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Technically insolvent TCN seeks tariff increase

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Hopes for steady supply of electricity may be a mirage in the near future as the Transmission Company of Nigeria (TCN) is technically insolvent and seeking an increase in tariff to help plug shortfalls and boost Capex, according to documents seen by BusinessDay. “TCN is technically insolvent as the existing Multi Year Tariff Order (MYTO) transmission tariffs and billing collections are inadequate for the company to finance its operations,” said San Francisco based consulting firm Nexant, in a financial assessment of TCN covering the 2011 to 2013 period. The company is consistently unable to meet its obligations to suppliers/contractors in compliance with terms of contracts.”The financial assessment was included in documents submitted to the Nigerian Electricity Regulatory Commission (NERC) by TCN, as part of its tariff review application. NERC is an independent regulatory agency established by the Electric Power Sector Reform Act (EPSRA), 2005 and TCNs current transmission rates of N1400 per MWh were applied in accordance with MYTO II tariffs predetermined by NERC for the period June 2012 to May 2017. Only 58 percent of needed operating expenses in 2015 are covered by MYTO II and must be increased to bring the system up to standard and maintain it at a higher level, according to TCN in its application.

NERC in a consultation Paper on the Review of TCN Tariff Application, posted on its website last Thursday (February 26), says the commission is seeking comments from the general public on the, “appropriateness or otherwise, of the building blocks methodology used in the determination of the transmission tariff.” TCNs existing transmission system, which is capable of delivering about 7,000MW of generation to the distribution company (Disco) Trading Points, is inadequate to meet expected growth with the National Integrated Power Project (NIPP) and various IPP generation projects coming online. Inadequate maintenance of the transmission network over the years has also resulted in high technical losses on the transmission network. Performance in terms of transmission losses deteriorated between 2011 and 2013, increasing from 10.4 percent in 2011 to 12.1 percent in 2012/13, before falling to 8 percent in 2014, according to data from Nexant and NERC. Non-collection of tariff charges is also a significant recurring problem for TCN.

The Interim Market Rules (pre-TEM) provides for collection of 70 percent for Transmission Service Provider (TSP) and 60 percent for System Operations (SO) and the Market Operations (MO), which are TCNs three separate and interdependent departments. However, the overall average collection rate in 2013 was around 60 percent. TCN for instance had N36.3 billion in wheeled power revenue billed in 2013 but only collected N22.1 billion from its customers. “Retail billing collections by DisCos have dropped to 45 percent in the first two months of 2014 and this will impact on all the Market Participants and Service Providers, including TCN,” Nexant said. The company’s unpaid billing due from the market fund as at December 31, 2013 amounted to N50 billion (US$315 million), equivalent to 138 percent – or 16 months – of TCN 2013 annual revenues, according to data from the financial assessment. TCN made pre-tax losses of N13.7 billion ($88 million) in the 2012/13 with negative operative margin of around 18 percent, based on unaudited financial statements. The number of staff employed by TCN increased from 3,334 in 2011 to around 4,210 by end 2013. The increase in staff numbers was far greater than the growth in wheeled energy and as a result, the energy wheeled per staff declined from 8.1GWh in 2011 to 6.9GWh in 2013.