Power sector crisis deepens: Discos under more pressure over new regulations

Power sector crisis deepens: Discos under more pressure over new regulations
Mr Saleh Mamman, Minister of Power

Nigeria’s power supply problem does not seem to have an end in sight even with the new policy plan by the federal government to structurally reintegrate the system that was unbundled through the Power Sector Reform of 2011. This is the step being undertaken by government with a new memorandum of undertaking, MOU, signed with the Germany power company, Siemens recently as a possible way of untangling the quagmire bedeviling the sector.

But indications have emerged of strong opposition to the new move by government which some stakeholders in the systems consider as a ploy by government to escape the hard and bitter but necessary decision to tackle the challenges presented by the Discos, in order to rescue them from digging themselves deeper into the ditch. They believe that government lacks the political will to deal with the problems of the discos, which have become the weakest link in the electricity power value chain.

It was learnt that government is shielding the Discos from liabilities because of the strong pressure lobby being mounted on it which is making the resolution of the problem difficult. Sources said that the Discos are the critical part in solving the power problem and unless they are restructured one way or the other, there may be little progress.

A source close to Transmission Company of Nigeria, TCN, said that the issue of tariff hike, though necessary, does not in any way address the major challenge of capacity and infrastructure of the Discos which has remained the bottle-neck to improving supply. The source said that even if the tariff is raised 100 percent, it would not change the state of things in the sector.

Last week the minister of power said that the country can now boast of 13,000 MW generating capacity, and 5000 transmission while the Discos can only pay for 3000 MW, creating a waste of 10,000 MW for Gencos, and 2,000MW for TCN. Experts say that without increase in investment by Discos to raise capacity through effective metering, power supply situation will not improve.

“Government is protecting the Discos from legal liability as minority shareholder with 47 percent, and this is distorting the market structure and will not solve the problem”, a source said. A competent TCN source said that the first critical step to resolving the problem is the need for policy reform to make the Discos accountable for their performance. As private businesses, the Discos still operate as monopolies with government guarantees, which is responsible for the indifference to issues of contractual obligations to the other parties in the value chain which will not allow for competitive pricing and performance.

Discos are not paying for more electricity because their revenue collection rate is very low since most consumers are not metered. Most consumers are unwilling to pay estimated bills and the Discos are unprepared to meter them, because they lack the financial muscle to undertake the investment.

Also government threat to revoke the licences of the Discos seem to be empty as it has not been able to provide its own counterpart funds for its 47 equity in the Discos and clearly is not in the financial position to pay the N700 billion as the collateral investment by the Discos.

TCN, a fully owned government agency, it was learnt, wants government to withdraw financial guarantees for the discos and compel them to enter into direct contractual performance agreements with individual Gencos and the TCN to ensure that they operate on business models and terms, which will improve the system. Without this, they said, nothing is likely to change in the sector.

Generally estimated bills have been the cash cow of the discos, by which customers are forced to pay outrageous bills, but its collection is steeped in all sorts of challenges and many refused to pay. Discos are also faced the problem of cash flow and investible funds which constrains their ability to provide the meters.

There is patent fear that without access to the estimated bills and their inability to meter all customers, the discos may be in dire financial strait. NERC figures suggest that of over 50 million (households and commercial) customers 55 % are not metered.

Mr. Usman Mohammed, Managing director of TCN recently hinted that mere increase in the tariffs would serve no useful purpose as the Discos are being protected from commercial liabilities through contract obligations. Discos, he said operate as monopolies and unless this status is broken, the needed change in the sector may not come.

“Discos owe TCN N400 billion; Gencos sell electricity at N307 per kwh and TCN at N190 but Discos are not allowed to charge cost reflective rate. Discos pay only 110 percent of their liability to TCN but what happens to the revenue being withheld; they are not investing yet they are not paying us to June 2019”, he said.

“There should be contract based arrangements in the system. Now government guarantees everybody and there are not specific contracts between the parties. It is when the parties are subject to contracts with rights and duties and penalties that we can improve.

“Nigerians should be ready to pay for power to ensure stable power. TCN is investing around the country to make the grid stable; 2800km of 330 kv lines, and 23000 132 km of KVA lines.

“Government guarantee is killing the power sector; Siemens is only working on the distribution network. We are reconducting the grid which may take the capacity to 15000MW. We need energy security – diversifying the sources of generation. If we don’t solve the market issue there is no way government can continue to invest in the system.

“Discos are not picking the power and even if you have more Gencos, the discos must be ready to pick the power, he said.

Meanwhile, more troubles came the way of Discos last week the two directives from the NERC, suspending the proposed tariff hike from this month, fixing estimated bills at a flat rate of N1,800, and giving them until April 2020 to meter every customer.

According to an order repealing existing billing regulations of 2012, NERC expressed concern that just over 10 million electricity consumers have been metered in seven years, with about 52 per cent being invoiced on estimated billing. Under the new regulation, all unmetered residential and commercial (R2 and C1) customers shall not be invoiced for the consumption of energy beyond the cap stipulated in the Order according to designated DisCos.

A statement posted on the commission’s website explained that “R1 (residential) customers, who, by definition consume no more than 50kw/hr of energy per month, shall continue to be billed at N4/kwhr and a maximum of N200 per month unless amended by an Order of the Commission”.

For consumers under Abuja Electricity Distribution Company, N24.30 per kwh was approved for R2 (above 50kw/hr) consumers, and N37.39 for C1 (single & 3 phase) consumers. Under Eko Electricity, residential consumers will pay N24 per kwh, while commercial consumers will pay N30/kwh with different energy caps.

R2S consumers under Ikeja Electric will pay N21.30 per kwh; R2T, N21.80; while C1S&T will pay N27.20 and N28.47, respectively.

NERC said in the Order: “The energy cap prescribed by the Commission shall only apply to R2 and C1 customers. All other customers on higher tariff classes must be metered by Discos no later than 30 April 2020, and failing to meet up, the said customers will not be liable to pay any estimated bill issued by the Disco.“

Any customer on such higher tariff classes not metered beyond 30 April 2020 shall remain connected to supply without further payment to the Disco, until a meter is installed on the premises under the framework of MAP regulations or any other financing arrangement approved by the commission.

“Where a customer’s meter becomes faulty and a replacement meter cannot be provided by the Disco within two working days, the customer shall be billed an average of the last three months billing/vending in accordance with section 16(1) of the MAP regulations until the meter is replaced.

NERC noted that the significant level of customer dissatisfaction arising from unrealistic estimated bills have also adversely impacted on the market revenues as a consequence of customer apathy and declining willingness to settle invoices in full.

NERC also acknowledged the shortcomings of the Meter Asset Provide scheme, stating that changes in fiscal policy and the limited availability of the long-term funding led to limited success in the meter roll-out.

However, due to the constraints arising from insufficient gas supply, distribution and transmission infrastructure Nigerian power sector lost about N19.15 billion in 10 days. This is according to the data obtained from the Advisory Power Team (APT) in the Office of the Vice President.

The losses were said to be recorded from 5th of February to 14th February 2020. An average of N1.55 billion was lost on February 5, N1.77 billion on February 6, N1.92 billion on February 7 and N1.89 billion was lost on February 8.

The sector also lost an estimated N1.95 billion on February 9, N2.15 billion on February 10, N1.95 billion on February 11, N2 billion on February 12, N2.01 billion on February 13 and lastly N1.96 billion on February 14.

According to the Advisory Power Team, the appropriate megawatts per hour power were not generated during the days leading up to February 14 due to various reasons. The reasons also include the unavailability of gas, the unavailability of transmission infrastructure, high frequency resulting from unavailability of distribution infrastructure, gas shortage as well as water management.

In 2013, the power sector was privatised due to the many issues surrounding the sector. The distribution and generation companies carved out of the defunct Power Holding Company of Nigeria were handed over to private investors to continue running the country’s electricity.

Based on data from the Advisory Power Team in the Office of the Vice President, the nation’s power sector lost an estimated N19.15 billion in 10 days. This is due to constraints from insufficient gas supply, distribution and transmission infrastructure. The losses were recorded in the 10 days to February 14, 2020.

Despite the privatisation exercise that was carried out in 2013, the fortunes of the nation’s power sector are yet to experience a turnaround as the investors that emerged from the unbundling of PHCN.

Insufficient gas supply; weak transmission infrastructure, absence of cost-reflective tariffs and poor metering systems have remained largely unresolved. In recent times, the collapse of the national transmission grid has become a recurring theme.

We acknowledge the ongoing efforts of the government to reposition the ailing power sector particularly with reference to the agreement reached with Germany-based Siemens AG. The agreement provides a blueprint on improving power generation and fixing the archaic transmission and distribution infrastructure.

However, since the agreement was signed in July 2019, there has been no update. We expressed our concerns around Siemens’ position in the power value chain given the huge investment it is committing to the project.

The Transmission Company of Nigeria (TCN) is currently 100% owned by the government while the GenCos and DisCos are privately controlled. While we see a possibility of Siemens getting a stake in TCN, we struggle to see how that will work for then DisCos and GenCos given that Siemen’s huge investments may mean they have to cede control. Also, the government’s desire to maintain a stranglehold on the power sector in a bid to regulate electricity tariffs remains a key risk to any investment in the sector.

We remain staunch proponents of cost-reflective tariffs, as we believe low tariffs have a ripple effect of the entire value chain and in turn the development of the power sector. Accordingly, we believe the implementation of tariffs that reflect market conditions will be a major boost towards improving electricity supply in the country. Although revised tariffs are scheduled to take effect this year following the December 2019 Minor Review of MYTO, we understand that the revised tariffs are still not cost-reflective.

 

 

Source: Business Hallmark

Author: abokimallamfx