DISCOs Monthly Revenue Shortfalls Rise to N25bn in 2016

• DISCOs Monthly Revenue Shortfalls Rise to N25bn in 2016

Electricity Distribution Companies, DISCOs’ remittances to Nigeria Bulk Electricity Trading, NBET, dropped to about 35 percent in 2016 from an average of 65 percent in 2015, with monthly revenue shortfalls rising to N25 billion in 2016 as against N9 billion in 2015.

According to a report by Proshare, a Nigerian financial information service firm, “The revenue shortfall of the DISCOs has triggered systemic risk in the sector since the generation companies, GENCOs, who rely on the DISCOs for revenue, have largely been stifled.

“The core drag at the bottom of these challenges relates to revenue and funding strain, despite the steps taken to improve operations of the GENCOs and DISCOs as well as the TCN failure to address the huge debt profile, foreign exchange burden, revenue shortfall and working capital of companies, expectations of momentous advance by firms will be a head in the clouds,” it stated.

The report also said that firms were already facing difficulties in servicing over N700 billion loans which they collectively took to purchase the plants when they were privatised in 2013, thus leading to liquidity crisis that had reduced their ability to pay for gas supplies and in whole threatening to completely undermine the electricity value chain and ability to continue to serve customers.

Upward tariff adjustments

The Proshare report further stated: “Given public resistance to upward tariff adjustments to meet revenue shortfalls, the power companies have clamoured for Federal Government intervention which would come in form of subsidy.

“Indeed, based on the current power sector model (2005), revenue shortfalls, were anticipated and modelled as high ATC&C losses embedded in the entire value chain, were to be funded by the Federal Government through monthly subsidies.” The proposed rulemaking on transitional trading arrangement and financial settlement system published by Nigeria Electricity Regulation Commission, NERC, in July 2008 states that.”

Given the revenue inadequacy which will now be funded by the subsidy in the first three years of the MYTO, the shortfall between the obligated payment and actual revenues collected, will be met by the Government monthly.”

In the event of revenue shortfalls from DISCOs, the Bulk Trader was expected to use its capitalisation to bridge the revenue shortfall and ensure GENCOs and other market participants are paid in full for power generated.

NBET overtime, has been deficient in meeting its obligations due to under-capitalisation. Consequently, NBET sought to issue a N300 billion medium-term note (MTN) with an embedded risk guarantee from the FG to enhance its capitalisation but was rebuffed by the National Assembly in April 2016.