurance Facility (PAF).

The report said: ‘’The Nigerian government’s fi­nancial support provided through energy programmes of the Central Bank of Nige­ria (CBN) was estimated at N1.1 trillion as at December 2018.

“The Nigerian govern­ment also supports NEPI through the implementation of favourable policies such as the Power Sector Recovery Plan.

“In addition, Nigeria is blessed with abundant gas reserves, the largest gas de­posits in Africa estimated at 201 trillion cubic feet (TCF) together with about 600 tril­lion cubic feet unproven gas reserves.

“The abundance of gas reserves, if adequately ex­plored, should provide a sustainable pathway to elec­tricity generation in the long term and reduce the level of repressed and unmet elec­tricity power demand in the country.”