Discos: N701bn Power Intervention Funds May Worsen Revenue Shortfalls

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The 11 electricity distribution companies in the country under the aegis of the Association of Nigerian Electricity Distributors (ANED) have stated that the N701 billion intervention funds approved by the federal government for the power sector have the potential to worsen the revenue shortfall bedeviling the power sector.

ANED’s Executive Director in charge of Research and Advocacy, Mr. Sunday Oduntan, said in a statement yesterday that the fund is just a partial solution to the liquidity challenges of the sector. 

According to him, the fund would only solve N300 billion energy supply liabilities, rehabilitate and replace faulty or old turbines and pay for the supply of gas – for the thermal generating plants.

 Oduntan argued that the fund “holds the potential for exacerbating the revenue shortfalls that the market is currently suffering from.” 

“However, as commendable as this intervention is, we believe that it is a partial solution to the liquidity challenges of the sector. More so, as it holds the potential for exacerbating the revenue shortfalls that the market is currently suffering from.  While an increase in electricity supply is the desired objective of everyone, such an increase without the requisite full recovery of cost via the appropriate pricing of power, means a resultant worsening of the market revenue gap,” Oduntan explained.

He noted that since the approved intervention is not expected to be a subsidy to the market, the assumption is that the proposed funding would eventually be recovered from the customers of Electricity Distribution Companies (DisCos). 

For such recovery to be effected, he argued that the Transmission Company of Nigeria (TCN) needs to have the required capacity to wheel the additional power being generated.

“Funding the transmission network is therefore imperative, for the proposed FGN intervention to work.  Increased generation without commensurate wheeling capacity arising from a stable and robust transmission grid will result in stranded capacity and significant lost revenues,” he added.

Oduntan said the intervention fund as announced by the Minister of Power, Works and Housing, Mr. Babatunde Fashola, is a welcome development, hut added that “from the little details made available to us, the historical shortfall doesn’t seem to have been addressed within this initiative”.

“This is imperative as DisCos need to be able to make the necessary investments in network upgrades, improved customer service, billing and collections, metering, etc., all of which have been major issues in the industry.  Such investments will not happen unless the DisCos make the projected annual revenue requirements, which enables access to finance for the required capital expenditure (Capex).  Access to such financing is predicated on appropriate pricing of the retail tariff. The growing working capital debt on the DisCos’ books, less any amounts to be paid under the intervention, will also continue to impede DisCos’ ability to fund retail distribution Capex requirements,” Oduntan said.

Oduntan said it was essential to use this period to appropriately allocate all the risks in the electricity value chain.

This he said includes the need to address the issues of access to foreign exchange (as well as the mitigation of the challenges associated with its volatility through regular reviews as contemplated in the MYTO act), security of gas pipelines, and others.

“Regulatory certainty and consistency continues to be the foundation for enabling and promoting the commercial conditions that will ensure a viable and sustainable Nigerian Electricity Supply Industry (NESI) and, ultimately, the evolution of NESI into the Transitional Electricity Market (TEM) phase.

“While we applaud the GenCo/Gas Supplier centered intervention by the federal government, we believe that there is an urgent need for a holistic solution that comprehensively addresses the revenue requirements of the entire electricity value chain.  We further believe that achievement of the stated objective of providing confidence to investors for increased supply of electricity, with the provision of this intervention, will happen at the expense of limited electricity distribution and significantly more liquidity challenges at the retail distribution end,” he added.

Source: ThisDay

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