Payment Default: Gencos Mull Direct Sale to Heavy Consumers

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Chineme Okafor in Abuja

Electricity generation companies (Gencos) in Nigeria are considering the option of selling some of their generated power directly to heavy consumers following the continued failure of distribution companies (Discos) to conveniently pay for capacities generated and sold to them, the Managing Director of Niger Delta Power Holding Company (NDPHC), Chiedu Ugbo, has disclosed.

Speaking to journalists on the side-lines of the October 2016 edition of Nextier Power Dialogue in Abuja where it was disclosed that the electricity market’s revenue shortfall had risen to N809 billion and could get to N1 trillion by the end of 2016, Ugbo said the option of direct sale to heavy electricity users like steel plants was being mulled by the Gencos.

He said the option of direct contract was considered by the Gencos for the simple reason that the Discos have often failed to adequately pay for whatever volume of power they get from them despite indications that they are paid by heavy power consumers.

Ugbo, however, said the proposal would need the approval and declaration of the Minister of Power, Works and Housing, Babatunde Fashola, because Nigeria’s power policy would not permit operators to independently choose who to sell their services or products to.

His disclosure also followed complaints by the Discos that the N213 billion intervention fund initiated by the Central Bank of Nigeria (CBN) to cushion such market pressures have not lived up to its expectations.

The Discos through their network – the Association of Nigerian Electricity Distributors (ANED) had faulted the CBN intervention fund on the basis that its demands and expectations were quite unrealistic.

“Huge industrial transformers from the policy can take from the grid at 132kV level, like the steel companies and other huge industries. Right now, the distribution companies collect from them as they sell power to them but part of the suggestions is that the generation companies should be allowed to contract directly with them,” Ugbo said.

Explaining the rationale for such plan, he stated: “That will help reduce the shortfalls because by the time you sell part of your products to somebody who can pay, you can sell the rest to others. Obviously, they won’t be able to take all the capacity you have but you can collect the one you sold to them and have money to meet your cost.”

He, however, noted: “Eligible customer declaration is a policy matter and not for us to decide who to sell. The Act says it must be declared by the minister and there are certain factors that will lead to the declaration and not just an all-comer affair.”

“The generation companies are just suggesting that maybe it is time to start thinking along that direction because the middlemen – the Discos, who take our power, are not returning the whole money and then why can’t we sell directly especially when we don’t need the Discos’ network to sell to them. The only person we need to sell to them is the transmission network which is connected directly to our facilities and then theirs.

“We cannot sell to eligible customers until the minister declares and that is the law, we have to respect the law but it is being muted or suggested amongst the generation companies,” he added.

Ugbo said the danger in it however was that it would be wrong to take all the capacity to sell to people who can pay for it and leave out other classes of consumers.

“It does not work in electricity reforms because it is cherry-picking and you cannot cherry-pick customers because no responsible government will allow that. We are not really advocating that we should carry all the power to the big boys,” he explained.

He said the NDPHC alone was owed up to N105.235 billion by the market as unpaid cost of energy supplied, adding that the situation was applicable to all the Gencos in the market.

“The Market Operator settlement process shows we are owed N105.235 billion as at today. Just to take us back to history, in 2011, we invoiced N8.2 billion; in 2012, we invoiced N21.9 billion; 2013 – N46.9 billion; 2014 – N51.3 billion; 2015 – N62.4 billion and 2016 – N44.6 billion, and that is the total of N235.4 billion.

“Of these invoices, in 2011, we got 39 per cent; 2012, we got 26 per cent; 2013, we got 62 per cent; 2014, we got 72 per cent of the invoice; 2015, we got 62 and 38 per cents in 2016. It keeps going down in 2016, and for the June invoice, we got about 18.5 per cent and 19 per cent in July.”

“When you compare this to our operational expenses, you will see that we are already in trouble. From the collections, our gas bill in January and February N3.8 billion, March was N3.4 billion. There is no month we have a gas bill less than N2.4 billion. The total we owe for gas now is about N42.207 billion,” he added.

Meanwhile, Azu Obiaya, the Chief Executive Officer of ANED said the Discos now record an average monthly shortfall of N38 billion because of debt owed them by consumers including the government for energy supplied to its ministries and departments, as well as a tariff regime that is not cost reflective.

He also said the Discos now consider the CBN intervention fund as a curse because it has not done for them what they expected.

According to him, some big customer groups like the Manufacturers Association of Nigeria (MAN) do not pay bills based on the MYTO 2015 model. He said the Discos revenue shortfall could reach N309 billion by the end of 2016.