• Friday, March 29, 2024
businessday logo

BusinessDay

DisCos say FG to pay for free electricity

DisCos only paid 31% of N671bn energy bill from NBET in 2018 – NERC

The purported free electricity from power distribution companies (DisCos) will be paid for by the Federal Government as part of palliatives to assuage the challenges posed by the coronavirus, DisCos have said.

Sunday Oduntan, executive secretary, Association of Electricity Distribution Companies (ANED), told BusinessDay by phone that the initiative is solely that of the Federal Government.

“It is not free from DisCos as there is a value chain. What we issued is a statement of support for the Federal Government’s plan,” said Oduntan.

Several media organisations reported that DisCos had agreed with the Federal Government to give customers free electricity for two months, leading many to assume that DisCos actually had the capacity.

Some analysts have wondered how that can happen considering that the power is not even for the DisCos to give.

“At a meeting between @nassnigeria and the minister of finance, @ZShamsuna and her team, I disclosed that @HouseNGR is considering a second stimulus bill that will provide Nigerians with free electricity supply for two months to mitigate the effects of the COVID-19 pandemic,” Femi Gbajabiamila, speaker, House of Representatives, tweeted on April 5.

The stimulus bill upon which the plan would be based will be considered next week.

Oduntan said that until the stimulus bill has been passed by the National Assembly, it would be impossible to discuss when the plan would commence and how the modalities would be carried out.

Nigeria’s electricity sector is a value chain comprising electricity generators (GenCos), distributors (DisCos), the Transmission Company of Nigeria (TCN) which wheels power to where it is needed, and gas producers who sell the gas to GenCos to produce at least 75 percent of Nigeria’s power.

These operators are paid from the power sold by the DisCos and remitted to the Nigerian Bulk Electricity Trader (NBET) which then pays other players in the value chain according to their contribution.

Analysts say to give free electricity will require the buy-in of all these different players because they have to agree to forfeit their earnings for two months which could constrain their ability to produce, pay staff and keep machines running.

“The DisCos already have huge financial challenges and the GenCos are struggling to get paid, so how will it even work?” Chuks Nwani, Lagos-based energy lawyer, asked.

The Federal Government would have to pay electricity suppliers an estimated N120 billion to provide Nigerians free electricity for two months, BusinessDay analysis shows.

According to the third quarter report of the Nigerian Electricity Regulatory Commission (NERC), during the third quarter of 2019, a total invoice of N179.66 billion was issued to the 11 DisCos for energy received from the NBET and for service charge by the market operator.

When this is divided for three months, it comes to an estimated N60 billion a month, and N120 billion for two months.
However, DisCos have been unable to fully settle this market invoice. According to the report, only a sum of N58.81 billion of the total invoice was settled, representing 32.73 percent remittance performance from July to August 2019.

Following this pattern of remittance, the Federal Government could also choose to settle about a third of the market invoice for the two months it wants to give Nigerians free electricity, but this will further worsen shortfall in the power sector.

The electricity market already has shortfalls estimated at over N2.4 trillion, which consist of market shortfall of N1.335 trillion caused by DisCos’ inability to collect adequately and fully remit their collections, and tariff shortfall of N1.109 trillion caused by the regulator’s decision not to allow cost-reflective tariffs.

Oduntan on Thursday issued a press statement expressing ANED’s support for the efforts of the National Assembly and the federal executive to mitigate the hardships currently being borne by electricity consumers and other citizens all over the country.

“We are also completely aligned with the plans to ensure palliative measures, including free electricity supply to all Nigerians for two months, to make life easier during the lockdown period. Details of implementation to come soon,” Oduntan said.

Adetayo Adegbemle, convener of PowerHub Nigeria, a customer energy sector advocacy group, said some electricity customers are already saying they would not collect bills again for the next two months.

Adegbemle said the ability for the DisCos to go forward with the plan was subject to the stimulus package being passed by the National Assembly and signed into law by the president.

“While this palliative seeks to mitigate the economic challenges that Nigerians are being subjected to during this COVID-19 period, it is our hope that we not lose sight of the no-cost reflective tariff challenges that the DisCos continue to suffer under,” Adegbemle said.

The Nigerian Electricity Regulatory Commission (NERC) recently suspended a review of the electricity tariff that was supposed to kick in April 1 as part of measures to help Nigerians cope with the difficult economic situation brought about by the coronavirus pandemic.

 

ISAAC ANYAOGU