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.”

About the Author

Samed Olukoya
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York based Talk Markets and Investing.com, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya; Email: [email protected]; Tel: +2347065163489.

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