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Power Regulator Worries Over Discos’ Poor Remittance

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  • Power Regulator Worries Over Discos’ Poor Remittance

The poor remittance by electricity distribution companies to the Nigerian Bulk Electricity Trading Plc for the energy sold to them has become a serious concern for the regulator of the power sector.

The government-owned NBET buys electricity in bulk from generation companies through Power Purchase Agreements and sells to the Discos, which then supply to the consumers.

The Nigerian Electricity Regulatory Commission, in its report for the second quarter 2018, noted that the liquidity challenge in the Nigerian electricity supply industry continued to manifest during the period under review.

It said this was evidenced in the Discos’ level of remittances to NBET and the market operator, as compared with the invoices received for energy purchased from NBET and those received for administrative services from the MO.

According to the report, during the second quarter, the Discos were issued a total invoice of N161.4bn for energy received from NBET and for the administrative services by the MO, but only a sum of N53.7bn of the invoice was settled, creating a total deficit of N107.7bn.

It said a comparative analysis of market performance by the Discos in the second quarter indicated an overall settlement rate of only 30 per cent of the market invoice.

As stated in the Q1 2018 report, none of the Discos exceeded a threshold settlement of 50 per cent of its market invoices in the second quarter.

NERC said, “Jos recorded the worst remittance performance of 10 per cent and the commission is currently reviewing the viability of the Disco as a going concern.

“The challenge of poor remittance remained a serious concern to the commission as it is one of the main causes of the liquidity crisis facing the Nigerian electricity supply industry. Low remittance adversely affects the ability of NBET to honour its obligations to Gencos while service providers (the system operator, MO, NBET and NERC) struggle with paucity of funds, impacting their capacity to perform their statutory obligations.”

According to the regulator, Eko Disco recorded the highest remittance efficiency of 45 per cent in the first quarter of the year while Ikeja Disco marginally surpassed the remittance performance in the second quarter of 2018 at 46 per cent.

It said Jos and Kano Discos had the lowest remittance performance of 10 per cent and 18 per cent respectively in the second quarter despite the marginal improvement of three per cent and one per cent over the preceding quarter.

“The commission notes that tariff deficit is partly responsible for poor remittance in the industry but all the Discos are being steered to rapidly improve on their revenue collection from customers in order to fulfill their remittance obligations and mitigate the financial distress in the industry,” NERC added.

To address the poor remittance by Discos, the commission said it had commenced enforcement actions against Discos found to have engaged in unacceptably low remittances to NBET and the MO, factoring in all the parameters embedded in the tariff model.

It stated, “In this regard, the commission is working on a framework which ensures transparency and equity in the disbursement of market funds for the benefit of all market participants in the industry.”

The report said the collection efficiency of the Discos increased from 62 per cent to 64 per cent in the second quarter when compared with the preceding quarter and overall remittance to NBET increased by three per cent to 32 per cent of the total energy invoice.

The market operator received 43 per cent of the invoice payable to service providers during the same period.

The regulator said, “The total market (NBET’s and MO’s) invoices issued to international customers, comprising Communaute Electrique du Benin and Societe Nigerienne d’electricite and Ajaokuta Steel Company Limited (classified as special customer), during the second quarter of 2018 increased to N13.3bn from the N12.2bn recorded in the first quarter.

“However, no payment was received from the international and special customers during the quarter under review.”

The commission said it continued with its role of tariff reviews to adequately promote optimal performance by the Transmission Company of Nigeria and Discos and significantly enhance the quality of service to customers.

It added, “Financial illiquidity remains one of the most significant challenges threatening the sustainability of the power industry. The liquidity challenge is partly attributed to the non-implementation of cost-reflective tariffs, high technical and commercial losses exacerbated by energy theft, and consumers’ apathy to payments under the widely prevailing practice of estimated billing.”

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

Nigeria’s Plan to Review Oil Companies’ Gas Flaring Strategies

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Oil

Nigeria is ramping up its efforts to address environmental concerns in the oil and gas sector with a comprehensive plan to review gas flaring strategies of international and indigenous oil companies.

The Minister of State for Environment, Dr. Iziaq Salako, announced this initiative during a national stakeholders engagement meeting on methane mitigation and reduction held in Abuja, Investors King reports.

Gas flaring, a common practice in the oil industry, releases methane—a potent greenhouse gas—into the atmosphere, contributing to climate change and posing health risks to communities near oil facilities.

Nigeria aims to end routine gas flaring by 2030, aligning with global climate goals and commitments.

Dr. Salako explained the importance of reducing methane emissions and highlighted the detrimental effects on public health, food security, and economic development.

He outlined practical steps being taken to tackle methane emissions, including the development of methane guidelines and the engagement of government institutions.

The ministry, through the National Oil Spill Detection and Response Agency, will conduct periodic reviews of oil companies’ plans to ensure compliance with the gas flaring deadline.

Deloitte management consultants will assist in conducting comprehensive forensic audits to scrutinize the legitimacy of forward-contracted transactions.

President Bola Tinubu’s commitment to environmental sustainability underscores the government’s dedication to addressing climate change and fulfilling its multilateral environmental agreements.

The engagement event served as a platform for stakeholders to discuss methane mitigation strategies, existing policies, and implementation challenges.

Collaboration and dialogue among diverse sectors are crucial in charting a unified course towards sustainable methane reduction in Nigeria’s oil and gas industry.

As the country navigates its environmental agenda, ensuring accountability and transparency in gas flaring practices remains paramount for achieving a greener and healthier future.

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Economy

Interest Rate Jumps to 24.75% as CBN Takes Aggressive Stance Against Inflation

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Dr. Olayemi Michael Cardoso

The Central Bank of Nigeria (CBN) has announced a significant increase in the monetary policy rate, known as the interest rate, to 24.75%.

This move disclosed by CBN Governor Olayemi Cardoso during the 294th Meeting of the Monetary Policy Committee press briefing in Abuja, represents a bold step by the apex bank to address the mounting inflationary pressures faced by the country.

With inflation soaring to 31.70% in February, the CBN aims to moderate this upward trend by tightening its monetary policy stance.

This decision follows the previous hike in the interest rate to 22.75% in February, showcasing the CBN’s commitment to combatting inflationary forces.

While the bank opted to maintain the Cash Reserve Ratio at 45%, the significant increase in the interest rate underscores the urgency of the situation and the need for decisive action.

Governor Cardoso emphasized that these measures are essential to stabilize the economy and safeguard the purchasing power of the Nigerian currency.

The 294th MPC marks the second meeting under Governor Cardoso’s leadership, indicating a proactive approach to addressing economic challenges.

The next MPC meeting is scheduled for May 20th and 21st, 2024, highlighting the ongoing commitment of the CBN to navigate Nigeria’s economic landscape amidst inflationary pressures.

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Economy

Nigeria Braces for 10th Consecutive Interest Rate Hike by Central Bank

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Central Bank of Nigeria (CBN)

As Nigeria grapples with persistently high inflation, the Central Bank of Nigeria (CBN) is gearing up to implement its tenth consecutive interest rate hike in a bid to curb the soaring prices and attract investment.

Analysts surveyed by Bloomberg are anticipating a substantial 125 basis-point increase in the key rate to 24%, marking one of the most significant adjustments in the current tightening cycle.

The decision, expected to be announced by Governor Olayemi Cardoso on Tuesday at 2 p.m. in Abuja, comes on the heels of inflation accelerating to 31.7% in February, far surpassing the central bank’s target range of 9%.

This surge has been primarily attributed to the sharp depreciation of the naira, prompting authorities to devalue the currency twice since June to narrow the gap with the unofficial market rate and encourage investor confidence.

While these measures have seen the naira strengthen in recent days and bolstered investment inflows, including a fourfold increase in overseas remittances and significant foreign investor portfolio asset purchases, there remains a palpable need for more decisive action.

Giulia Pellegrini, a senior portfolio manager at Allianz Global Investors, emphasized the necessity for the CBN to intensify its tightening efforts to regain foreign investors’ confidence in the local bond market.

While acknowledging the positive strides made by the central bank, Pellegrini stressed the importance of a more assertive approach to prevent the diversion of investor attention to other frontier markets.

As the Nigerian economy navigates through these challenging times, the impending interest rate hike signals the CBN’s determination to address inflation head-on and foster a more stable economic environment.

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