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More money for power sector as DisCos ramp up collection

Litigations may derail power sector eligible customers’ regime

Nigeria’s electricity distribution companies (DisCos) have vastly improved their ability to collect revenue from customers, improving liquidity in a cash-strapped power sector and raising hopes for new investments.

A new cache of data released by the electricity regulator, the Nigerian Electricity Regulatory Commission (NERC), indicates that the DisCos have generally improved collection efficiency across the various tariff bands by 70 percent on average.

This has also translated to improved remittance to the Nigerian Bulk Electricity Trading Company (NBET) who now has half of their invoices settled by DisCos rather than around 30 percent that was previously remitted.

Analysis of the collection pattern shows that DisCos are prioritising distribution of power to areas where customers are both willing and able to pay. The biggest collections emanated from customers under the highest cost tariff classes.

Customers in tariff band A who enjoy up to 20 hours of supply daily settled 92 percent of their market invoice. Customers under the Lifeline band, where mostly poorly served customers are placed, accounted for 34 percent of collections.

Read Also: Discos forfeit N3 from every N10 worth of energy – NERC

The NERC introduced the Service Reflective Tariff (SRT) plan in July 2020, but it could not take effect until December due to the challenges with COVID-19 and labour protests.

Under the SRT, customers are grouped in different tariff bands according to the number of hours of power supplied daily, with the highest receiving 20 hours or more, paying between N45 and N55kwh, and the poorest people getting less than four hours of supply daily and seeing no increase in their tariff.

Between January and August 2020, DisCos settled barely 25 percent of their market invoices, a development that threatened the survival of other market participants such as generation companies (GenCos), gas companies, and the Transmission Company of Nigeria (TCN) who wheels generated power to the DisCos.

DisCos remittances never agree with the value of the power they received. For example, between January and September 2020, the DisCos received electricity valued at N513.2 billion but were only able to pay back N121.3 billion of the market invoice, which is just 22 percent of the invoice according to data from the NBET.

This has since improved as the NERC data show. NBET issued a market invoice worth N614.5 billion in 2021 and received N311 billion as settlement, representing an improvement by 50.6 percent.

Ahmed Zakaria, special adviser to the President on Infrastructure, told BusinessDay that this was an indication that the reforms in the sector were having an impact. “We hope to sustain this growth,” he said in a phone interview when BusinessDay began tracking collections after the service-based tariffs were introduced.

While this is a significant improvement, it does not mean that the sector is fully restored to profitability. The regulator, NERC, prescribed a minimum remittance obligation of between 36 and 40 percent, and only a handful of DisCos have been able to meet the threshold in 2021.

“The Commission has through the applicable orders set a minimum remittance threshold for each DisCo having adjusted for their tariff shortfall. It is obvious that DisCos need to improve on their performance,” the regulator said in its second quarter report of 2021, which shows none of the DisCos met the remittance threshold.

Improved collections are already translating to higher remittance and this could open the sector up for new investment opportunities, according experts.

According to the NERC, customers across the six tariff bands – A to E and the Lifeline bands were billed N100.3 billion for energy supplied in 2021 and DisCos were able to collect over N85.164 billion, representing 85 percent of energy billed.

The average collection efficiency has been driven up to 70 percent from less than 50 percent before the new tariff model was introduced.

Another significant indicator of improved collections is that – tariff bands A and B accounted for 92 percent and 85 percent collection efficiency.

Findings also show that supply has generally improved across the DisCos, especially in city centres where metering has seen an uptick. With wider deployment of prepaid meters, DisCos are keener to ensure that customers have power.

“At best, improvements have been modest,” said Ayodele Oni, energy lawyer and founder of Bloomfield law firm in his assessment of the power sector this year.

They have also stepped up monitoring of prepaid meters to guard against energy theft. Ikeja Electric proposed rewarding a whistle-blower with part of the re-connection penalty paid by the culprit

DisCos are also deploying technology to make payment solutions easier. Many customers now pay through an energy application by a third-party vendor or even through their mobile banking apps.

Technical issues that hitherto deny many access to power have been brought to some form of control. The national grid, which suffered full collapse nine times, according to NERC’s record, only saw one full collapse between January and September 2021.

While meter reforms have only seen modest additions, crazy billings remain a sore point in the sector.

“The huge metering gap for end-use customers is still a key challenge in the industry,” NERC noted.

The regulator said of the 11,058,939 registered energy customers as of June 30, 2021, only 4,529,497 (40.95%) have been metered. This implies that out of every 10 registered electricity customers, six are without meters, thus on estimated billing.

During the second quarter of 2021, the 11 DisCos received 241,476 complaints from consumers, and 38.69 percent were on billing (17.71) and metering (20.98).