Electricity Tariff Shortfalls Hits N460bn, Discos Mull Force Majeure

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Technicians working on electricity meters
  • GE in discussion with Discos on investment in network expansion

Chineme Okafor and Nnenna Akuma in Abuja

The current revenue shortfalls that have accumulated from the inability of the Nigerian Electricity Regulatory Commission (NERC) to allow the 11 electricity distribution companies (Discos) in country’s power sector to have cost reflective tariffs have now shot up to N460 billion, thus burdening the operations of the Discos, the Association of Nigerian Electricity Distributors (ANED) has disclosed.

ANED wednesday at a power sector workshop in Abuja said the heavy financial shortfalls were impacting the operations of the Discos such that they may be forced to declare a force majeure.

According to documents presented at the workshop, the failure of the NERC to review about three consecutive sets of electricity tariffs between January 2015 and December 2016 resulted in the N460 billion shortfalls.

The documents disclosed that in 2015, the decision of the NERC to freeze the residential-2 (R2) tariff cadre and removal of collection losses from the Discos’ tariffs resulted in a shortfall of N187 billion, the smoothening of the tariff for 10 years in 2016, also resulted in another deficit of N227 billion while additional changes in the tariff as a result of NERC’s refusal to activate the minor review of the tariff in the second part of 2016 also resulted in another N46 billion.

The shortfall figures for the first term review of the tariff in 2017 are however still outstanding.
Responding to this development and a question on why the Discos have rather opted to continue to operate in the sector instead of declaring a force majeure and cutting short their losses, the Executive Director, Research and Advocacy of ANED, Mr. Sunday Oduntan, said: “We are not ruling that out, it is an option.

“But, is that the best way out? The best way out is for the government to do the right thing. The problem of the sector is liquidity, and there is no cost reflective tariff to the Discos.”

Oduntan also questioned the decision of the NERC to continue to keep back the sector from operating a cost reflective tariff, adding that such decisions were hurting the operations of the sector.

Previously, Integrated Energy and Distribution Marketing Company (IEDM) which acquired the Yola Disco in 2013 under the power privatisation programme was forced to declare a force majeure and returned Yola Disco to the federal government on the grounds that it was impossible to operate and access the assets of the electricity distribution firm in the North-east due to the Boko Haram insurgency.

The company subsequently negotiated a payout of $87.8 million as compensation from the government after it returned the Disco, but the government has not paid it the money.
Oduntan also noted that the Discos were currently in conversation with United States conglomerate corporation, General Electrics (GE), to explore the possibilities of investing in the expansion and upgrade of the distribution networks.

The GE, he said, had previously approached the Discos and conversations on potential areas of investment, but that a clear picture of what could be possibly known at the ongoing Nigeria Economic Summit where GE indicated its intentions to them.
“General Electric have being contacting us for months, that we being the gatekeepers to all Discos, and when they want data, instead of going to all the 11 Discos all over the country, they come to us because we are a one-stop shop from where you can get data and information.

“They wanted to know how the sector is doing; they have been investing heavily in the oil and gas sector and power generation aspect of this business. They are trying to see how they can come into the distribution aspect. They have a lot of money to invest but they want to do their studies to be sure of what they are coming in for. They want us to tell them what we needed and the challenges.

“Like the issue of metering, we told them, issue of network upgrade, we told them things that we need to do. That was our main discussion and it is an ongoing discussion because they are also going to have a meeting with the Vice President and they will come back to us,” Oduntan, said.

Meanwhile, the Minister of Power, Works and Housing, Mr. Babatunde Fashola, has said there was nothing wrong with the federal government’s decision to encourage renewable energy investment and deployment in Nigeria’s energy mix, and so asked the 11 electricity distribution companies (Discos) to stop getting worried about its potential impacts on their respective investments.

A statement from his Senior Special Assistant on Communication, Mr. Hakeem Bello, yesterday in Abuja, stated that the minister advised the Discos on this at the last monthly meeting of operators in Nigeria’s power sector in Owerri.

According to the statement, the Discos had written to him through the Nigerian Electricity Regulatory Commission (NERC), and expressed their worries with the government’s promotion of solar power through mini-grids amongst other off grid electricity initiatives.

He said the complaints of the Discos also included the provision of meters to consumers through the licensing of meter suppliers and provision of more power to consumers through the NERC’s licensing of eligible customers.

Other initiatives the Discos were not comfortable with he said were the provision of independent dedicated power systems to universities in the country.

He pointed out that while the Discos were worried about the impacts of the initiatives on their bottom lines and operations, the government was more interested in getting more electricity to Nigerians across board.

“It is my understanding that you fear that you will lose some income or some customers if government proceeds, and on the question of meters, you seek to have technical compatibility with what the licencee will operate.

“In respect of possible investment in distribution equipment you seek that government should route the investment through the Discos. Understandably you are concerned about investment recovery and in your views, the solution is a tariff review,” said Fashola.

He added: “Government’s focus was also strong on the issue of service to the people. There must be a balance somewhere in the middle.”

Fashola, said as far as the promotion of solar and other sources of independent power was concerned, they were supported by the Electric Power Sector Reform Act (ESPRA), and, “consistent with our Paris climate change agreement obligations and with emerging global practice.”

“The ESPRA did not contemplate a monopoly for any licensee, unless it is expressly stated in the license,” he explained.

  • mohammed dauda

    DISCOS are free to declare whatsoever. This is an admission of total failure. The DISCOS will never take us anywhere, it is totally an impossibility for a blind man to lead another. My story below.

    The strange going-on
    in the power sector

    The Nigerian power sector has been in serious troubles and
    problems for many decades and the GEJ nailed the coffin of the sector with his
    so-called reform which led to a fraudulent privatization of the sector in 2013
    and Fashola has buried this sector when he assumed duties as the minister.
    Three years into the privatization and even earlier the signs coming from the
    exercise indicated that we are on the brink of disaster. Everyone who is
    everyone has spoken that if nothing is done the sector would collapse.

    Nigerians were
    jubilant and hopeful when the Buhari Administration came to power and that
    finally a government that came with the Hope and Change Agenda and its
    commitment to fight corruption and put right what was wrong would be addressing
    this crucial sector. Our hopes were raised when the President in his inaugural
    speech said inter-alia-that our attempts to overhaul our electricity sector
    have only brought darkness, frustration, misery and poor service as drag on
    Nigerian economy.

    These hopes were
    dashed when a super ministry was created and a super minister was appointed to
    run the newly created ministry. Immediately the super minister took change he
    sent a very strong signal that the privatization of the power has come to stay
    and all his action from day one to date show that the minister is never moved
    by the public outcry about this mess called power privatization. Since his
    assumption of duties it has been one excuse or another, one explanation after
    another all trying to justify his stand. The minister seems to forget that he
    is HIRED to work for Nigeria and Nigerians but not a cheerleader and a spoke
    person of some fraudulent incapable and incompetent investors.

    Our expectations
    are that based on the PMBs speech and the public outcry, the government should
    have appointed experts to look into the transactions and find out exactly what
    happened. Not for a political appointee to stand his ground as if the company
    belongs to him. He slammed us with tariff increase and continues to make noise.

    The National
    assembly particularly the House of Representative held PUBLIC HEARINGS in 2015
    and 2016 respectively and the Senate did the same on this power privatization
    debacle. Curiously in their joint
    statement the Senate President and the Speaker of the House said what they
    found in their investigations was MIND BOGGLING but they refused to let us see
    the findings.

    The minister
    continues talking and issuing statements on the same issue without offering any
    solution. A cursory look at the minister’s actions and speeches indicate a
    total lack of knowledge of what is going in the sector. It is a National
    disgrace that a minister and his technocrats do not know the exact situation of
    the sector. Contradictory Statements and excuses are the hallmark of the
    minister’s tenure while the situation continues to deteriorate at an alarming
    rate.

    It is not only
    strange but suspicious whereby both the minister and National Assembly could
    not do anything about this sector even if the entire system collapses speech
    volume of the powers and connections of these so-called investors. It appears
    the 180 million Nigerians do not matter. Another matter of serious concern is
    that the minister is adding fuel to fire by insisting on a tariff increase.
    This is clearly the highest form of INSENSITIVITY to public outcry by any
    minister. On what basis is he calling for tariff increase? In the first place
    these people have not invested a kobo into the system and that alone should be
    a reason to not allow any tariff increase. They also have failed to achieve the
    Technical and Commercial Losses which were the hall mark of their qualification
    for winning the bid.

    This writer
    believes that the government is being led to believe there is legal quagmire in
    this privatization. This is not true. The Sale Purchase Agreement clearly
    states the terms and conditions of the sale which includes penalty, revocation
    etc. The minister is clearly hiding this from the government. Another concern
    is that there is nowhere in the world that a stakeholder of 40% is no body in
    the business. The minister’s stand is that he does not care or mind if that 40%
    becomes 0%. The BPE and the consultants who carried out the sale are not mad
    people and have tried through that Agreement to safeguard the FGN 40%. I am wondering why the minister is behaving the way he is
    behaving.

    With all the problems we are facing one would expect the
    government to make a case for review of the performance of these companies based
    on the terms and conditions of the sale as outlined in the Sale Purchase
    Agreement by setting up a TECHNICAL and COMMERCIAL TASKFORCES to look into the
    performance of these companies including their FINANCES because the companies
    were handed over to them with no debts.

    The suggestion by the minister to sale the 40% is dubious
    and illegal and must not be allowed to be done. It is an illegal way of hiding
    and cover for the fraud that has taken place during the sale. Any attempt to
    sell the 40% must be resisted. At any rate only a dubious investor will buy
    this stake because the entire system is in a mess and anybody wanting to buy
    this stake must carry out DUE DILLIGENCE and including the background check on
    the people he is going to do business with.

    There is not going to be any genuine foreign investor in
    this sector as long as the people in charge of the system know next to nothing
    about the industry. We are just deceiving ourselves that some people will come
    from nowhere to run our system. An investor that cannot provide ordinary meters
    to his customers is by any standard not a serious investor. What one expects is
    that metering should be the top priorities for any investor to enable him
    collect every kobo that is due to him. It is very strange and it is only this
    country where metering has become a ministerial issue. I cannot remember
    hearing minister of communication asking MTN or all the Telecom Operators to
    provide meters to their customers.

    It is really insane to pursue a policy that would fail .The
    government must be serious about the sector and investigate the deal on case by
    case basis to know if the country and its people are not short changed
    including the staff of the defunct PHCN. The President lamented during his
    Inaugural speech and said the same in his October Speech. So there is a problem
    and instead of lamenting the best thing is to get into the roots of the
    problem. The government is supporting and bailing these operators with public
    fund and even going further paying Billions of power bills which were never
    verified. What kind of privatization is this?

    From the above one can clearly see a problem in a very near
    future because the government will reach a point where it cannot sink more
    money to support these investors.