Despite the sundry challenges that hinder its revenue growth, Ibadan electricity distribution company (IBEDC), which recently announced a monthly revenue loss of $15.2 million, said that notwithstanding, providing stable power and metering all its customers, remain its priority, write Chika Amanze-Nwachuku and Chineme Okafor
Ibadan Disco, like other Discos in Nigeria’s troubled electricity industry recently highlighted the plethora of challenges it deals with in distributing electricity to its numerous customers across its franchise distribution network, covering Oyo, Ogun, Osun, Kwara, parts of Ekiti and Niger states.
In a presentation made available to THISDAY, the company traced these challenges to three key elements – bad debts, irregularities in the application of cost effective tariff for electricity services in the country and poor generation capacity.
The IBEDC noted that alongside 10 other Discos in the power market, the troubles with the power sector have overtime been wrongly placed on them.
It said that with repeated narratives wrongfully accusing them (Discos) of being irresponsible in their operations; the reality with the country’s power market has largely been covered from what they truly are. This, it added, has also delayed possible solutions to the challenges.
In a recent interactive session with journalists in Ibadan, the Managing Director and Chief Executive, John Donnachie disclosed that the company is unable to account for $15.2 million monthly revenue that should have accrued to it. He linked the huge revenue losses to constant energy theft, bad debts accumulated from unpaid or half-paid services to government’s Ministries, Departments and Agencies (MDAs) and members of the Manufacturers Association of Nigeria (MAN) within its network. Other challenges the company is contending with, according to him, are frequent vandalism of its equipment, forex scarcity and transmission problem.
Donnachie said the MDAs have not paid for their energy consumption in past three years, bringing their current indebtedness to the Disco to about N8.2billion.
Donnachie said: “The MDAs debts till date are in excess of N8.2 billion, while MAN is still paying the old rate of N26/kwH instead of the new cost reflective tariff of N104.35/KwH. Also, we have not been able to pass on the forex losses to consumers, so we have a grand revenue shortfall of over N100.14 billion, and we cannot borrow from any bank.”
The MD, who put the disco’s registered customers at about 2.4 million, declared that despite the challenges, the company plans to invest between N50 and N60 billion in the next five years to metering all its customers in line with the directive of the Nigerian Electricity Regulatory Commission (NERC).
Donnachie, who though noted that metering the consumers is a good idea, noted that accurate billing cannot be achieved through metering alone, as eight in every 10 meters installed are bypassed by energy thieves.
He said in most cases, those who indulge in energy theft are not punished, insisting that those who indulge in such illegal acts must be severely sanctioned to serve as deterrent to others.
“Metering is not the only solution to effective billing, as for every meter installed, 80 per cent of them are by-passed. What we need is to execute severe sanctions on power thieves and those who vandalise electricity equipment. People are not paying because there are no sanctions.”
He explained that notwithstanding these challenges, the disco has not reclined to expectations from it, adding that operational demands such as network infrastructure upgrade and expansion, metering programmes, and optimal customer service delivery schemes have dominated the items in its key performance indicators (KPIs) so far.
Why the liquidity crisis in power sector
Providing an insight on how the power sector fell into the current financial crisis that is threatening its existence, Ibadan Disco said in its recent presentation that a manifold of interwoven issues contributed to the gap in the market financials.
It said: “One of the greatest challenges inhibiting a stable electricity supply in Nigeria is illiquidity. The identified revenue shortfall of the entire electricity value chain is in excess of N1 trillion.
“Low generation, bad debts, exchange rates, unrealistic tariff regime, high ATC&C losses and low investment (huge needs) are some of the factors responsible for funding gaps.”
Taking the issues one by one, the company explained on low power generation that the 2016 Multi Year Tariff Order (MYTO) of the Nigerian Electricity Regulatory Commission (NERC) forecasted that power generation would be at 44,608 gigawatt hour (Gwh), which is 44 608 000 megawatt hour (Mwh), but actual generation was 22,800Gwh, representing a 49 per cent generation shortfall in the MYTO forecast.
The Disco said power generation was for most of 2016 erratic and on downward sloping generation trends, indicating that not enough was generated and transmitted to it to meet the MYTO allowable revenue.
In addition, it claimed that collapses in the country’s transmission system managed by the Transmission Company of Nigeria (TCN) contributed to the supplies gap which by implication meant that it could only get N50.4 billion from a projected revenue of N98.8 billion, representing close to 51 per cent revenue gap for it.
According to it, frequent outages and poor quality supply aggravated by the TCN network, inability of TCN to channel load to where they are needed, load rejection by customer due to poor quality, and a sort of over optimistic industry forecast, were also responsible for the financial gap from the generation perspective.
It further said on this: “Power delivered to IBEDC for December was 260.83GWh, which is 37.7 per cent below the MYTO 10 year order projection for the month and 14.5 per cent below the forecasted 2017 MYTO projection from the December 2016 minor review.
“Imbalance is still not being paid to those Discos who are short but the allegation by TCN that Discos are rejecting load and thus causing some generation to be constrained off continues.”
On the sector’s bad debts of which government MDAs have been repeatedly mentioned to be culpable, though the government has asked Discos to submit reports of debt figures owed them, Ibadan stated that the inability of MDAs to settle their debts, and an existing court injunction obtained by MAN restraining the implementation of MYTO 2015 tariff for its members, have also contributed to the financial gap in the market. It was however gathered that the parties are considering out of court settlement of the dispute.
IDEDC stated that by the end of 2016, debts to it from these two categories of bad debts was N8.2 billion, with the impact from the MAN court injunction put at N4.7 billion. The Disco said this liquidity squeeze has impacted its ability to settle monthly bills and invoices from the Nigerian Bulk Electricity Trading Plc (NBET) and Market Operator, as well as promptly undertake capital expenditure.
“Commercial and industrial customers under the auspices of the MAN, these class of customers have been paying their bills based on the MYTO 2.0 tariff rates, which has negatively impacted its revenues and has led to higher collection losses for the Discos
“They have also stopped paying the fixed component of this old tariff further increasing the gap between what they should be paying and what they currently pay.
“This attitude to bill payment is based on the directive issued by MAN to their members among whom Discos have maximum demand customers, premised on the court injunction against increase in tariff and resulting in a drop in revenue generation. High ATC&C losses negatively impact cash flow directly as they are not fully recoupable in the short term,” it lamented.
As regards the instability in the country’s macro-economic variables, the Disco explained that the average industry cost for power production has gone up by 47.6 per cent due to foreign exchange differentials. It noted that retail electricity tariff has however remained unchanged albeit that it is not in conformity with the current operational realities.
To stay afloat, IBEDC said it had to adopt a creative operational model, which focuses on customer satisfaction, infrastructure upgrade, staff welfare and procurement of alternative power supply source.
It said it had to upgrade its customer care centre to ensure prompt response to consumer complaints, improve on the functionalities of its substations, as well as restructure its billing systems to accommodate technological changes.
Its staff, it said, were also retrained to imbibe corporate governance practices in their operational responsibilities, while safety and health practices were improved on to zero-in on electricity related accident and deaths from its network.
To expand the volume of power available to it to distribute to its customers, the Disco said that it had to embark on processes to procure embedded generation capacities. Though it did not provide details on this, it however explained that such additional generation capacity would improve its power distribution profile and hours of supplies to consumers when in place.
Despite its seeming ability to pull through, IBEDC however stated that a comprehensive solution to the market’s challenges remained the only way out of the troubles before it and other operators.
It explained that the sector ought to operate as a whole and not in silos, adding that the outcome of uncooperative attitude and practices in the market could further ruin its growth trajectory.
It thus offered suggestions that could help the sector overcome its challenges, saying: “The funding gap that is left should be supported by CBN (NEMSF 2) and bond – these will provide liquidity going forward. A properly-structured and effectively-sized NBET Power Sector Bond would cover future shortfalls and allow for sculpting of invoice payments.”
“A realistic remittance level based on Discos commercial analysis should be set as it was during the Interim Rules Period. Repayment of MDA debt should be emphasised – while old debt is being reconciled and verified for payment, immediate deduction at source mechanism for bills going forward should be in place.
“Misalignment of the value chain must be corrected and government must support NESI financially, by some combination of direct transfer of funds to consumers or producers, fiscal incentives such as tax credits, sovereign guarantee on debt raised by Discos or NBET, additional loans from CBN at single digit interest rate with a moratorium on interest until tariffs genuinely reflect costs, and funds from multilateral agencies,” the Disco added.
Donnachie, who stated that the investors did not understand the enormity of the problems before buying the power assets, said despite the sundry challenges, “the sector remains viable if things are done the right way.”