As Electricity Distribution Companies (Discos) in Nigeria ceaselessly allege that they are into a loss-making venture, Chineme Okafor examines the latest claim from the Kaduna Disco that the distribution companies suffer a collective loss of N20 billion monthly due to inability to fully collect charges for power sold to consumers
Distribution Companies (Discos) in Nigeria’s electricity market often complain about their challenges in the sector. In the almost five years in which the sector has run as a privatised market, the Discos have hardly kept quiet about their operational challenges. They raise arguments about their inability to operate with economic tariffs, saying the federal government has always found a way to interrupt the smooth implementation of cost-reflective tariffs from the regulator. At times, too, they tend to raise controversial arguments about their inability to collect enough monies for electricity supplied to their customers.
Recently, an official of the Kaduna Disco told journalists that all the Discos in the country lost about N20 billion monthly to collection gap. According to the Chief Corporate Service Officer of Kaduna Disco, Mr. Uday Mishra, the major challenge of the Discos has remained their inability to collect all that is due to them from the electricity they supply to consumers. He noted that Discos in the country did not get paid for the power they sold to 60 per cent of their consumers.
“All Discos are surviving hardly because they have just 40 per cent of legal consumers on their billing net while the majority of consumers are involved in bypassing, theft, non-payment of bills and direct hooking,” said Mishra.
He then said, “We call on consumers to take care of their duties by paying bills and disengaging in any kind of electricity theft. The company disconnects as last resort which is also costly and time-wasting.”
Mishra asked the government to provide some sort of subsidy for electricity consumed by agriculture-related projects, low-income groups and other poor members of the society living in slums across the country.
Considering the various agreements signed with the government during the electricity privatisation process, and from which each successful core investors for the Discos emerged, the recent complaint of the Discos as raised by Kaduna Disco seems out of place. The privatisation of the Discos by the government through the Bureau of Public Enterprises (BPE) was done using the Aggregate Technical, Commercial and Collection (ATC&C) loss reduction model. This model required that any of the investors who proposed in absolute percentage terms, the highest ATC&C loss reduction figures over a five-year period, would be deemed good enough to manage the distribution network and the shares of the Disco given to it as its core investor.
Within the ATC&C loss reduction model, the core investors were expected to address the vital issues of high losses recorded in the operations of Discos under the defunct Power Holding Company of Nigeria (PHCN), and these losses included technical, commercial and collection. It was for this reason that the ATC&C model was chosen over the sale evaluation method, where the highest bidding entity could have become the preferred bidder.
In adopting the ATC&C model, the government wanted to ensure that the Discos would become successful at their enterprises when they invest monies and resources in network upgrade and expansions to cut down their operational deficits. Also, while the Nigerian Electricity Regulatory Commission (NERC) and BPE took into account the uncertainty of the credibility of some of the data from which aggregate losses would be calculated, and agreed that the reduction of aggregate losses will remain one of the primary factors for determining successful Disco core investors, they commenced a study to create a credible industry performance database, particularly that of ATC&C.
NERC equally agreed that at the conclusion of the ATC&C database study, any differences in losses will be the subject of separate reduction targets to be agreed between it and the relevant Discos, and then corresponding cost implications will be subjected to a minor review consultative process.
The technical losses, which the Discos record in their distribution businesses, include the electricity they lose as they take power from their various distribution points to consumption points where they are offloaded and used by consumers. As power flows through distribution facilities, some of it are lost along the way. As an electricity engineering norm, electrical systems and conductors are known to have technical losses that they record, and power systems are not different in this regards, hence the inclusion of technical losses in the privatisation procedures of the Discos.
As regards commercial and collection losses, they are revenues the Discos lose from stolen electricity, bills that are not properly calculated, monies not collected from consumers who do not pay for services they got from the Discos, inaccurate customer database, revenues lost to unmetered or estimated consumers, revenues lost to wrong tariff classification by Discos and then electricity sent out to consumption points but were not accounted for by the Discos.
Collection losses arise from the inability of the Discos to adequately collect or claim revenues for electricity they sell to consumers, and they often happen when the Discos fail to either use correct data in their billing of consumers or collect enough on account of some inefficiencies, and when consumers default on their bills. As a tradition, this class of losses are usually regarded as non-technical losses, but are key in calculating the electricity tariffs NERC approves for the Discos in its Multi Year Tariff Order (MYTO) model.
Hence, core investors in the 11 Discos who showed the highest ATC&C loss reduction percentages committed to effectively reduce ATC&C losses of the Discos they acquired and thus were expected to invest in network improvement and metering infrastructure in this regards.
Further, their eventual ATC&C commitments were contained in a performance level agreement they entered into with the BPE upon the conclusion of the privatisation. If after five years they do not meet up with the promised ATC&C loss reduction figures, the government could take back their Discos from them and pay them one-dollar as compensation.
Though the Discos have often pointed to instances of harsh operational environment, like a one-time cancellation of collection losses by the NERC as well as disruptions of the MYTO, as reasons for their inability to improve on their agreed ATC&C losses, the fact remains that there are agreements in these regard which they seem not to have fulfilled.
Providing some insights on the recent collection complaints by the Kaduna Disco, a former Managing Director of the Nigerian Bulk Electricity Trading Plc (NBET), Mr. Rumundaka Wonodi, told THISDAY that the Discos were given to their core investors to reduce the ATC&C losses, and as such the complaints on collection losses was questionable. Wonodi explained that by such complaints, the Discos might have judged themselves to have failed in their responsibilities.
He said, “Whether the claims are right or wrong, they were brought to bridge these collection gaps that they are complaining about now. Are they asking for pity or what exactly?
“I think it is self-recrimination, they seem to have graded themselves poorly by these complaints, and if the Disco official is saying that, then it suggests that they are unable to do the work they got the distribution networks for.”
NERC has promised to undertake its responsibilities honestly and in accordance with standard industry practices. Its new executive chairman, Professor James Momoh, who was recently inaugurated by the government, promised to introduce new ideas in the business processes of the regulator. Indications are that he intends to address the complaints of the Discos.
At his inauguration, Momoh stated that NERC under his watch would be proactive and undertake a scientific review of electricity tariff in the market. He noted that electricity tariff calculations are not done by guesswork and that the commission would be looking to collate relevant data, which it would review and understand to enable it make decisions.
Momoh stated, “I brought with me the knowledge, experience that I have, wisdom about power engineering and, of course, ability to work in teams, and to address quick wins. What can we do with respect to what we heard about estimated metering, how do we make sure that we get enough data so that customers are also convinced to pay for the power they use based on what we provide?
“At the same time, we will bring to the industry the best practices to ensure that we have quality supply and reliable power. What we bring to the sector is also ensuring that there is innovation in the industry because if we remain the same and remain static, and not solve real problems, we will just be doing fire-brigade.”