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Collections and Remittances, Still a Challenge for DISCOs – Coronation Merchant Bank

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power project

An industrial take-off is essential for Nigeria to achieve sustainable double-digit GDP growth. The power industry plays a key role in ensuring industrialisation across emerging economies. According to the recently released Q2 ’21 report from the Nigerian Electricity Regulatory Commission (NERC), the average of daily available generation capacity was 5,472.10 MW. Implying a decline of 8.1% compared with 5,956.23 MW recorded in Q1 ’21. However, actual generation was limited to an average of 4,074.30 MW. The total electrical energy generated in Q2 ’21 was 9,187,337 MWh, this was 3.3% lower than the 9,498,786 MWh generated in Q1 ’21 and attributable to an increase in the number of generation units that underwent maintenance and repairs, which resulted in unavailability for operations during the quarter.

In terms of delivery, a total of 8,909,910 MWh (96.9% of total generation) was delivered to the grid but only 7,332,949.05 MWh was delivered to the DISCOs during the quarter. This was due to energy export, energy sold on bilateral contracts and transmission losses.

In terms of the energy mix, the share of thermal power plants in the energy mix increased to 82.3% from 76.3% recorded in Q1 ‘21. While, the share of energy generated from hydro declined to 17.7% from 24% recorded in Q1 ‘21. According to the report, a total invoice of N259.70bn was issued to the eleven (11) DISCOs for energy received from the Nigerian Bulk Electricity Trading Plc (NBET) and for administrative service charges by the market operator (MO), but only N130.1bn was settled, creating a total deficit of N129.6bn. This represents a remittance performance of 50.1%.

This is a -1.8% decline compared with the final settlement rate of 51.9% recorded in Q1 ‘21. We note that total billing to electricity consumers by the eleven (11) DISCOs stood at N268.9bn, while total collection was N185.3bn in Q2 ’21. This implies a collection efficiency of 68.9%. However, this is a marginal improvement of 0.4% from the collection efficiency of 68.6% recorded in Q1 ’21. Ikeja, Eko and Abuja DISCOs had the highest collection efficiency of 84.5%, 84.1% and 81.8% respectively while Kaduna DISCO had the lowest collection efficiency of 33.3%.

One roadblock within the power industry is the huge metering gap for end-use customers.

According to the NERC report, as at end-June ’21 only c.4.5 million customers have meters, accounting for 41% of the estimated 11.1 million registered energy customers. Furthermore, the report shows that 315,717 meters were added by DISCOs in Q2 ’21 compared with 189,226 meters provided in Q1 ’21. Therefore, c.6.5 million (59%) unmetered customers are currently on estimated billing. A billing estimation cap has been established to guide the DISCOs and protect unmetered customers from being over charged while awaiting appropriate metering.

The non-settlement of energy bills by ministries, departments and agencies (MDAs) across the three tiers of government (i.e. federal, state and local government) also features as a challenge. Resolving the debt owed by MDAs would assist in significantly improving the liquidity of DISCOs, as well as their capacity to settle invoices from NBET and MO.

The report also revealed that in Q2 ’21, power companies from the Republic of Benin, Niger Republic, Togo and other special customers such as Ajaokuta Steel Co. Ltd, were issued a total bill of N770m by both NBET and the MO and they made no payment for the electricity supplied and services rendered. We understand that the economic scarring from the Covid-19 pandemic and lockdowns were major reasons for the non-payment.

Typically, industrial customers fall into the highest tariff class. We understand that some industrial customers prefer to avoid using the grid power supply for production purposes. This is due to the potential adverse effect of poor energy quality from the grid on production cycles. Data from DISCOs indicate that industrial customers’ account for only 12% of annual energy sales by DISCOs. To boost the patronage of grid electricity by industrial customers, improving the quality of energy supplied via the grid is imperative.

Fixing Nigeria’s epileptic power supply will serve as a catalyst to boosting industrial activities, which by extension would support economic growth and development.

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Economy

CBN Holds Monetary Policy Rate At 11.5%, Leaves Other Parameters Constant

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Godwin Emefiele - Investors King

In its continuous efforts to boost the country’s economy and as well, reduce inflation, the Central Bank of Nigeria (CBN) led Monetary Policy Committee (MPC) has retained the Monetary Policy Rate (MPR) at 11.5% with all other parameters unchanged.

Governor of the CBN, Godwin Emefiele, disclosed this while reading the communique of the first monetary policy committee meeting of the year on Tuesday.

The committee unanimously voted to retain the Cash Reserve Ratio at 27.5% and the liquidity ratio at 30 percent.

According to the MPC, the Nigerian economy is expected to continue its positive trajectory following the impressive growth recorded in the third quarter of 2021.

Monetary policy refers to any policy measure devised by the Central Bank to control the cost, availability and supply of credit.

According to the apex bank, the ultimate goals of monetary policy are basically to control inflation, maintain a healthy balance of payment position in order to safeguard the external value of national currency and promote adequate and sustainable level of economic growth and development. These goals are achieved by controlling money supply in order to enhance price stability (low and stable inflation) and economic growth.

Investors King reports that CBN undertakes monetary policy in order to maintain Nigeria’s external reserves to safeguard the international value of the legal currency, promote and maintain monetary stability and a sound and efficient financial system in Nigeria, act as banker and financial adviser to the Federal Government and act as lender of last resort to banks.

The legal backing for monetary policy by the Bank derives from the various statutes of the bank such as the Central Bank of Nigeria Act of 1958 as amended in CBN Decree No. 24 of 1991, CBN Decree 1993 (Amendment), CBN Decree No. 3 of 1997 (Amendment), CBN Decree No. 4 of 1997 (Amendment), CBN Decree No. 37 of 1998 (Amendment), CBN Decree No. 38 of 1998 (Amendment), CBN Decree 1999 (Amendment) and CBN Act of 2007 (Ammended).

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Economy

COVID-19: IMF Rolls Out $50 Billion Trust Fund, Targets Low-income, Vulnerable Countries

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IMF global - Investors King

The COVID-19 pandemic, no doubt, has had significant economic consequences, especially on low-income and less developed countries.

It is in view of this that the International Monetary Fund (IMF) proposed a $50 billion trust fund to help these low-income and vulnerable middle-income countries build resilience and ensure a sustainable recovery through a Resilience and Sustainability Trust (RST), Investors King has learnt.

The RST’s central objective is to provide affordable long-term financing to support countries as they tackle structural challenges.

According to the IMF, broad support from the membership and international partners will further aid in the approval of the RST by the IMF Executive Board before the upcoming Spring Meetings and for it to become fully operational before the end of the year.

Apart from the pandemic, climate change is another long-term challenge that threatens macroeconomic stability and growth in many countries through natural disasters and disruptions to industries, job markets, and trade flows, among others.

Hence, the RST support aims to address macro-critical longer-term structural challenges that entail significant macroeconomic risks to member countries’ resilience and sustainability, including climate change, pandemic preparedness, and digitalization.

The IMF and World Bank staff have worked closely to develop a coordination framework on RST operations on climate risks, building on earlier experience in supporting countries with structural reforms. Similar frameworks with relevant institutions are expected to be developed in the coming months in this and other reform areas.

Meanwhile, to qualify for the RST support, an eligible member would need a package of high-quality policy measures consistent with the RST’s purpose; a concurrent financing or non-financing IMF-supported program with appropriate macroeconomic policies to mitigate risks for borrowers and creditors; and sustainable debt and adequate capacity to repay the Fund.

The RST would be established under the IMF’s power to administer contributor resources, which allows for more flexible terms, notably on maturities, than the terms that apply to the IMF’s general resources.

Consistent with the longer-term nature of balance of payments risks the RST seeks to address, its loans would have much longer maturities than traditional IMF financing.

Specifically, 20-year maturity and a 10-year grace period has been proposed.

 

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Economy

FG Suspends Removal of Fuel Subsidy Over Inflation Concerns

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Nigerian petrol station

The Federal Government has suspended plans to remove fuel subsidy by the end of the first half of 2022 over heightened inflation, according to the Minister of Finance, Mrs. Zainab Ahmed.

The Minister made the statement at a meeting with President of the Senate, Sen. Ahmad Lawan, at the National Assembly on Monday.

She said the removal of fuel subsidy at any time this year could escalate inflationary pressure in the country.

“We discovered that practically, there is still heightened inflation and that the removal of subsidy would further worsen the situation and impose more difficulties on the citizenry,” Ahmed said at the meeting.

“Mr. President does not want to do that. What we are now doing is to continue with the ongoing discussions and consultations in terms of putting in place a number of measures.

“One of these include the roll-out of the refining capacities of the existing refineries and the new ones which would reduce the amount of products that would be imported into the country.

“We, therefore, need to return to the National Assembly to now amend the budget and make additional provision for subsidy from July 22 to whatever period that we agreed was suitable for the commencement of the total removal.”

Agusto&Co, a research, credit ratings and credit risk management firm, had projected the same thing in its economic outlook for 2022 sent to clients. The firm had argued that it was impossible for the current administration to remove fuel subsidy given its little political capital.

The firm said no, the FGN can not remove subsidy in full in 2022 because “this is a tough political decision that we believe is best made by a government with a large amount of political capital. Current government has ruled for seven years, has about a year left and has little political capital to expend.”

Augusto further stated that the federal government is not likely to boost infrastructure spending in 2022 “because the ability of government to invest in infrastructure will still be constrained by weak tax revenues and high operating expenses.”

Therefore, it said the government cannot fully fund Nigeria’s 17 trillion budget as its revenue is limited to ₦5 trillion and funding sources are constrained.

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