Nigeria: NERC’s Perspective Fostering Liquidity in Power Sector

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The Nigerian Electricity Regulatory Commission (NERC), while reviewing the performance of the electricity industry in its quarterly publication for first quarter of 2018 report said liquidity challenges facing the sector remains unabated FESTUS OKOROMADU writes on the insincerity of financial management of operators as indicated in the NERC quarterly report.

The latest quarterly market review report of the Nigeria Electricity Supply Industry (NESI) for the first quarter 2018 released by the Nigerian Electricity Regulatory Commission (NERC), last week revealed that a total deficit of 112.0billion was created during the period.

According to the report, whereas the Nigerian Bulk Electricity Trading (NBET) Plc which is the manager and administrator of the electricity pool in the Nigerian electricity supply industry alongside market operators (MOs) issued invoice amounting to 163.1billion for energy received to the existing 11 distribution companies (DisCos) only 51.2billion of the invoice was settled, creating a total deficit of 112.0billion.

The report blamed the liquidity challenges in sector a number of issues such as inefficiency in revenue collection, inappropriate remittances of revenue collected, losses attributed to technical, commercial and collection otherwise known as ATC&C Losses. Revenue Collection Efficiency According to the report, the DisCos collected a total of 106.6billion from their customers out of the total bill of 171.2billion issued during the period. Although the amount represents a 6 per cent increase when compared to 101billion collection in the last quarter of 2017. The slight increase in revenue collection was attributed to the increase in energy billed. This is even as the average collection efficiency for the period under review was 58 per cent same as recorded in the fourth quarter of 2017.

Drilling further, the report said on the average, the collection efficiency indicates that for every 10 billed to customers, 4.20 remains unrecovered as at when due. “Overall, the DisCos’ collection efficiency remains abysmally poor as just a little above the half of the revenue billed is recovered as at when due.

The poor collection efficiency by the DisCos has negatively impacted on the financial liquidity of the industry, which in turn, has led to reduced investment in the Nigerian Electricity Supply Industry,” the report noted. Regarding individual performances, Ikeja DisCo had the highest collection efficiency of 82.6 per cent followed by Eko DisCo with 82.2 per cent, while Jos DisCo recorded the lowest collection efficiency of 37.8 per cent.

The report emphasized that these three companies maintained the same positions recorded in the preceding quarter. Interestingly, NERC identified customers’ dissatisfaction with estimated billing as a major factor contributing to low collection efficiency, stressing that estimated billing often resulted in customer’s unwillingness to pay bills. To address the challenge the Commission said it has issued the MAP Regulation to fast-track the roll-out of meters by potential investors under a financially viable and bankable arrangements. Remittance Performance.

The consequences of inefficient collection is poor remittances from the DisCos, as stated earlier, whereas DisCos were issued a total invoice of 163.1billion for energy received from NBET and for the services provided by MOs, only 51.2billion of the invoice was settled, creating a total deficit of 112.0billion. The implication is the continued rise in the liquidity crisis in the sector. According to the report, none of the DisCos settled up to half of its market invoices in the first quarter of 2018 similar to what obtained in the fourth quarter of 2017. “Only Eko and Ikeja DisCos settled up to 45 per cent of their market invoices, all other DisCos settled below 40 per cent of their invoices,” NERC said. It added that although the overall market remittance improved from 24 per cent in Q4 2017 to 31 per cent in the comparing period Q1 2018, the remittance performance is still significantly low.

“The overall remittance to NBET for the first quarter of 2018 was just 27 per cent of the total energy invoice, an increase of 6 per cent from the remittance performance in Q4 2017. Similar to the fourth quarter of 2017, Market Operator received 40 per cent remittance of the invoice issued for service charge during the first quarter of 2018.” As usual, NERC attributed the poor remittances in the industry to what it called ‘tariff deficit’. But however, emphasized that DisCos need to improve on their remittance as the Commission said it observed remittance performance did not reflect the level of revenue collection, suggesting that some DisCos might be deliberately reducing their market remittance.

The implication of the poor remittance by DisCos, is the the inequitable distribution of market revenue. Thus, while the DisCos who collect revenue for the sector are able to meet their obligations others in the value chain are left to face serious financial challenges. However, NERC said its currently developing a framework which ensures transparency in the utilisation of market funds and thus improve the liquidity in the Nigerian electricity supply industry.

Aggregate Technical, Commercial and Collection Losses Aggregate technical, commercial and collection (ATC&C) losses are the combination of losses due to billing and collection inefficiencies in the industry. According to the report, the average ATC&C for all the DisCos in the first quarter of 2018 declined by 1 per cent from the 56 per cent recorded during the last quarter of 2017. It however explained that though the decrease reported in Q1, 2018 is a sign of marginal progress towards meeting the target of attaining efficient electricity supply industry, the ATC&C losses are still significantly higher than the industry average of 20 per cent allowed in the MYTO for 2018.

“The high ATC&C losses reflect low investments in distribution networks and pose a liquidity challenge to the industry. Explaining the impact of this on the industry, the report, “The implication of the ATC&C losses in the first quarter of 2018 is that as much as 5.50 in every 10 worth of energy received by DisCos was either unaccounted for or unrecovered, due to a combination of energy theft, inefficient distribution networks, and low willingness to pay by customers.

“The level of billing efficiency during these quarters shows that for every 10kWh of energy received by a DisCo from the Transmission Service Provider (TSP), approximately 2.2kWh is lost due to technical constraint and energy theft. In other words, for every 10 worth of electricity received by DisCos, 2.20 is lost due to poor distribution infrastructure and energy theft.”

To curb the losses attributed to DisCos’ technical constraint (poor network), NERC said it was developing a framework where actual investments by the DisCos would be thoroughly verified, evaluated and compared with the proposed investments which they had been allowed a return. It added that a mechanism would also be developed to, in the subsequent tariff review, claw back any return received on previously proposed investments that were not eventually executed by DisCos. This action is expected to improve DisCos’ commitment to their network upgrade and reduce technical loss.

To stop the commercial loss, NERC said. It is obvious from the NERC quarterly report that until some of this financial manipulation taking place in the sector are address the liquidity crisis would linger on as investors would continue to stay away from it. The regulator therefore need to take some drastic and pragmatic steps to curb the linkages in the sector and apply pun itive measures where necessary.

Authored By: FESTUS OKOROMADU

SOURCE: LEADERSHIP

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