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How TCN Operated without Market Rules

01 Jan 2013

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Power Plant

Chineme Okafor

An audit into the activities of the Market Operations (MO) department of the Transmission Company of Nigeria (TCN) in relation to adherence to guiding principles in the Multi Year Tariff Order (MYTO-1) electricity framework has shown that the MO consistently flouted existing rules of financial transactions in Nigeria’s Electricity Supply Industry (NESI).

The audit, which was commissioned by the Nigerian Electricity Regulatory Commission (NERC) and undertaken by KPMG Financial Services in 2010 discovered that apart from the MO’s disregard for the market rules which applied to activities in the sector, it also ditched the practice of qualitative internal controls in all its dealings in the sector.

Commissioned to reconcile the accounts of the MO with that of other market participants to determine related liabilities in operations within the electricity value chain, the KPMG audit disclosed that market participants in NESI especially the MO had misapplied the MYTO-1 mechanisms in its management of finances in the sector right from its inception in 2008.

It discovered that over N200 billion worth of unpaid energy bills were owed various market participants as a result of such disregard to existing market rule by the MO.

This, according to the audit report, suggested a possible misappropriation of over N178 billion budgeted in 2008 as subsidies for electricity consumption by the Federal Government.

The report entitled; “Reconciliation of Market Operations’ Account with Market Participants and Determination of Related Liabilities” was obtained by THISDAY recently in Abuja.

It partly reads: “In the Nigerian electricity market, only the market rules for the transitional and medium term stages of the Nigerian electricity power sector (Market Rules) specify the requirements of market settlement accounts. The market rules became effective as at 17 February 2010 and provides guidelines for the operation of market settlement accounts during the ‘transitional’ stage of the market. According to the market rules, this stage has not yet been reached.

However, Rule 6.2.2 (a) of the market rules, states that during the pre-transitional stage of the market, the Market Operator is required to “Commence application and implementation of the draft market rules to the extent that these rules apply during the transitional stage with a view to (i) enable it review feasibility, coordination, timing, metering problems or gaps; and (ii) draft such amendments as may be required to the draft rules”.

This implies that the directives relating to the transitional stage of the market as contained in the draft market rules apply during the pre-transitional stage to the extent possible. Since the draft market rules became effective in February 2009, it implies that from July 2008 to January 2009, there were no rules guiding the operation of market settlement accounts.”

“Nevertheless, MO does not fully comply with the limited guidelines provided by the market rules on the operation of market settlement accounts in the pre-transition stage,” it added.

The report also made comments on MO’s compliance with internal control mechanisms saying: “Responsibility for internal control lies with an entity’s board. Thus, the TCN board is responsible for the quality of internal control within the MO department. However the TCN board is not operational. An ineffective governance structure over MO has resulted in PHCN CHQ (Power Holding Company of Nigeria Corporate Headquarter) directing MO to make payments which are not in line with the market settlement process.

For example, we noted transfers from MO clearing accounts to CHQ (backed by directives from CHQ) totalling N524 million over the period July 2008 to March 2010 that were not settlement statement related.”

The audit report further stated that the MO’s accounts that contain government subsidy funds do not comply with Section 734 (i) of the Federal Government Financial Regulations and Circular (TRY/A4&B4/2001/OAGF/PRS/005/III/85) issued by the Office of the Accountant General of the Federation (OAGF) and which states that government funds should not be placed in any commercial bank that would charge commission on transactions.

“The MO may be running market account contrary to required policies or guidelines, the market rules should be amended appropriately to reflect the most practical requirements for the upcoming transitional stages of the market, the available guidelines for subsidy disbursement are ambiguous and open to interpretation by users.

This is evident in the different approaches applied by MO in disbursing the two batches of subsidies released to date and without clearly documented processes, MO may employ its own methods in the disbursement of subsidy, which might not be in line with leading practices. The required subsidy disbursement process should be formally documented and approved by all relevant parties,” it added.

Tags: Business, Nigeria, Featured, TCN, MARKET RULES

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