DisCos’ Revenue Shortfalls Hit N892.4b

ElectricityPhotographer: Dimas Ardian
  • DisCos’ Revenue Shortfalls Hit N892.4b

Electricity distribution companies (DisCos) have piled up a loss of N892.4 billion.

The Chief Executive Officer (CEO) of the Association of Nigeria Electricity Distributors (ANED), Mr Azu Obiaya, who led officials of ANED and some DisCos on courtesy visit to media house, spoke of how the build up of the shortfalls resulted in the huge amount.

He said: “The N892 billion debts is actually a buildup of a number of things. It is a buildup of the N100 billion subsidy government promised that we never saw and have not seen. It is also a buildup of two actions or activities that were a cause of political expediency, which was when the R2 class of customers was frozen. That was supposed to be frozen for six months and ended up being frozen for 18 months. It is also a product of the removal of collection losses.

“When we go beyond that to 2016, when the collection losses were taken out. When this government came to power in 2015, they began to negotiate with us and multi-year tariff order (MYTO) 2015 was a result of the negotiations.

“But two things happened, one is that in putting together MYTO 2015, Nigerian Electricity Regulatory Commission (NERC) forgot to account for January so MYTO 2015 was implemented in February, that alone added N12 billion to the generation shortfall. To pay or not to pay the MYTO recommendation, and not to upset Nigerians, NERC said we will now sculpt the tariff, which means we (DisCos) will under-recover, so N497 billion supposedly was taken out of the tariff. In other ways, the tariff was suppressed by N497 billion for the next four years under that assumption that the DisCos will go to the banks and borrow money and fill up that gap until that point when they (DisCos) begin to over-recover.

“The other thing that has happened is with the tariff. Every six months there was supposed to be a minor review which will adjust the following items, generation, inflation and foreign exchange, among other.

“Generation – the MYTO model assumes a generation of 5,000 megawatts (Mw) and reality is 3,500Mw. On inflation, MYTO assumes nine per cent and the reality of today is 15.2 per cent and on foreign exchange (forex), it assumes N198 to a dollar but the reality is N305 and 363, while inflation index is tied to the U.S. because 85 per cent of our equipment is dollar denominated. The assumption is 0.02 and our reality is 2.2.

“So you can see there is a gap, which added to the shortfall. The other part of it, which you may not be aware of, is with the roll out of MYTO 2015, we had a significant consumer push back with the National Assembly encouraging people not to pay, the regulator (NERC) incorporating into the order that says “if you are not metered in six days, don’t pay.”

“A number of citizens adopted that as a mantra as well as litigations. MAN also litigated against us and the court issued an injunction that prevailed upon MAN to continue at MYTO 2.0 not even 2.1., and here we were at MYTO 2015. All of these elements kept building up. The huge shortfall is a product of all of these things.”

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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