There appears to be no respite in sight yet for Electricity Consumers as the Distribution Companies, under the aegis of “Association of Nigeria Electricity Distributors”, ANED, earlier today released a Press Statement, responding to the allegations made by the Honorable Minister of Power, Works and Housing during the July 9th 2018 Press Briefing in Abuja.
In the blow by blow, punch for punch retort to issues raised by the Honorable Ministers, the Discos raised policy inconsistencies for most of the challenges facing the electric power sector.
ANED described the Ministers allegation of Discos not buying directly from GENCOs for “some nefarious reasons” as counter-intuitive, the representative of the Discos explained that the only reason they have not been able to take more power supplied from GENCOs is because of the revenue shortfall instanced by the “politically-induced regulatory restrictions and actions (removal of collection losses, freezing of the tariff for R2 residential class for 18 months, non-payment of N100B subsidy for 2013 and 2014, under-recovery of required revenue, non-implementation of Minor and Major Tariff Reviews, all manner of politically induced regulatory orders, etc.) that have resulted in the inability of the DisCos to recover the cost of the energy that they supply”.
While ANED laid the fault of their inability to meet up with the Metering Gap presently estimated to be around 4.1million Customers on 62years of Government’s underinvestment and PHCN inefficiencies, they further said they hope that ” farming out” Metering to third parties would solve the problem.
On the endemic problem of “Estimated Billing” ANED noted “with great concern and dismay that we receive and attend to complaints of customers that have been billed in excess of their reasonable consumption”
ANED further stated that to address this, the DisCos have adopted the following measures –
- Consistent with the requirements of the estimated billing regulation, customers who determine that they have been billed in excess of their consumption have a right to dispute the bill, while paying the average of the last three undisputed bills;
- Check meters have been installed for some of these customers concerned about their estimated bills to more accurately gauge their consumption;
- Ready adjustments of disputed bills;
- Energy consumption audits are being conducted, to better determine customer consumption;
- Online tools have been put up on some DisCo websites, for manual computation of customer energy consumption; and
- Near total installation of maximum demand meters for the commercial customers has been provided by the DisCos.
In addition to the MAP program that is expected to accelerate the metering effort, the DisCos will continue working with NERC to improve the accuracy of the estimated billing methodology for better customer satisfaction, especially, as it brings no added revenue to DisCos when they are less accurate.
The Discos frowned at the allegation by the Honorable Minister about their inability to evacuate energy generated by the GENCOs.
Like our customers, we believe that progress must be made in turning around a sector that was inefficiently operated for 62 years, prior to its handover to private investors. However, we do not understand the constant references to the increase of generation capacity to 7,000 MW, from 4,000 MW, for the period of 2015 to 2018, that has been used as the basis of defining the DisCos as incapable of taking on more power – the stranded 2,000 MW. A review of NERC’s “Daily Energy Watch” for January 28th, 2015 would indicate a generation availability of 6,421 MW (divided into peak of 4,230 MW and constrained energy of 2,191 MW) In other words, it is misleading to state that available generation has grown from 4,000 MW in 2015, as a measure of progress, given that a volume of generation slightly under 7,000 MW already or previously existed, prior to the beginning of this administration.
Furthermore, there is no stranded 2,000 MW. While there is an available capacity of 7,000 MW, the best that can be generated, at this time, is 5,000 MW. This is because there is insufficient gas to power the thermal plants due to gas line limitations (for instance, the non-completion of the Oben pipeline) and the absence of a commercial framework that would encourage gas exploration. Generation that is constrained by gas amounts to an average 1,500 MW daily. Of note is that 25 out of 28 generation plants are fueled by gas. Transmission grid frequency, line limitation and water management make up the difference of the balance 500 MW of constrained generation. In simple terms, the often-advertised and pronounced DisCo limitation to take on 2,000 MW of additional generation is not consistent with the facts or reality. This, therefore, shows that very little has actually changed contrary to the Minister’s constant pronouncements.
ANED further challenged the data presented by the Honorable Minister of Power, Works and Housing. Quoting data from stress study of the distribution network conducted by the Presidential Task Force on Power (PTFP) in 2012 indicated a DisCo capacity utilization of 4,561 MW.
Another stress test conducted by the Systems Operator, a unit of TCN in 2015, indicated a distribution capacity utilization of 6,288 MW (of note is that the distribution capacity rating of the DisCos by TCN for 2012, at 6,026 MW, is significantly higher than that specified by the PTFP stress test.
ANED concluded therefore that the major problem of the industry is the non-alignment of transmission and distribution network infrastructure between TCN and Disco to evaquate load/power to locations where such is needed.
Of the N213billion Intervention Fund claimed by the Minister, the Discos, while debunking knowledge of any Disco rejecting access to the fund, states that only N58.45 billion or 27.75% was designated for the DisCos; and N152.16 billion or 72.25% was designated for the GenCos, gas suppliers and industry service providers.
Of significant note are the following points – 1) Most of the money received by the DisCos, under this intervention, has been transferred to, or committed to banks, as necessary to put cash-backed Letters of Credit in place, a requirement of the DisCos’ Vesting contracts; 2) Even though the DisCos have no responsibility for, or connection to N152.16 billion of the intervention fund, the DisCos’ financial books have been encumbered with this debt; and 3) The debt encumbrance is a significant impediment to the DisCos’ ability to borrow money to finance their capital investment (a major requirement for the improvement of service delivery to the customers and meeting the obligations of their Performance Agreement) and their financing of the entire value chain.
On the debts owed by Federal Governments MDAs to the tune of N70billion, ANED stated that It is important to note that a major reason for a substantially less amount being paid is the distinction between Federal government debt and State and Local government debt. Only part of the Federal government debt was paid based on a cutoff date specified by the Ministry. This assertion of the government’s reconciliation of some of the electricity debts that it owes is troubling in the light of the fact that the government continues to owe DisCos for energy that it consumes, and this debt continues to grow, contributing to a market shortfall that is estimated to be in excess of N1.3 trillion on the DisCos’ books. Whilst the DisCos are appreciative of the initial reconciliation associated with the N27 Billion, we note the NBET offset indicated in the Minister’s press briefing, as a small step towards meeting the significant outstanding MDA amount, but are concerned by the lack of good faith associated with the continued absence of an automatic mechanism for the payment of bills consumed by government Ministries, Departments and Agencies (MDA). Particularly, the absence raises the question of moral leadership of government, in its being a continued large debtor in an environment where DisCos are trying to change the culture of non-payment of electricity bills.
Indeed, it was in good faith that the DisCos agreed that MDA debt be removed from the Aggregate Technical, Commercial and Collection (ATC&C), as contractually determined in their Performance Agreements, on the assurance that the government would meet its energy consumption obligations on a timely basis. With the government’s inability to consistently meet this obligation, the DisCos are stuck with the related debt on their books, as well as an adverse impact on their ability to reduce their collection losses, a performance requirement under their agreements with the Bureau for Public Enterprise (BPE).
The referenced N859 billion owed by DisCos to NBET includes MDA debt, on which NBET, a government agency, charges an interest rate of NIBOR plus 10% or 22.84%, a cost that cannot be passed on to the government, specifically, or consumers in general. Again, another factor in the growing market shortfall.
On the Payment Assuarance Guarantee of N701billion to NBET, the Association of Electricity Distributors claimed that Operators were not consulted by Government for efficient use of taxpayer’s money.
According to ANED, the fundamental issue of cost recovery has not been taken into consideration, as “tariff does not cover the cost of the supply of energy to consumers”, as a result of Ministerial directives and lack of Nigeria Electricity Regulatory Commission of independence.
The Discos, under the umbrella body further decries the increasing role the Federal Ministry is playing in the “privatized” electricity distribution sector, pointing out that the N72billion intervention would amount to waste of taxpayer’s money again.
This is in the light of Transmission Company of Nigeria’s, a government entity that has been “historically challenged with poor project execution and non-transparent procurement”.
The Discos further denied any knowledge of the N37 Billion government metering initiative that the Minister refers to, while claiming to have met 88% of the 1.7 million metering obligation specified under their Performance Agreements, despite the CAPEX challenges constraining their ability to do so.
While Discos says they have no objections to declaring ” Eligible Customers”, it is however seen as an efftt to “cherry pick” choice Customer, and they are worried about the resultant effect on tariffs being paid poor Customers, which will have to be raised to make up for revenue loss.
The Discos also retorted, and accused the Honorable Minister of “holding down Discos for his friends”.
According o ANED, The use of the Rural Electrification Agency (REA), “Energizing Economies” initiative to cannibalize and infringe upon DisCo franchise areas is wrong. It is wrong because REA’s mandate is to electrify rural areas and not urban areas, with this initiative being nothing more than a grab of DisCo franchise, and a potential waste of taxpayers’ funds. It is wrong because the taxpayer funds that are being invested in this initiative can best be applied as subsidies for residential class customers, for on-grid power delivery that will be significantly cheaper that any inefficient power production under the government led REA initiative. It is wrong because it further complicates and worsens an already bad situation, by depriving the DisCos of revenue that can best be applied to injecting efficiencies that their customers demand. It is almost enough to wonder if this is a “Contract for the boys,” arrangement.
Contrary to the Minister’s determination, the DisCos have no quarrel with entrepreneurs or power developers who seek to improve power supply to their customers. All hands and effort are required to address the scourge of power deficiency that is currently holding back the economic potential of the country. However, uncoordinated and ill-thought out initiatives, that have minimal prospects for success, are not what Nigerians need.
What the Minister is doing is holding down the DisCos and using that as an excuse to take our best customers and make it commercially viable for REA and friends. What is the logic in taking a good customer from a DisCos that have tariffs pegged at an average price N32/kWh, by the government, and giving them to REA and friends at N54/kWh?
DisCos paid a collective amount of $1.4 Billion to acquire 60% holdings in these companies from BPE. Then comes REA, a government agency under the control of the minister, that goes and poaches the customers of DisCos under some arrangement with some private companies, all of whom paid nothing, yet would charge almost double what is allowed for the DisCos and it is called competition?
If the honest desire is to attain improved power at a higher cost, why are DisCos not allowed to do it? This is the question the Minister needs to answer honestly.
We would suggest that, as long as the Minister continues to play politics with the power sector; as long as the Minister continues to refuse to recognize the independence of the regulator (in spite of the frequency of Ministerial assurances stating otherwise, assurances that are contradicted and belied by his actions); as long as the Minister continues to fail to recognize the change of role for the Ministry, from that of operating a utility (PHCN) to that of general policy formulation, under the reform; as long as the objectives of NEPP and the requirements of EPSRA continue to be ignored, no number of “directives” issued to NERC will correct NESI’s headlong plunge into cataclysmic collapse.
Nigerians deserve better than the seemingly uncoordinated and unfocused policy and regulatory environment that continues to undermine the attainment of private-sector driven efficiency that was the objective of the power sector reform. For the DisCo investors, there is no better commitment or belief in their ability to fix the sector than their investment of $1.4 Billion in the purchase of majority ownership of the DisCos. These investors find themselves with assets that are either technically bankrupt or on the verge of bankruptcy; with no line of sight for recovery of their investments; servicing foreign exchange-based acquisition debt that has multiplied several times, due to the devaluation of the Naira and the associated interest rates; and the absence of an expected return on their investment, that is currently two years past when there was supposed to be a turn-around of the DisCos to profitability.
Thw Discos then went ahead to list how they have been able to positively impact the Nigerian economy.
It is left to see how this battle of wits, and power tussle, between the Federal Ministry of Power, Works and Housing, led by Honorable Minister, Mr. Babatunde Fashola(SAN), and the Electricity Distribution Companies will end.
But as things stands, Electricity Consumers, and the development of Nigeria as a 21st Century Nation, and economic self sustainability, remains at the receiving end.
And the future looks bleak