Power Tariff Shortfall Hits N2.4trn In Six Years
Power tariff shortfall hits N2.4trn as power consumers did not pay a total of N2.4trn for the quantum of electricity they consumed between 2015 and 2020, the Federal Government has stated in its latest report on Nigeria’s Power Sector Recovery Programme and Policy Interventions.
In the report, the government explained that the unpaid electricity bills by power consumers in the six-year period caused an unsustainable financial burden in the power sector.
It specifically noted that in 2017, for instance, electricity tariffs could not cover the cost, even at zero Aggregate Technical Commercial and Collection losses.
The document, obtained by our correspondent from the power ministry in Abuja, stated that these concerns were the key drivers of the Power Sector Recovery Programme of the Federal Government.
The Federal Executive Council approved the Power Sector Recovery Programme in March 2017 and made further amendments in 2019 with strategies to phase-out Federal Government support to the electricity market.
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Outlining the key drivers of the PSRP, the government said, “Revenue deficits (in the sector) were inevitable, thus creating unsustainable fiscal burden. Total tariff shortfall (2015 – 2020) as at December 2020 is about N2.4tn.
“Significant CAPEX (capital expenditure) required for turnaround of the industry. Economy stunted by lack of adequate and reliable power.”
It further noted that another major driver of the power recovery programme was the World Bank’s commitment to provide funding support to the industry.
The government, however, stated that the PSRP deliverables were to dimension accumulated and future tariff shortfalls and develop public communication on tariffs and the power recovery programme.
It stated that it would develop interventions necessary for sector discipline and business continuity, as well as restore sector technical and financial viability over a period of five years.
The report noted that through the PSRP, there would be an aggressive loss reduction as a strategy of modulating end-user rates, adding that the programme would identify efficient funding sources to cover revenue shortfall and investment.
Nigeria’s power sector has been faced with tough liquidity concerns since the distribution and generation arms of the industry were privatised in November 2013.
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Power generators and other market participants, for instance, had often complained about the failure of distribution companies to remit the complete amount required for the smooth operation of the sector.
Discos collect electricity tariffs from end-users and are required to make stipulated remittances to the Nigerian Bulk Electricity Trading Plc and the Market Operator, which is necessary in settling the bills of other industry players such as the Gencos, Transmission Company of Nigeria, etc.
Other industry players had often kicked against the failure of the Discos to make complete remittances, a situation that had caused some financial strain in the country’s power business.
But the Discos on their part had been complaining of the failure of some end-users to pay their electricity bills, as the latest PSRP report showed that electricity consumers actually did not pay a whopping N2.4tn in six years.
Providing an instance, the Discos recently stated that the unpaid electricity bills of ministries, departments and agencies of the Federal Government, including military and para-military organisations had exceeded N90bn,
The Executive Director, Research and Advocacy, Association of Nigerian Electricity Distributors, Sunday Oduntan, had told our correspondent that the indebtedness of MDAs had been increasing since November 2013.
He said, “All MDAs’ debt is in excess of N90bn and the military is part of that. We came on board in 2013 and since then, how much has been paid by the MDAs?
“There was a time when a former minister of power said they (government) had concluded arrangement on how to settle the debt, but as I speak with you, the bills are still there unpaid. Since privatisation, there have been issues around MDAs debt.”
Meanwhile, the government explained in the latest PSRP report that it adopted some financing plans to help cushion the fiscal burden in the power sector.
“Payment Assurance Facility of N701bn (was) provided as loan to NBET to ensure generation companies are paid to maintain operations for the period 2017 to 2018 in view of insufficient remittances by Discos due to non-cost-reflectivity of tariffs,” the report read in part.
It added, “Additionally, the Federal Government approved an extension to the PAF with additional N600bn subject to the accountability framework that includes provisions for Minimum Remittance Requirements as contained in the successive tariff orders issued by NERC”
The government further stated that the World Bank had commenced the disbursement of the Performance-Based Loan in support of the PSRP in view of successes achieved in the execution of the power recovery programme.
