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Power: N1tn Debt Threatens NBET Existence

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Electricity - Investors King
  • Power: N1tn Debt Threatens NBET Existence

The Federal Government is pleading with power distribution companies to make appropriate remittances for the electricity supplied to them in order to avoid the collapse of the Nigerian Bulk Electricity Trading Company.

The country has 11 power distribution companies and they get the electricity that they distribute to customers from power generation companies by purchasing it through the NBET.

The NBET, popularly referred to as the bulk trader, is the bulk power trading arm of the sector collecting funds from electricity distributors to pay the generation firms.

But remittances from the Discos have been persistently poor, a development which the Federal Government notes, may kill the NBET if not addressed.

This is coming as the Federal Government is planning to start naming and shaming power infrastructure vandals as well as communities that support vandalism.

The Minister of Power, Works and Housing, Babatunde Fashola, told the power distributors at the recent 26th meeting with operators in the sector that they would have no business if the NBET could not pay its bills to the Gencos, because the bulk of the Discos’ power was coming from the bulk trader.

Fashola appealed to the Discos to do their best to ensure that the NBET did not die as it was the goose that lays the golden egg, according to minutes of the meeting, which was just put together in preparation for the next edition of the meeting holding today (Monday).

Operators in the sector often complain that power distributors persistently remit far below what is required of them by the bulk trader.

For instance, on March 18, 2018, media reported that the Discos got a total invoice of N44.85bn for the quantum of electricity they received in January this year, but the firms remitted only N2.7bn.

Documents obtained from the NBET on remittances by the Discos for power received in January showed that the firms had a combined remittance of 6.04 per cent for the month.

The bulk trader in its summary of Discos’ and Gencos’ invoices and payments for January 2018 cycle stated that “the total amount invoiced to the Discos for the January 2018 cycle was N44.85bn. Total amount received from the Discos for the January 2018 cycle was N2.7bn (6.04 per cent).”

Also, on March 20, this year, the media reported that the Executive Secretary, Association of Power Generation Companies, Dr. Joy Ogaji, explained that the Gencos were owed about N1tn by the power market, while the power producers owe gas suppliers half of that amount.

About 80 per cent of the electricity generated in the country is from gas-fired power plants, with hydro plants contributing the rest.

“We are owed about N1tn by the electricity market. About half of it is owed to gas companies, because it is as we are paid that we pay them (gas suppliers). And in some cases, we even took loans to pay some of them, because if you don’t pay, you don’t get gas,” Ogaji had stated.

The executive secretary said the NBET was established with the mandate that it would pay the Gencos 100 per cent, “but it has not paid the generation companies 100 per cent. What the NBET has kept telling us is that the Discos are not paying, and the Discos say that consumers are not paying.”

“From the beginning in 2013 till now, the Gencos have not pushed the government like this; we have been enduring, taking loans. But now, even the banks are not giving us loans to buy gas and generate electricity. So, we are in a conundrum,” Ogaji added.

Speaking at the 26th sectoral meeting, Fashola, who chaired the event, stated that while the government continued to actively play its roles in the sector through the NBET, the Transmission Company of Nigeria and the Niger Delta Power Holding Company, the Discos should on their own part improve on the quality and capacity of their networks to stimulate consumers’ willingness to pay for services rendered.

He implored the Discos to improve on their revenue collection efficiencies without extortion through estimated billings and advised them to also make remittances in accordance with the agreement they signed with the NBET.

Fashola reiterated the need for the Discos to take ownership of the Meter Asset Provider Regulation to improve the supply of meters to consumers as well as increase their response time in resolving consumer complaints in a business-like manner.

The indebtedness to the Gencos, among other concerns, made the power generators to drag the government to court two months ago.

The media had reported in March that some Gencos had dragged the government before the Federal High Court in Abuja over what they termed discriminatory practices against their interests and those of gas suppliers.

The firms also accused the Federal Government of conferring preferential treatment on Azura Power West Africa Limited and Accugas Limited at their own expense.

But the NBET insisted at the last operators’ meeting that it could not pay the Gencos on behalf of the Federal Government because it had no funds.

In its presentation on market performance at the April meeting, the bulk trader stated that it received only 25.6 per cent payment from the Discos for the energy they received from the Gencos in the February cycle.

It also stated that the NBET received late payments from the January cycle amounting to 21.08 per cent of the February invoice, bringing the total payment for February to 46.7 per cent.

The bulk trader promised that the total amount received from the Discos would be paid to the Gencos in the period under review before their respective due dates.

Similarly, the Market Operator, in its report at the meeting, stated that the Discos received 84.89 per cent of the total energy sent out by the Gencos, while international customers and other direct customers received 7.53 per cent in the month of February.

The Discos, according to the MO, remitted only 36.55 per cent of their invoices, while a shortfall of 63.45 per cent on remittances by the power distributors on service providers’ charges was recorded.

On plans to name and shame vandals, Fashola told the Niger Delta Power Holding Company to compile a list of all its completed as well as vandalised projects.

He suggested that a name and shame campaign would go a long way in curbing the nefarious activities of vandals and communities, which support them in the future.

The meeting directed the NDPHC to forward the list of all its completed as well as vandalised projects to the ministry through the Permanent Secretary for proper articulation to enable the FMPWH to carry out a name and shame campaign on vandals and communities that support their activities.

On why the Discos were not making appropriate remittances, the firms complained that power users were not making adequate payments, a development that made it tough for the electricity distributors to meet their obligations to the NBET.

The Discos recently stated that members of the Manufacturers Association of Nigeria owed them about N30bn as unpaid electricity bills.

According to the power firms, the debt is among the many other liquidity challenges that have impacted negatively on the sector, particularly on the distribution arm of the industry.

They noted that the debt accumulated after a court injunction mandated the Nigerian Electricity Regulatory Commission not to implement the Multi Year Tariff Order in 2015, which would have led to an upward review of tariffs.

“There are some things that probably have gone beyond the control of the Discos. It will interest you to know that the Manufacturers Association of Nigeria went to court when the 2015 MYTO 2.0 came in. And right now, MAN is owing the Discos an average of about N30bn,” the Chief Commercial Officer, Ibadan Electricity Distribution Company, Deolu Ijose, said at an event in Abuja.

On July 13, 2016, the media reported that a Federal High Court in Lagos entered a judgement against NERC and the electricity distribution companies in a suit opposing the Federal Government’s bid to increase electricity tariff.

Justice Mohammed Idris had declared as null and void any hike in electricity tariff following an announcement of the proposed increase by the then Chairman of NERC, Dr. Sam Amadi.

The court had since May 28, 2015 restrained NERC from giving effect to the proposed hike pending the determination of the suit filed against the move.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

World Bank Commits Over $15 Billion to Support Nigeria’s Economic Reforms

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world bank - Investors King

The World Bank has pledged over $15 billion in technical advisory and financial support to help the country achieve sustainable economic prosperity.

This commitment, announced in a feature article titled “Turning The Corner: Nigeria’s Ongoing Path of Economic Reforms,” underscores the international lender’s confidence in Nigeria’s recent bold reforms aimed at stabilizing and growing its economy.

The World Bank’s support will be channeled into key sectors such as reliable power and clean energy, girls’ education and women’s economic empowerment, climate adaptation and resilience, water and sanitation, and governance reforms.

The bank lauded Nigeria’s government for its courageous steps in implementing much-needed reforms, highlighting the unification of multiple official exchange rates, which has led to a market-determined official rate, and the phasing out of the costly gasoline subsidy.

“These reforms are crucial for Nigeria’s long-term economic health,” the World Bank stated. “The supply of foreign exchange has improved, benefiting businesses and consumers, while the gap between official and parallel market exchange rates has narrowed, enhancing transparency and curbing corrupt practices.”

The removal of the gasoline subsidy, which had cost the country over 8.6 trillion naira (US$22.2 billion) from 2019 to 2022, was particularly noted for its potential to redirect fiscal resources toward more impactful public investments.

The World Bank pointed out that the subsidy primarily benefited wealthier consumers and fostered black market activities, rather than aiding the poor.

The bank’s article emphasized that Nigeria is at a turning point, with macro-fiscal reforms expected to channel more resources into sectors critical for improving citizens’ lives.

The World Bank’s support is designed to sustain these reforms and expand social protection for the poor and vulnerable, aiming to put the economy back on a sustainable growth path.

In addition to this substantial support, the World Bank recently approved a $2.25 billion loan to Nigeria at a one percent interest rate to finance further fiscal reforms.

This includes $1.5 billion for the Nigeria Reforms for Economic Stabilization to Enable Transformation (RESET) Development Policy Financing, and $750 million for the NG Accelerating Resource Mobilization Reforms Programme-for-Results (ARMOR).

“The future can be bright, and Nigeria can rise and serve as an example for the region on how macro-fiscal and governance reforms, along with continued investments in public goods, can accelerate growth and improve the lives of its citizens,” the World Bank concluded.

With this robust backing from the World Bank, Nigeria is well-positioned to tackle its economic challenges and embark on a path to sustained prosperity and development.

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Economy

Nigeria’s Food Inflation Hits 40.66% Year-on-Year in May 2024

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Nigeria's Inflation Rate - Investors King

Nigeria’s food inflation rate surged to 40.66% on a year-on-year basis in May 2024, a significant increase from 24.82% recorded in May 2023.

The latest figures from the National Bureau of Statistics (NBS) highlight the rising cost of essential food items, exacerbating the economic challenges faced by many Nigerians.

The NBS report attributes the steep rise in food inflation to substantial price increases in several staple items.

Notably, the prices of Semovita, Oatflake, Yam flour, Garri, and Beans saw considerable hikes.

In addition, the cost of Irish Potatoes, Yams, Water Yam, Palm Oil, and Vegetable Oil also climbed significantly. Within the protein category, Stockfish, Mudfish, Crayfish, Beef, Chicken, Pork, and Bush Meat experienced notable price jumps.

The month-on-month food inflation rate in May 2024 was 2.28%, reflecting a slight decrease of 0.22 percentage points from the 2.50% recorded in April 2024.

This month-to-month decline was due to a slower rate of price increases for Palm Oil, Groundnut Oil, Yam, Irish Potatoes, Cassava Tuber, Wine, Bournvita, Milo, and Nescafe.

Despite the minor monthly decrease, the average annual food inflation rate for the twelve months ending May 2024 was 34.06%.

This marks a significant rise of 10.41 percentage points from the average annual rate of 23.65% recorded in May 2023.

The sharp rise in food inflation is raising concerns among economic analysts and policymakers, as it significantly impacts the cost of living for Nigerians.

The rising food prices are straining household budgets and contributing to an overall inflation rate that threatens economic stability.

In response to the inflationary pressures, the Nigerian government and relevant stakeholders are being urged to implement effective measures to stabilize food prices and address the underlying causes of inflation.

Efforts to boost agricultural productivity, improve supply chains, and tackle market inefficiencies are seen as critical to mitigating the inflationary trend.

The NBS report underscores the urgent need for comprehensive strategies to manage inflation and ensure food security for the population.

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Economy

Nigeria’s Inflation Rate Climbs to 33.95% in May, NBS Reports

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consumers

The National Bureau of Statistics (NBS) has revealed that Nigeria’s headline inflation rate rose to 33.95% in May 2024, a slight increase from the 33.69% recorded in April.

This 0.26 percentage point rise underscores the ongoing economic challenges the country faces as it continues to grapple with rising prices and economic instability.

The report highlights that on a year-on-year basis, the headline inflation rate increased by 11.54 percentage points compared to May 2023, when the rate was 22.41%. This significant annual increase indicates a persistent upward trend in the cost of living for Nigerians over the past year.

However, the month-on-month analysis presents a mixed picture. The headline inflation rate for May 2024 was 2.14%, slightly lower than the 2.29% recorded in April 2024. This 0.15 percentage point decrease suggests a marginal slowdown in the rate at which prices are rising month by month.

Urban vs. Rural Inflation Rates

The NBS report also provides detailed insights into urban and rural inflation dynamics. In urban areas, the inflation rate in May 2024 stood at 36.34% on a year-on-year basis, a substantial 12.61 percentage points higher than the 23.74% recorded in May 2023.

On a month-on-month basis, urban inflation was 2.35%, down by 0.32 percentage points from April 2024’s rate of 2.67%.

Conversely, the rural inflation rate for May 2024 was 31.82% year-on-year, which is 10.63 percentage points higher than the 21.19% recorded in May 2023.

Month-on-month, rural inflation slightly increased to 1.94% from 1.92% in April 2024, indicating a steady rise in prices in rural regions.

Implications and Responses

The continuous rise in inflation, particularly in urban areas, poses significant challenges for the Nigerian economy.

The increase in prices for essential goods and services such as food, transportation, and housing is putting immense pressure on household budgets and the overall standard of living.

Economic analysts suggest that the persistent inflationary pressures are driven by several factors, including supply chain disruptions, increased production costs, and fluctuating exchange rates. The impact of these factors is felt more acutely in urban areas, where the cost of living is inherently higher.

In response to these inflationary trends, policymakers are under pressure to implement measures that can stabilize prices and ease the financial burden on citizens.

Strategies such as tightening monetary policy, increasing food production, and improving supply chain efficiency are being considered to curb the rising inflation.

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