Gbajabiamila’s Alteration of EPSRA May Lead to $5bn Compensation, Discos Warn

  • Fashola seeks cautious abrogation of estimated billing system

Chineme Okafor and James Emejo in Abuja

The 11 electricity distribution companies (Discos) in Nigeria have said that the proposed amendment to the country’s Electric Power Sector Reform Act (EPSRA) 2005 by the House of Representatives through a bill to criminalise estimated billing will conflict with certain existing agreements in the industry and thus lead to payment of compensations worth $5 billion to operators in the sector.

Speaking through their association – the Association of Nigerian Electricity Distributors (ANED), the Discos said such industry agreements that could be affected by the bill proposed by the House Majority Leader, Hon. Femi Gbajabiamila (APC Lagos) were the Share Sale Agreement (SSA) and Performance Agreement they signed with the government.

According to them, the potential changes in the EPSRA which the amendment sought, would specifically mean that the federal government compensates them for losses that were likely to come from its implementation.

“It holds the possibility of a change of law determination that could, potentially, result in the federal government paying out an amount in excess of $5 billion in accordance with the related provision in the Performance Agreement.

“New customers may not be connected to the grid until the availability of meters, therefore denying them of service. Indeed, there would be wholesale disconnection of all the customers currently on estimated billing,” said the Discos in a statement signed by ANED’s Director of Advocacy and Research, Mr. Sunday Oduntan, and sent to THISDAY yesterday in Abuja.

They also stated that they need about N299 billion to close the 4.1 million metering gap in their networks, adding that there was a need for Nigeria’s national parliament to enact a law that would make it possible to charge culprits of electricity theft to mobile courts for swift judgments on energy theft and meter bypass.

They said they were making huge investments in providing meters for their customers to cut down estimated bills, and that estimated billing methodology was a standard practice in over 150 countries globally.

It listed the countries to include the United States, Turkey, Germany, Brazil, Chile, China, India, and Indonesia, as well as more than 26 African countries.

The Discos also explained that the capital expenditure (CAPEX) allowed for them was N305 billion for five years to provide meters, maintain their networks and perform other obligations.

They explained that covering the 4.1 million metering gap alone would take N299 billion which amounted to 98 per cent of the allowed CAPEX.

The Discos also noted that any new legislation in the power sector would need to consider the historical challenges of the Discos which include non-cost reflective nature of the electricity tariff which he said has created a significant market shortfall of over N800 billion; a nascent private-led power sector worsened by macro-economic factors that is affecting the Discos’ operations and performance.
According to them, the market shortfalls further impede the Discos’ ability to access the finances necessary for operational expenditure (OPEX), CAPEX, and loss reduction initiatives.

While advocating for legislative action against energy theft and meter bypass, the Discos said metering alone contributes to an estimated 30 per cent reduction of the Discos’ collection losses, adding that they lose about 40 per cent monthly to energy theft.
“Adequate CAPEX and OPEX provisions should be made under the electricity tariff, to ensure comprehensive metering, and legislative effort should be applied to criminalising energy theft and meter bypass, and creating electricity special mobile courts. This would assist in catalysing the desired large scale metering within the sector,” said the Discos.

To ensure reduction in estimated billing, they also said they have ensured 100 per cent metering of all maximum demand customers in their networks, adopted check-meters to measure consumption to ensure fair bill estimation, and adjust bills of customers where there are errors.

Meanwhile, the Minister of Power, Works and Housing, Mr. Babatunde Fashola, has expressed support for a bill seeking to prohibit and criminalise estimated billing system for electricity consumers in the country.

But he said though there’s need to eliminate estimated billing which had been the biggest reason for mistrust in the power sector, the planned abrogation should be done in a way that doesn’t damage the economy.

Speaking at a public hearing on a bill for an Act to amend the Electricity Power Reform Act, 2004 to prohibit and criminalise estimated billing by electricity distribution companies (discos) and provide for compulsory installation of pre-paid meters to all power consumers in Nigeria and for related matters, the minister described the bill as “well intended” and “shows lawmakers know what Nigerians want.”

He was however, quick to say that facilitating the ability of discos to meet their metering obligation to customers remained a critical condition that should precede the criminalisation of estimated billing in the country.

He consequently appealed to lawmakers to defer the commencement date of the proposed law so as to address current areas of concern, adding that “the Law won’t take effect overnight.”

He further charged the Hon. Daniel Asuquo-led House Committee on Power to also tweak the bill to provide for stiff sanctions against energy theft or electricity bypass by consumers.

He said 8,000 out of 10,000 installed prepaid meters are bypassed by consumers- a situation which made estimated billing still attractive to discos.

The minister said government must urgently speak to meter manufacturers to improve on what they can produce, stressing that meters are currently not enough largely because of weak financing ability on the part of discos.

He further sought for a legislative tool that allows for the licensing of the private sector to face metering as core business, noting that though discos may have inherited the obligation to provide meters in their contractual agreement, it’s nonetheless not their core duty.

Meanwhile, Executive Director, Research and Advocacy, Association of Nigerian Electricity Distributors (ANED), Mr. Sunday Oduntan in his submission to the committee warned the criminalisation of estimated billing could hurt the economy as well as cut electricity to millions of Nigerians “because I cannot give electricity for free” in the absence of prepaid meters.

He added that consumer would bear the brunt of the resultant implications of implementing the new law.

Among other things, he said for discos, the bill “Creates an operational impracticality, relative to the massive procurement and installation of pre-paid meters within the 30-day requirement, considering the current huge metering gap.”

He said the proposed law, “Negatively impacts the ability of the DisCos to meet the requirements of their Performance Agreement due to – a) Limited revenue recovery and the change to the metering requirement (1.7million PA specified versus a gap of 4.1million); and b) Significant reduction in DisCo’s ability to improve efficiency. “

According to him:”Customers, unfortunately, would bear the brunt of the resultant law by being denied improved electricity supply and service, as a result of the diminished revenue associated with limited collections.

“New customers may not be connected to the grid until the availability of meters, therefore denying them of service. Indeed, there would be wholesale disconnection of all the customers currently on estimated billing.

“The cost of electricity would go up for the metered customers, due to the inability to collect from customers that are unmetered but not disconnected.”

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