Service-based tariff delivers a pile of money in Nigeria’s troubled power sector

Nigeria’s 11 power distribution companies (DisCos) collected N56.1 billion in December, the highest ever, on the back of the newly introduced service-based tariff, a development that is beginning to inspire new investor confidence in the sector.

This is spurring new investors into the troubled power sector and raises hope that the invoices of other market players would now be settled but many Nigerians who are on estimated billing say they are being cheated and are calling for a rapid deployment of electricity meters.

In November, Transcorp completed the acquisition of “Afam Power Plc” and “Afam Three Fast Power”, in a deal that saw the Federal Government transfer majority ownership of the power plant to the company.

Afam GenCo had a total installed capacity of almost 1,000 megawatts generated from a natural gas-powered plant in Rivers State. With the acquisition, the company’s combined installed generation capacity went up to almost 2,000 megawatts.

On Monday, Globeleq, an independent power generation company in Africa, confirmed it was taking a 74 percent majority equity stake in CPGNL Limited (CPGNL) while the current owner of CPGNL, the Clean Energy Group, will retain the remaining 26 percent shares in CPGNL.

Read Also: DisCos collections hit N56.1bn in December, highest ever

CPGNL has a portfolio of assets including 12 operating plants with a total capacity of 58 MW, three plants in construction (9 MW total capacity), as well as approximately 100 MW of projects in development.

BusinessDay also learnt that investors are engaging DisCos and other players in discussions about new power projects on the basis that it is now possible to recover costs due to the improved tariffs.

Even projects that have stalled over lingering disputes, like the Aba ring-fenced area between Geometric Power and Interstate Electric, owners of the Enugu Electricity Distribution Company (EEDC), have been resolved.

“We are going to see more investments into the sector as the liquidity problem is being addressed with the revised tariff,” said Chuks Nwani, an energy lawyer based in Lagos.

According to data from DisCos’ principal accounts, average collections for the past six months was N45.6 billion but collections rose in December, the first full month of the implementation of the Service Reflective Tariff (SRT) for electricity consumers in Bands A-D by over 15 percent more than November collections of N47.7 billion on the back of the service-based tariffs.

“There is an indication that the reform in the sector is having an impact and we hope to sustain it,” Ahmed Zakari, special adviser to the president on infrastructure, told BusinessDay.

The Nigerian Electricity Regulatory Commission (NERC) introduced the Service Reflective Tariff 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 N55 kwh, and the poorest people getting less than four hours of supply daily seeing no increase in their tariff.

Analysts say improved liquidity will enhance the ability of DisCos to invest in their network to improve service delivery and improved remittance to other market operators which will help the electricity market attract investments.

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

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 billon of the market invoice which is just 22 percent of the invoice, according to data from the Nigerian Bulk Electricity Trading Company (NBET).

Meanwhile, NERC prescribed a minimum remittance obligation of between 36 and 40 percent.

However, efforts to raise electricity tariffs in Nigeria face stiff opposition. This stems largely from the epileptic power supply and the inability of DisCos to meter their customers.

Last week, NERC in compliance with the Multi-Year Tariff Order (MYTO) pricing methodology, which recommends a biannual review of tariffs to keep pace with economic realities, raised the rates for service bands A, B, C, D, and E by NGN2.00 to NGN4.00 per kWhr to reflect the partial impact of inflation and movement in foreign exchange. Many Nigerians rejected the move, including the minster of power.

“To promote a constructive conclusion of the dialogue with the Labour Centres (through the Joint Ad-Hoc Committee), I have directed NERC to inform all DISCOs that they should revert to the tariffs that were applicable in December 2020 until the end of January 2021,” said Sale Mamman, minister of power.

But without regular tariff increases as prescribed by the MYTO, the electricity market will continue to be troubled. Every other commodity traded in the country has seen sharp increase in prices as a result of inflation and the weakened naira, it is illogical to expect that electricity tariffs will remain unchanged. Even the cost of diesel power generation is still higher at almost N100 per kilowatt hour.

Many Nigerians will pay the current tariffs if they are metered and assured that what they use is what they are being billed for, but DisCos have performed poorly when it comes to metering customers.

DisCos were supposed to provide meters to customers as part of their obligations under allowed capital expenditure in the MYTO but they were unwilling and negligent. Rather than sanction them, NERC bent over backwards to accommodate their bad behaviour. This emboldened them to begin committing other acts of market indiscipline, including withholding more remittances than they should.

Now the Federal Government has said it is committed to reverting to the old order where customers are not charged separately for meters, proposing the National Mass Metering Plan (NMMP) which will begin with the distribution of 1million meters.

Data published by NERC on Friday indicate that about 16,300 meters have been distributed since the programme was launched on October 30, 2020, raising questions about government’s seriousness, especially as some believe it would disrupt the Meter Asset Providers regulation enacted in 2018 to allow third party investors provide customers meters for a fee.

However, Zakari said the figures are yet to be updated and more meters than were reported may have been distributed. He also said the programme would complement MAPs rather than supplant it, because the only significant difference is that meters that would be supplied must be sourced locally.