Nigeria’s 11 electricity distribution companies (DisCos) have recorded cumulative losses of N787 billion in their 2018 financials, a 10 percent increase from the previous year, indicating the power sector is still deeply troubled.
But the DisCos have managed to keep the lights on – however abysmally – because the Federal Government is picking the tabs, having been forced to pay over N2 trillion to assuage a lack of market price for electricity.
Through the Central Bank of Nigeria (CBN) and the Nigerian Bulk Electricity Trading Company (NBET), the entity that manages the money pool in the sector, the Federal Government is funnelling subsidies to the power sector to give Nigerians access to cheap electricity even if the inefficient operation hinders the sector.
In August last year, the Nigerian Electricity Regulatory Commission (NERC) issued an order which basically wrote off N1.75 trillion in DisCos’ debt that arose due to the Commission’s refusal to allow them charge market price for electricity.
When this figure is adjusted for accrued interests, the DisCos were awarded a subsidy of over N2 trillion helping to improve their balance sheet significantly in 2018.
For example, in 2018, DisCos reported combined loss of N464 billion, only 4 percent increase over N446bn reported in 2017. However, losses rose 64 percent between 2016 and 2017.
But this has not translated to improved power supply for many Nigerians. Investigations show that power supply has actually worsened across various DisCos’ franchise areas with consumers reporting blackouts that lasted for days.
The Federal Government compounds a dire economic situation marked by decline in crude oil earnings due to lower demand, especially from China where coronavirus has wreaked havoc leading to closure of factories and suspension of flights, by throwing money at DisCos.
Some analysts have said the power situation of the country is gradually becoming irredeemable, as Discos, struggling with huge debts, rising costs and recurring losses, are on the brink of collapse.
“Everybody in the power sector is to blame for this problem because they have not played their roles as they should,” Ayodele Oni, energy partner at Bloomfield Law Practice, told BusinessDay.
NERC, the regulator, is often accused of poor regulation due to its lack of independence from the government. It hems and haws when sanctions would suffice and carries a cudgel to a treaty, as shown in the failed bid to cancel the licences of eight DisCos.
NERC has failed to enforce market rules, allowing DisCos withhold more than they should remit and violate their obligations to meter customers, and ignored their failure to meet investments thresholds set in their performance agreements because it has lost the moral high ground by failing to fix the broken market.
Nigeria is yet to suture the flaws of the 2013 power privatisation programme which has bled into a sector in crisis, resulting in some incompetent operators managing massive distribution assets, a failing transmission grid and generation companies with reams of unpaid invoices.
“The key challenge is to fix the market and provide comfort for investors so that they can come in, otherwise the bailouts would not do much help,” said Chuks Nwani, an energy lawyer based in Lagos.
Eyo Ekpo, a former commissioner of market competition at NERC, had previously said that problems arose in the privatisation process when, three days before the 2015 presidential elections, NERC cut electricity tariffs by 30 percent paving the way for politicising the electricity market.
It was a decision that tarnished the regulator’s credibility, power sector reforms outlook, market, and investors’ confidence, according to Ekpo in a post on Twitter.
Ekpo said the then NERC chairman, Sam Amadi, “completely bypassed the Market Competition and Rates Division, which I headed and which alone had responsibility for staffing, proposing and implementing rate-making decisions on behalf of NERC”.
After the decision to reduce tariff, DisCos declared force majeure while NERC suffered a massive loss of credibility with all its stakeholders who resolved never to accept the commitment of NERC in good faith, a development which ruptured the industry.
Five years later, the electricity market is still reeling from political interference. Abba Kyari, the president’s chief of staff, without knowledge of the power sector is leading negotiations for the Siemens deal agreed last year.
The minister of power, with scant knowledge of the sector, bungles through policy formulation and implementation and when all else fails, the government throws money at the problems.
But these subsidies and bailouts which are not transparent or with requisite accountability systems have implications.
“The danger with all these bailouts is that Nigerians will still pay for this money as it is taxpayers’ money. Many of these bailouts are given without the consent or knowledge of market operators,” Joy Ogaji, executive secretary, Association of Power Generation Companies, said at the 2018 BusinessDay Future of Energy Conference in Lagos.