Electricity Tariff Shortfalls Hits N460bn, Discos Mull Force Majeure

  • 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.