Despite Electricity Tariff Hike, FG To Fund N545bn Deficit
Although the regulator plans to increase electricity tariffs on April 1, it says the amount of money recoverable by power distributors from consumers will fall short of their revenue requirements,
Electricity distribution companies in the country will record a tariff shortfall of N545bn this year, an analysis of data obtained from the Nigerian Electricity Regulatory Commission has shown.
According to the regulator, the Federal Government will fund the tariff shortfall through the Nigerian Bulk Electricity Trading Plc and the Market Operator, an arm of the Transmission Company of Nigeria.
The government-owned NBET buys electricity in bulk from generation companies through Power Purchase Agreements and sells through vesting contracts to the Discos, which then supply it to the consumers
NERC, in its December 2019 Minor Review of Multi Year Tariff Order 2015 and Minimum Remittance Order for the Year 2020 for the 11 Discos, said on Saturday that consumers would start to pay more for electricity from April 1, 2020.
It said the Federal Government had, in the interim, committed to funding the revenue gap arising from the difference between cost-reflective tariffs determined by the commission and the actual end-user tariffs payable by customers.
According to the commission, tariffs will be fully cost-reflective by the end of 2021.
It said all the Discos “are obligated to settle their market invoices in full as adjusted and netted off by applicable tariff shortfall.”
“All the FGN interventions from the financing plan of the PSRP for funding tariff shortfall shall be applied through the Nigeria Bulk Electricity Trading Plc and the market operator to ensure 100 per cent settlement of invoices issued by market participants,” NERC added.
Tariff shortfall is the difference between the Discos’ revenue requirements and what they are allowed to recover from their customers by the regulator.
Yola Electricity Distribution Company will suffer the biggest tariff shortfall of N68.35bn this year, while it is allowed to recover N107.99bn, according to NERC data.
On July 2015, the Federal Government took over Yola Disco following the exit of the core investor after it declared a force majeure, citing insecurity in the North-East region of the country.
Abuja Electricity Distribution Company has a shortfall of N57bn, with the allowed recovery of N86.25bn.
Ikeja, Eko, Ibadan, Enugu, Benin, Kaduna and Jos Discos have tariff shortfall of N48.48bn each while they are allowed to recover N65.79bn each from their customers.
Kano Electricity Distribution Company and Port Harcourt Electricity Distribution Company have tariff shortfalls of N41.68bn and N38.25bn respectively. They are allowed to recover N55.46bn and N45.69bn respectively.
“We need to check the integrity and credibility of the costing; some of the costs arise from inefficiency because there is a lot of inefficiency in the system,” The Director-General, Lagos Chamber of Commerce and Industry, Dr Muda Yusuf, told our correspondent in a telephone interview.
Yusuf, who noted that the Discos were incurring technical, commercial and collection losses, said it would be unfair to make the consumers bear the burden of their inefficiency.
He said consumers would not be willing to stomach the planned tariff hike because of the current level of power supply and the state of the economy.
“There has been no commensurate improvement in the power delivered to the consumers,” he added.
The LCCI DG said there was a need to revisit the entire structure of the Nigerian electricity supply industry, adding, “We need a model that will work.”
The Minister of Power, Mr Sale Mamman, hinted in December that with the anticipated improvement in power supply, the increase in electricity tariffs was inevitable, considering the cost of energy generation in the country.
The distribution and generation companies carved out of the defunct Power Holding Company of Nigeria were handed over to private investors on November 1, 2013, following the privatisation of the power sector.
More than six years after the privatisation, the investors who took over the power firms that emerged after the unbundling of the Power Holding Company of Nigeria are still grappling with the old problems in the sector.
The sector is plagued with problems of gas supply shortage, limited distribution networks, limited transmission line capacity, huge metering gap, electricity theft, and high technical and commercial losses, among others.
NERC, in its latest quarterly report, said the financial viability of the Nigerian electricity supply industry remained a major challenge threatening its sustainability.
It said, “The liquidity challenge is partly due to the non-implementation of cost-reflective tariffs, high technical and commercial losses exacerbated by energy theft and consumers’ apathy to payments under the widely prevailing practice of estimated billing.
“The severity of the liquidity challenge in the Nigerian electricity supply industry was reflected in the less than 50 per cent settlement rate of the energy invoice issued by the Nigerian Bulk Electricity Trading Plc and Market Operator to each of the Discos as well as the non-payment by the special and international customers.”
The aggregate technical, commercial and collection losses for all the Discos averaged 44.5 per cent in the second quarter of 2019, compared to the expected industry average of 26 per cent, being the allowable ATC&C losses provided in the MYTO for 2019.
The ATC&C losses of the industry are the combined index of losses due to technical, billing and collection inefficiencies in the industry.
“The high ATC&C losses reflect low investments in distribution networks aggravated by the low level of metering of end-use customers, thus creating lingering liquidity challenge to the industry,” it added.
According to NERC, as much as N4.45 in every N10.00 worth of energy received by a Disco in Q2 2019 was unrecovered due to a combination of factors such as energy theft, inefficient distribution networks, weak management effort in revenue collection, and low metering and willingness to pay by customers.
