…As operators fail to meet privatisation targets
By Udeme Akpan
About 40 per cent of Nigeria’s population lack power supply, as operators in the sector, have failed to meet the nation’s privatisation targets.
This occurs as the sector continues to experience inadequate gas supply, limited transmission lines, operational inefficiencies, non-cost reflective electricity tariff and liquidity constraints, poor water management at hydropower plants and inadequate and obsolete distribution infrastructure.
In its latest report, “Solving the Liquidity Crunch in Nigeria’s Power Sector,” obtained by Vanguard, PwC, stated: “About 40 per cent of the population have no access to electricity and supply is usually epileptic for those that have access. However, the country’s current operational capacity stands at less than 4,000MW, less than 8,400MW projection for 2018 in Multi- Year Tariff Order (MYTO).
“The installed capacity of 7,000 MW is also less than the pre-privatisation target of 11. 879MW by 2012 and post- privatisation target of 14, 218MW and 40,000MW by 2013 and 2020 respectively. The country’s bulk of electricity generation comes from thermal sources (gas-fired power plant). As a result, the inadequate gas supply often affects power generation.
“Gas-fired power plants account for more than 77 per cent of total electricity generated while hydro sources accounted for 23 percent. Insufficient gas supply and variability – rainfall and water level at hydro- plants among other challenges constitute to impact power generation in Nigeria.”
According to the report, “Liquidity crunch is the biggest and the most worrisome challenge facing Nigeria’s power sector. Therefore, the tariff framework or electricity pricing structure in Nigeria is non- cost reflective. Hence, industry participants often complain that electricity charges to customers do not reflect the cost of generation, transmission and distribution. Consequently, DISCOs have been unable to collect a significant proportion of the total billings to customers as total revenue collected by all the DISCOs for energy-distributed lags the total billings.
“DISCOs have been struggling to meet their obligations to the Nigerian Bulk Electricity Trading Plc (NBET) and Market Operators (MO). This implies that about N3.4 out of N10 billed to customers are not paid to DISCOs as and when due. This predisposes the operators to liquidity constraints such as DISCOs remittances to NBET for energy distributed is less than 50 per cet.
“In Q1’2019, only about 28 percent of the N190 billion invoice (comprising invoice of N161.4 billion for energy purchased from NBET and an invoice of N28.8 billion for administrative services from MO) of DISCOs were remitted. In one year (Q1’2018-Q1’2019), DISCOs outstanding remittance to NBET and MO stood at about N523.8 billion and N80.3 billion respectively.
“Consequently, the NBET have in turn been unable to meet their obligation to the generation companies (GENCOs) thus, creating a liquidity challenge that has plagued the electricity industry since privatization in 2013.”
Consequently, the Report stated that the total debt owed by ministries, departments and agencies (MDAs) of states and federal governments stood at approximately N59 billion as at December 2015, adding that the federal government owes DISCOs over N500 billion in tariff shortfall and that total debt could hit N522 billion by 2019.
The report noted that the poor state of power has affected the nation’s moves to diversify its economy, stressing that economic diversification is needed to ensure inclusive growth that would provide jobs for the rising unemployed Nigerians.
Similarly, it stressed that for Nigeria to combat poverty, underemployment and unemployment, the economy would need to grow at 6 per cent-8 per cent.
The success of any economic diversification and inclusive growth strategy is anchored on industrialisation and that massive industrialisation depends on a robust, sound and highly efficient power sector.
The report, the possible solution to the problem of liquidity crunch facing Nigeria’s power sector is to supply 50 per cent of distributable electricity to Nigerian companies at a cost reflective rate, adding that remaining 50 per cent can be shared among residential consumers.
It added: “We assume the average charge of N80/ kwh at 50% electricity supplied to industries 24/7 while other consumer categories maintain the current MYTO tariff charges… At N80/kwh charged to industries, and estimated N400 billion will be injected into the power sector annually. ”