Are the Discos Blackmailing FG, Electricity Consumers?

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 ENERGY ANALYSIS 

The recent revelation by the Minister of Power, Works and Housing, Mr. Babatunde Fashola that the electricity distribution companies have refused to submit their audited accounts to the Nigerian Electricity Regulatory Commission shows that the have something to hide, effectively casting doubts on the claim that they have negative balance sheets, which they have used to justify exorbitant estimated bills slammed on consumers.  Ejiofor Alike reports. 

In the past couple of months, the 11 electricity distribution companies have consistently claimed that that Nigeria’s Electricity Supply Industry is in financial distress as a result of a debt of N100 billion owed by ministries, agencies and departments (MDAs); dwindling power generation due to gas pipeline vandalism; absence of cost-reflective tariffs and the failure of the federal government to activate all the actionable agreements entered into with the investors during the power privatisation.

The Discos had embarked on media advertisements and press conferences to absolve themselves of the obvious failings of the power sector, which had prompted Africa’s richest man and President of Dangote Group, Alhaji Aliko Dangote to call for the reversal of the power privatisation, alleging that the private investors “went in without even understanding what they were doing…”

The 11 Discos under the aegis of the Association of Nigerian Electricity Distributors (ANED) had raised the alarm that the revenue shortfall in the power sector would hit N809.8 billion by the end of this month as a result of the federal government’s inability to meet its commitments in the performance agreement with the investors who acquired the power asserts during the power privatisation.

ANED’s Executive Director, Research and Advocacy, Mr. Sunday Oduntan, had said in the association’s advertorials and press conferences that the performance agreement had stipulated that there would be cost reflective tariffs from November 1, 2013 but this never happened as “R2 customer class was politically frozen and collection losses removed in 2015” by the previous administration for the purpose of winning 2015 elections.

“Sculpting or under-recovery of cost will result in N164 billion revenue shortfall, for the period of 2016 through 2018. Delay in reflecting costs means a growing increase in deficits,” he added.

Oduntan had also alleged that the federal government also committed that tariffs should reflect reality but argued that tariffs have not changed despite the devaluation of naira from N197 to N305, while inflation also increased from nine per cent projected in the performance agreement to 17.9 per cent.

The Discos further argued that the performance agreement was hinged on projected generation of between 5,000 megawatts and 7,500 megawatts between 2014 and 2016 but generation according to the companies, averaged only 2,000mw-3,000mw during this period due to pipeline vandalism and transmission constraints, which they claimed were outside their commitments.

The distribution companies had also revealed that the generation companies are owed in excess of N184 billion contrary to the performance agreement, which guaranteed the credit worthiness support of Power Purchase Agreements (PPAs) by the Nigerian Bulk Electricity Trading Plc (NBET), better known as the Bulk Trader.

Oduntan had stated that the government made commitment to guarantee increased investors’ access to gas supply and alleged that there is no improvement in gas supply as a result of pipeline vandalism, which resulted in an average of 50 per cent reduction in generation for the period of May, June and July 2016.

According to Oduntan, while the performance agreement also guaranteed clean balance sheets to give the Discos and the Gencos the ability to borrow funds to invest in power sector, the investors’ reality showed that no bank willing to lend money to the Discos Or Gencos, as the banking sector is already exposed to oil, gas and power sectors by over N3 trillion.

He further stated that 3,000MW has been lost to vandalism, while the MDAs are indebted to the sector to the tune of N100 billion.

Fashola punctures claims

But speaking recently when he inaugurated a transmission line built under the National Integrated Power Projects (NIPP) by the Niger Delta Power Holding Company (NDPHC) in Akwa Ibom State, Fashola charged the Discos to also use the same advertorials to tell Nigerians that they refused to submit their annual statement of accounts to the NERC as required by the power reform law.

Fashola also alleged that the Discos frustrated attempts by NERC to activate their agreements in the Transitional Electricity Market (TEM), which should bind them to objective service delivery.

Though the industry claims to be currently under TEM, the sector is still being operated under interim rule, where the market participants operate on the basis of best endeavour, without any regard to the terms of the existing contracts.
Under the current operating conditions, market participants are not sanctioned for failing to meet their contractual obligations.
But under TEM, all actionable agreements signed by the various market participants are supposed to be fully implemented.

For instance, an active TEM will make it mandatory for the Nigerian Gas Company (NGC), a subsidiary of the Nigerian National Petroleum Corporation (NNPC), to be sanctioned in the event of failure to deliver on its gas supply commitments to the power producers, in line with the Gas Supply Agreement (GSA) signed in 2013.
With TEM also, any power generating station that fails to deliver on its electricity supply commitment to the national grid in accordance with the Power Purchase Agreements (PPAs) signed with the Nigerian Bulk Electricity Trading (NBET) Plc, otherwise called the Bulk Trader, will also be sanctioned.

The Distribution Companies are also expected to activate extant vesting contracts with NBET Plc, whereby NBET must meet its obligations to the Discos in terms of supply of bulk power for distribution.
In other words, market participants under TEM are obliged to commence full trading based on the rules of contracts and any breach of the contracts is effectively sanctioned but this has not been the case.

Fashola had accused the 11 Discos of becoming stumbling blocks to the smooth regulation of the power sector by NERC, and further alleged that when NERC wanted to activate their contractual obligations as contained in the TEM, the Discos dragged the regulatory agency to court and frustrated its efforts.

He further alleged that the Discos were largely responsible for the delay in the settlement of debts owed them by the MDAs.

He specifically noted that the Discos have irrespective of their excuses, failed to also tell Nigerians that in the past three years they have refused to submit their audited financial reports to NERC.

Indeed, if their books are in the red as they claim, analysts wonder why they are hiding their audited financial results from the regulator.

“Advert should also have told Nigerian public how many Discos have gone to court to frustrate the attempt by NERC to hold them to their contracts so that they can pay the Gencos who have been sacrificing, the gas producers who have not received payment and who have continued to act patriotic,” Fashola had said.

“It is important to remind all of us that the privatisation exercise that transferred the distribution companies was not held as a contract with an association. It was between Nigeria and the distribution company. So, while I respect the right of an association, the constitution guarantee the freedom of association, the federal government will not pay over N100 billion to anyone under the aegis of an association. That is not how to solve it,” Fashola added.

Fashola insisted that the government will treat the debt on individual company basis upon government’s honest verification of the claims and not with their association, adding that his request for them to submit records of their claims have been largely rebuffed by the Discos.

“We won’t pay estimate. The figure must remain clear in naira and kobo terms. And we will do our work. I think that the advert that the Discos issued should also have conveyed information to the Nigerian public about how many of them have supplied details of their audited accounts for the last three years. And we have been asking them to provide it,” Fashola argued.

 

Flagrant breaches of market rules

Since the power assets were handed over to the new investors on November 1, 2013, some of the Discos have demonstrated lack of capacity to run these assets.

Fashola had advised that “those Discos who cannot run the business must be honest with themselves and begin to look for options either to raise capitals, to get more strategic partners in or to do whatever they consider appropriate within the framework of their contract in order to get on with this job.”

But rather than explore other funding options, these companies have resorted to extorting consumers through exorbitant estimated billings; concealing their financial books from NERC; blackmailing government and flouting market rules.

On several instances of breaches of the market rules, NERC has responded with appropriate sanctions against erring Discos.

For refusing to provide customers with prepaid meters, Ikeja Electricity Distribution Company (IKEDC) was the first Disco to be sanctioned by NERC to the tune of N131.4 million for the company’s “flagrant breaches” of the Credited Advance Payment on Metering Initiative (CAPMI), an initiative of NERC to assist the companies close the wide metering gap.

NERC had also fined Benin and Port Harcourt electricity distribution companies N6.220 million over failure to comply with the decisions of Forum Offices rulings in complaints filed by their respective customers.

The agency had also has fined Ibadan, Ikeja, Port Harcourt and Enugu Discos millions of Naira for breaching the terms and conditions of their licences and the provisions of the Electric Power Sector Reform Act 2005.

Port Harcourt and Enugu Discos were sanctioned for their failure to submit quarterly reports on their key performance indicators, whereas Ibadan and Ikeja were fined over failure to attend to customers’ complaints severally referred to them.

Despite NERC’s sanctions, some of the Discos have continued to flout the market rules by extorting customers through exorbitant estimated bills, and it is ironical that while Eko Disco has embarked on massive rollout of free prepaid meters to its customers, Ikeja Disco, which operates under the same market, has suspended the provision of prepaid meters, citing high cost of forex.

While some of the Discos are busy providing meters and investing on network expansion to boost their distribution capacity, there is indeed, lack of sincerity on the part of most of the Discos, who have resorted to blackmailing the government and consumers.