…as GenCos get 20% invoice, DisCos face insolvency

•Sector performance disappointing, experts

•Consumers are worse off, group

By Obas Esiedesa, Abuja

Nigeria entered its second decade of the partial privatization of the power sector with disappointing performance as experts hint of sustained services failures and consumer frustrations.

The privatization which started in 2013 was intended to usher in new investments, improve service delivery and end decades of electricity supply shortages, and generally replace government inefficiencies with private sector orientation.

Financial Vanguard findings from World Bank data shows that over 80 million Nigerians still lack access to public electricity supply with majority of these residing rural communities across the country.  

The Vanguard findings from the National Electricity Regulatory Commission, NERC, also show 2024 average power generation of just above 4,000 Megawatts, indicating that the Nigerian Electricity Supply Industry (NESI) performance this year has proven to be not significantly different from the previous years as the same challenges that have stunted the growth of the sector remain intractable.

Faced by low power generation, the Minister of Power, Chief Adebayo Adelabu in March 2024 had set to achieve    a target of 6,000MW before the end of the year. The target has, however, not been met due to several reasons including grid collapses, poor financial state of the sector and lack of clear path to growth by the sector’s administrators.

N2.7trn debts cripple GenCos  

As at last weekend the actual power generation was below 40 percent of the 13,000MW installed power generation capacity.

Third quarter 2024 NERC report on the sector showed that with 28 power plants on the grid, available power output was just 5,100MW with average hourly generation of 4,280MW.

GenCos have blamed the huge debts owed to them by the market as one of the reasons for the drastic drop in available capacity.

According to the Executive Director, Association of Power Generation Companies, Dr. Joy Ogaji, outstanding debts to GenCos over the years have accumulated to N2.7 trillion.

Specifically for 2024, payment documents seen by Vanguard showed that as at the end of August 2024, GenCos debt for the year had reached N1.495 trillion. The document showed that while the GenCos had put in a combined invoice of N1.891 trillion, payment from the Nigeria Bulk Electricity Trading Plc (NBET) stood at just N396.53 billion (or 20.96% of invoice).

Against this backdrop, Chairman of Transnational Corporation (Transcorp Plc), Mr. Tony Elumelu, had in May urged the Federal Government to urgently pay off the N1.3 trillion owed to the power GenCos to avert the collapse of the sector.

Elumelu who stated that the GenCos could no longer afford to continue to subsidise the power sector, disclosed that Transcorp Power alone was owed about N250 billion for power supplied to the national grid.  

He also urged the government to fully privatise the power sector by divesting its 40 percent stake in the eleven electricity distribution companies and the 100 percent stake in the Transmission Company of Nigeria, TCN.

“We have liquidity challenges in the sector. As we speak, Transcop Power is being owed around N250 billion. We need this liquidity as a sector and as a company to help us stabilize and improve access to electricity. As it stands today, we can say that the power generation companies are subsidizing the country on electricity. We need this debt settled so that we can make progress”, he stated.

Speaking to Vanguard on the level indebtedness to the GenCos, the Director, Centre for Petroleum, Energy Economics and Law, University of Ibadan, Professor Adeola Adenikinju, noted that it was surprising given the amount of money collected by the electricity distribution companies (DisCos).

He called for increased pressure on the DisCos to reduce the high level of Aggregate Technical, Commercial and Collection losses to free up more revenue to pay the GenCos.

“What I don’t understand is that the DisCos are making profits and yet are not able to pay for electricity supplied to them. The tariff collected is not been used to pay the GenCos and by extention the gas suppliers. We need to find a way to reduce the ATC&C. Also, most government agencies and parastatals are owing the sector”, he stated.

Also speaking to Vanguard, Electricity Market Analyst and a Consultant with Paras Energy, Mr. Lanre Elatuyi noted that the GenCos were holding the short end of the stick as they were always the segement paid last. He pointed out that the Nigerian electricity market model does not incentivize the DisCos to make payments.

“Under central buyer model, the GenCos signed a PPA (power purchase agreement) with NBET, then NBET has a vesting contract with the DisCos. Those vesting contracts are supposed to be backed by enforceable payment guarantees such that in case of default there will be something to be called on. But in our case, those bank guarantees are not enforceable and that gives incentives to the DisCos to be inefficient in their operations”.

He also blamed the high-level debts on the failure of the Federal Government to pay the subsidies it agreed to pay following the freezing of tariff increase for Band B to E which has led to tariff shortfall. He added that despite a projection of over N1.6 trillion tariff shortfall for the year, the government made a budgetary provision of just N450 billion in 2024.

He added that he does not see the financial situation of the GenCos improving anytime soon as long as the NERC continues to run the present model.  

Grid collapses expose TCN weaknesses

The Transmission Company of Nigeria, TCN, the only wholly government owned and operated segment of the electricity supply chain, manages the National Power Grid system that proved again to be the weakest link with 12 collapses in 2024.

The transmission sector remains very problematic despite the Federal Government spending over $7.5 billion of its own and borrowed funds to improve the segment. The incessant collapses led to an order by NERC directing the unbundling of TCN into Transmission Services Provider (TSP) and Nigerian Independent System Operator which would effectively manage the grid.

In its defence, TCN management blamed some of the collapses on sabotage and vandalism of its infrastructures across the country. TCN said that as at the end of November, 115 transmission towers have been destroyed by vandals across the country.

Prof. Adenikinju noted that such level vandalism poses huge challenge to the sector, adding that something urgently needs to be done to ensure that power infrastructures are protected across the country.

On his part the President, Nigeria Consumer Protection Network, Mr. Kunle Olubiyo blamed the huge debt owed by TCN to its local contractors for the poor performance of the transmission segment of the supply chain.

According to him, TCN owes local contractors between N300 to N500 billion for jobs done in the past. He therefore urged the Federal Government to intervene and ensure that TCN meets its obligations to local contractors.      

Band-A tariff hike, metering gaps

On April 4th, 2024, NERC announced a major revamp of its electricity tariff methodology by removing government subsidies for electricity consumers in Band-A in exchange for a guaranteed minimum daily supply of 20 hours. The policy affected about two million customers (or 15% of registered electricity customers in the country).  

Despite the push back from the affected customers and the Manufacturers Association of Nigeria (MAN), the Commission stood its ground, saying that the policy was the only way to improve liquidity in the sector.  

Subsiquent data from the Commission seems to have justified this decision with DisCos’ revenue collection increasing from N100 billion in March (before Band A tariff hike) to N142.9 billion in April. The success of the promised minimum of 20 hours of power supply has, however, been mixed as most consumers complained that while paying the premium rate, supply has not been as promised by NERC.

Mr. Olubiyo condemned the policy, noting that it introduced supply discrimination into the Nigerian electricity market.

“Price gauging and discriminatory supply of electricity is unacceptable all over the world. Band-A is discriminatory because it says that the richer you are the more energy you will get. That is not the way we are structured. Also, the way the feeders are structured it makes difficult to create a clear line delineation. We have a mixed of population with areas where we have the poor living in midst of Band-A population. We also have 33kVA feeders passing through rural communities which have become automatically in Band-A when they are not supposed to be included”, he added.

On the provision of electricity meters, the sector also continued to underperform with about 55 percent of the registered 12 million customers in the sector still without meters. This is despite the promise by the Minister of Power, Chief Adebayo Adelabu that the phase two of the National Mass Metering Programme will be implemented during the year.

Speaking to Vanguard, the Chairman, Electricity Consumers Protection Centre, Chief Princewill Okorie said estimated billing has led to the exploitation of customers “with million of customers paying for energy they did not consume. We have always asked the government to end this practice by compelling the DisCos to provide meters for customers.

“The government must also be ready to impose heavy sanctions on DisCos that bill customers arbitrarily without commensurate supply of electricity”, he added.  

Experts rate 2024 performance

On how the sector has performed this year, Prof Adenikinju said it has been disappointing given the critical role played by electricity in boosting economic growth and productivity.  

He noted that the sector has failed to attract the needed private sector investment required to improve revamp the infrastructure and improve supply.

“We have a sector that the infrastructure is quite old and coupled with several cases of vandalisms, the performance has been poor. So many promises are yet to be delivered and yet cost and tariff have increased. The 20 hours supply for Band-A never materialized. Using the traffic light model, my grade will be red”, he added.  

On his part, Olubiyo said the year has not been good for customers, adding that challenges have remained intractable with many failed promises by the government and operators.

    

“In past years we had potentials and in 2024 we seamed to have been again trapped in the vicious circle of those potentials. Nothing has changed. We have not been able to hit the 6,000MW. On the issue of metering, presently, the entire public funded metering scheme has collapsed”, he stated.

On his part, Elatuyi said the sector has not performed up to expectation “going by the Minister’s pronouncement at the beginning of the year that Nigeria will generate, transmit and distribute 6,000MW by the end of the year. That has not been the case”, he declared.

Projections for 2025

Adenikinju called on the government to demand for the recapitalization of the GenCos and DisCos to enable them generate enough capital to invest in infrastructure expansion needed to grow the sector.

“The injection of capital will enable funds for the needed infrastructures. Also, a complete metering plan must be done along with consumer enumeration to determine the actual number of electricity customers in the country.

“The government must also strengthen the grid to prevent the frequent collapses. There has to be deliberate efforts to make the grid stronger and more reliable to deliver power to the DisCos. Government must also look at the generation gap by bringing the renewable sector into the national grid.

“Fixing the sector is critical for Nigeria’s economic growth and survival. This is because once we are able to surmount the power supply challenges, it will have a lot of impact on economic growth and the industrial sector”, he stated.

Elatuyi on his part, pointed out that there has to be clear path to growth for the sector, noting that handing over of the sector to willing state governments would not solve the problem as many states would be unable to regulate the sector within their states.

“I still want to remain optimistic that if we can get the right people, if we have sincerity of purpose, if we have the political will and we can do away with the issues of corruption and personal interest, I believe we can make something out of the New Year”.