Darker Days Ahead as Debts Mount for Nigeria’s Electricity Firms

electricity-industry (1)

Electricity distribution and generation companies (Discos and Gencos) in Nigeria are facing huge challenges which could lead to total collapse of power supply in the country. The companies are faced with mounting debts from both individual and corporate customers, which is compounded by poor transmission infrastructure, nonmarket reflective tariff, and gas challenges.

Players in the sector need nearly N1 trillion to overcome these challenges, sources in the sector tell BusinessDay. A complex maze of debts is fuelling the crisis in the sector. Gencos say they are owed N155 billion for power generated, gas companies say they have unpaid receipts of N110 billion, while Discos accuse government ministries and departments, including the military, of owing them over N100 billion. Meanwhile, the banks want to be paid back over N402 billion loans given to Discos to acquire assets in 2013.

The government controlled Transmission Company of Nigeria (TCN) is seen as the weakest link in the $3bn Nigerian power sector privatisation programme of 2013. It is still under government control and shrinking oil revenues on account of low oil prices and militancy mean the government cannot invest much in TCN. “TCN should not be seen as the weak link in the power sector. We have been struggling to fulfil our obligations, despite very difficult conditions.

We are not even getting up to 25 percent of wheeling charges,” said Tom Uwah, director, Transmission Service Provider (TSP) at the Power Nigeria Conference in September. But Electricity distribution companies, which generate revenue for the power value chain, are also contending with high collection losses due to technical problems and rampant energy theft.

“Ninety per cent of meters installed in the region are criminally bypassed by consumers. If we estimate bills, they cry out, if we supply card meters, they say it is running too fast,” Matthew Edevbie, CEO of 4Power Company, owners of Port Harcourt Disco, told the Senate Committee on Privatisation, led by Ben Bruce, when it visited on November 10. Port Harcourt Disco distributes power worth N4 Billion monthly but recovers less than N1.5bn, losing over N2.5bn in revenue monthly.

Eko and Ibadan discos report losses of about N1bn and N1.5bn monthly respectively, to energy theft. Discos also have to contend with mind-boggling debts by government ministries and departments. Azu Obiaya, CEO, Association of Nigerian Electricity Distributors (ANED), said discos are experiencing a revenue shortfall of N38 billion monthly. Economic indicators such as scarcity of foreign exchange, rising gas prices and inflation, have driven the unit cost of producing electricity higher than the assumptions made for Multi Year Tariff Order 2015 (MYTO II).

Obiaya said that as of December 2015, the Discos were experiencing a revenue shortfall of N298 billion due to the non-cost reflectivity of MYTO.II. “Even if discos achieve an impossible 100 percent collection and commit all collections to payment of their energy bill to the generation company without making reservation for operational cost, it will still not be enough to pay fully for energy received, because the cost of energy generation has not been reflected in their tariff,” Chris Nwani, energy lawyer in Nigeria told BusinessDay. Legal hurdles and political calculations stall an increase in the cost of electricity.

The suspension of MYTO 2.1 for about six months, resulted in losses of about N13 Billion for the discos, according to Obiaya but respite is not in sight. Odion Omonfoman, energy consultant and the CEO of New Hampshire Capital Limited, said the problem would worsen, as the tariff grows more unsustainable.

“With the state of the economy, uncertainties in the foreign exchange market and a rising inflation rate, we may soon see wholesale generation tariffs go even higher.”

Africa’s largest economy does not produce enough power for its 170 million citizens and myriad industries and cannot even supply one-third of what it produces because its 5,523.8 km of 330KV and 6,801.49km of 132 KV transmission lines are inadequate to take power across the country. Twenty-three grid-connected generating plants in operation in the Nigerian Electricity Supply Industry (NESI) with a total installed capacity of 10,396MW have available capacity of only 6,056 MW.

Eighty-one per cent of Nigeria’s power is thermal-based with combined installed capacity of 8,457MW but due to broken turbines, it is able to generate less than 5,000MW. Hydro-power through three major plants -Kainji, Jebba and Shiroro – accounts for 1,940MW of electricity when water levels are high.

Source: Business Day

(Visited 66 times, 1 visits today)

Powered by Nextier