Breakeven for Nigeria’s Electricity Companies Long Way Off.


Nigeria’s 11 privatised electricity distribution companies, popularly referred to as Discos, are far away from breaking even not to talk of making profit, an analysis of the Nigerian electricity market has shown.

The gory state of the industry is readily gleaned from the operational challenges the companies face in terms of vandalism of assets, energy theft and outright refusal of consumers, especially government agencies, to meet their energy obligations.

The above is compounded by the approved tariff regime, which at present is not cost reflective – producing and wheeling a kilowatt of power is far costlier than the tariff being collected by the companies.

The situation is so dire that one of the companies, the Yola Electric Distribution Company, pulled out of the business as its former owners declared forced-majeure as a result of the activities of Boko Haram, which engulfed over 75 percent of its coverage area.

According to energy watchers, the core of the Discos’ inability to break even is cash crunch as they are hard on funding for them to step up their games to the level of generating enough revenue and thus make profit from their operations.

The cash situation is also worsen as operators have not been empowered to charge cost reflective tariff as government still engages in acts disposed to protecting the consumers at the expense of investors.

Barth Nnaji, former minister of power, said recently that it is premature to even talk of beak-even in an industry, which is still in dire need of fresh investment.

“Each investor in the distribution network needs at least $700 million to upgrade its infrastructure, which is at least seven times the amount they spent on acquiring the assets for them to operate optimally,” he said.

“There must be a cost-reflective tariff in place,” Nnaji said, explaining that it means the cost associated with the business is what is paid. The business of power is what government has to be sensitive about.

According to him Nigerians pay low for electricity in comparison to other parts of Africa.

“We have to decide as a country whether we want power or darkness. Cost-reflective tariff is what distribution companies want from government and hold on to, as a reason. After that the Discos have to be held to deliver,” he pointed out.

Industry data shows that the 11 electricity distribution companies settled only a third of the N111 billion worth of electricity invoices from the generation companies in the first quarter of 2017 leaving an estimated N80 billion unsettled. The Discos are also complaining of being owed over N100 billion by consumers.

This is in addition to the almost N400 billion historic debt, which the discos are contending with. On the other hand, while the generation companies’ debt is put at over N300 billion.

“Apart from being forced to collect a tariff that barely covers the cost of generating and distributing power, we are faced with the challenge of non-payment for electricity used,” as source who spoke to Businessamlive said.

“There was a time we disconnected the electricity supply of a top Nigerian government official and management of Yola disco was called directly and ordered to reconnect him immediately.”

A source in one of the companies told Businessamlive that monthly energy bill from the market operator (MO) averages N4.8 billion but the disco could hardly collect N2 billion from consumers.

Stakeholders say the government failed in the privatization process by placing political considerations far and above economic, which has masked the objective of the exercise.

While the buyers into the successive power companies were sold only 60 percent of equity, government holds the remaining 40 percent for the Nigerian public, including state and local governments, without counterpart funding. This leaves the discos to fund their operations, which are yet to generate profit.

To this end, the much-needed investment in the sector has failed to trickle in.

Though some of the Discos are doing much better than others, with some introducing creative new ways to collect revenue and better engage consumers, others have performed below expectation.

Source: Business A.M

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