NERC Plans to Tackle Liquidity Gaps in Power Sector

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NERC

In a bid to resolve shortfalls in the electricity sector estimated to be about N1 trillion, the Nigerian Electricity Regulatory Commission (NERC) has unveiled a comprehensive plan to tackle liquidity gaps in the sector which includes auditing the books of operators and providing credit advance system to perennial debtors.

John Momoh, the vice chairman of NERC, who was represented by Olufunke Dinneh, general manager in charge of legal and licensing at the second edition of BusinessDay Future of Energy Conference, held in Lagos, yesterday said the Commission will carry out a forensic audit of the DisCos to determine their income as well as costs.

“The Commission is carrying out a forensic audit of the discos in terms of what they really collect, spend and save. The commission carried out an open book review and discovered that it is imperative to actually carry out the forensic audit of the discos,” said the NERC official.

The process will also include a study of the revenue management of the DisCos who settle as little of 15 percent of their market invoice. The audit will seek to determine what is the basic revenue baseline and the minimum they are allowed to remit and develop appropriate basis for appropriation and disbursement of market funds.

BusinessDay’s examination of the financial statements of some of the DisCos indicate that they are veering dangerously close to full blown bankruptcy with reported losses of over N196.23 billion to end the 2016 financial year. This compares with a loss of N104.69 billion they recorded the previous year.

The commission is also setting up an Information Technology system that will monitor revenue collection in real time and also show how money is spent.
Another aspect, the commission is proposing to make the electricity market financially viable is reviewing the tariff methodology which has been in place for 15 years and should have seen 5 major reviews, non of which has happened. The Commission says it will revisit the methodology on which MYTO  is placed to determine if it is the best way to go in terms of tariffs for the sector.

NERC also said  there is need to carry out customer enumeration which was stipulated in the MYTO 2015 to a certain the number of customers in a particular zone and estimate the amount of money that is expected to be made from the zone.

“This is a sector that the discos  do not know the number of customers they have. The numbers that the commission has been given, are not reliable as such the discos have been given the instruction to carry out customer enumeration to determine the number of customer they have in a particular zone,” said Momoh.

In order to resolve debt by government ministries and departments estimated to be about N27 billion, NERC is proposing two strategies: providing prepaid meters for all government ministries including the military as well as an advance credit system that allows government ministries to settle their electricity debt after appropriation have been made and disbursed.

The commission said henceforth, applications for licenses to generate power in the Nigeria will be procured through competitive bidding.

The Commission said that it had issued over 100 licenses out of which 62 are for grid connected power but almost all were unsolicited. This means that investors make proposals and regulators issue licences when they meet conditions without considering their capacity to utilise them.

“But going forward, the competitive procurement regulation has been enacted by the Commission, therefore the Nigerian Bulk Electricity Trader (NBET) will now do competitive procurement for new generation and will be done taking cognisance of integrated planning study to know how much power we need, where and how power will be sourced, renewable or on grid,” said Olufunke Dinneh, general manager, legal and licensing who represented James Momoh, the Commission’s Vice Chairman.

To this end the commission said it has appointed the Japanese International Corporation to carry out a study of projected demand for electricity in Nigeria.

“It is important because it can help us do a forecast and integrated planning,” said Dinneh.

Experts agree that there is need to curtail the penchant of unutilised licenses but it is also important to protect private capita.

“I think competitive procurement is a way to go, the market is ripe but there are also capacities out there and projects yet undeveloped, we need to mop those projects, treat them as stranded assets, so that the private sector that has made the investment do not lose, we must protect private capital. There is need to ensure projects are not just started and abandoned, there should be bankable documents that will help to ensure this,” said Rumundaka Wonodi, CEO, ZKJ Energy Partners Ltd.

SOURCE: BUSINESS DAY

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