The decision by the Central Bank of Nigeria to mandate commercial banks instead of the electricity distribution company (DisCos) to take full responsibility for collections is expected to dent the liquidity challenges facing Nigeria’s electricity supply industry.
The 11 DisCos are struggling to meet their obligations to the Nigerian Bulk Electricity Trading Plc (NBET) and Market Operators (MO) as evidenced by their inability to remit about 60 percent of the market invoice to the rest of chain.
In a circular titled ‘DMB Led Electricity Market Collections’ addressed to all banks, the CBN directed that all DisCo collections and remittances to both NBET and TCN will now be the responsibility of only banks that have agreed to provide guarantees to DisCos.
The circular further directed commercial banks to warehouse all collections, whether energy or non-energy, of the DisCos in an account in the name of the DisCo. It also sets out guidelines for the management of inflows received through collection agents of the various DisCos.
What does this mean?
By this move, the CBN and the Nigerian Electricity Regulatory Commission (NERC) seek to guarantee that cash flows from DisCo collections are available to pay down loans and other obligations to market stakeholders.
Recall that the CBN provided funding to DisCos in 2015 through its Nigerian Electricity Market Stabilization Facility (CBN-NEMSF), designed to fund market shortfalls arising for poor collections. The DisCos repay the central bank through monthly deductions from their collections.
“CBN’s circular is an attempt by fund providers in the power sector to have clear visibility over collections of distribution companies and possibly control how the money is disbursed to all stakeholders,” Charles Akinbobola, an energy analyst at Sofidam Capital, said.
NERC had issued minimum remittance orders for each DisCo in 2019 requiring DisCos to meet a minimum remittance to the market from collections received when customers pay for electricity.
“It’s unclear how working capital requirements of DisCos will be catered for in the event of a shortfall,” Akinbobola said.
The latest NERC report revealed out of a total invoice of N671 billion for energy received from NBET for services provided by Market Operators, only 31 percent (N206.7 billion) of the invoice was paid by DisCos, creating a total deficit of N464.3 billion in 2018.
Since the privatisation of the distribution and generation segments of the nation’s power industry some seven years ago, the industry has been enmeshed in crisis of insufficient revenues, weak cash flows, high leverage, and low liquidity due largely to unreflective tariffs and low generating capacity.
A report by multinational professional services firm PricewaterhouseCoopers (PwC) said liquidity crisis is the most critical challenge facing Nigeria’s power sector.
About 40 percent of the population still doesn’t have access to electricity and supply is usually epileptic for those that have access.
The country’s current operational capacity stands at less than 5,000MW, less than 8,400MW projection for 2018 in Multi-Year Tariff Order (MYTO).
The installed capacity of 7,000MW is also less than the pre-privatisation target of 11,879MW by 2012 and post-privatisation target of 14,218MW and 40,000MW by 2013 and 2020, respectively.
