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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

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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