The NESI Components: Exploring the distribution sub-sector

Introduction

In the Nigerian electricity value chain, there are four (4) primary players, namely: the Generation Companies (GenCos), the Transmission Company of Nigeria (TCN), the Distribution Companies (DisCos) and the consumers. Today, in Nigeria, there are currently about twenty-four (24) GenCos generating electricity from their power-generating plants for the teeming Nigerian populace. The TCN is responsible for wheeling the generated electricity to the point at which they are off-taken by either the DisCos or international customers. Finally, the DisCos are responsible for distributing electricity to their end-user customers, who may be residential, commercial, special, or industrial.

Background

From the phrase “Distribution”, it is easy to state that the primary objective of a DisCo is to distribute electricity. However, it goes deeper than that, as electricity distribution involves other activities, such as meter reading, billing, collections, etc. To understand the functions of a DisCo, it is essential to note that a DisCo’s scope of operations is rooted in the Electric Power Sector Reform Act (EPSRA) 2005, which is the bedrock of the Nigerian Electricity Supply Industry (NESI). The EPSRA 2005, in Section 62, states that no person, except in accordance with a license issued pursuant to the Act, shall construct, own, operate, or in any way engage in the business of electricity generation (excluding captive generation), electricity transmission, system operations, electricity distribution; or trading in electricity.

This implies that obtaining a license for generation, transmission, trading, or distribution is a condition precedent that must be met before operating in any part of the electricity value chain. Specifically, according to Section 67 of the EPSRA 2005, a distribution license shall authorize the licensee to construct, operate, and maintain a distribution system and facilities, including but not limited to the following activities as may be specified in the license: (a) The connection of customers for the purpose of receiving a supply of electricity; (b) The installation, maintenance, and reading of meters, billing, and collection; and (c) Such other distribution services may be prescribed for the purposes of this section.

From the above, it is clear that only a distribution licensee can own and operate a distribution system. Further, the DisCos are responsible for ensuring the connection of willing customers to their distribution networks and carrying out activities such as installing and maintaining post-paid and pre-paid meters, billing electricity customers, collecting electricity payments, etc. Therefore, engaging in the activities mentioned above by any person or entity without a distribution license is illegal and unlawful.

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There are eleven (11) DisCos in Nigeria providing power supply to different areas (franchise areas), namely:

a. Abuja Electricity Distribution Company (AEDC) – Abuja FCT, Niger, Kogi, and Nassarawa States.

b. Benin Electricity Distribution Company (BEDC) – Edo, Delta, Ondo, and part of Ekiti States.

c. Eko Electricity Distribution Company (EKEDC) – parts of Lagos State.

d. Enugu Electricity Distribution Company (EEDC) – Enugu, Abia, Imo, Anambra, and Ebonyi States.

e. Ibadan Electricity Distribution Company (IBEDC) – Oyo, Ogun, Osun, Kwara, and parts of Ekiti States

f. Ikeja Electric (IE) – parts of Lagos State.

g. Jos Electricity Distribution Company (JEDC) – Plateau, Bauchi, Benue, and Gombe States.

h. Kaduna Electricity Distribution Company (KAEDC) – Kaduna, Sokoto, Kebbi, and Zamfara States.

i. Kano Electricity Distribution Company (KEDC) – Kano, Jigawa, and Katsina States.

j. Port Harcourt Electricity Distribution Company (PHEDC) – Rivers, Cross River, Bayelsa, and Akwa Ibom States.

k. Yola Electricity Distribution Company (YEDC) – Adamawa, Borno, Taraba, and Yobe States.

Challenges, Interventions and Recommendations

Challenges

The DisCos are beleaguered with numerous challenges. The recent takeover of AEDC, BEDC, IBEDC, KEDC, KAEDC, and PHEDC by their lenders is a testament to this. Some of the challenges include the inability to meet their revenue requirements due to customer apathy in paying bills, staff assault, huge Ministries Departments and Agencies (MDA) debts, massive market and tariff shortfalls, high aggregate technical commercial & collection (ATC&C) losses, dilapidated distribution infrastructure, equipment vandalism, and the vast metering gap, etc. However, given these numerous challenges that have inundated the DisCos, have there been government support and interventions to help the DisCos improve electricity service delivery?

Interventions

Over the past years, the DisCos have benefitted from several government intervention programmes. Examples include:

• N213 Billion Nigerian Electricity Market Stabilization Funds (NEMSF)

The Central Bank of Nigeria (CBN), in 2015, earmarked the sum of Two Hundred and Thirteen Billion Nairas (N213 Billion) for disbursement to GenCos and DisCos. The facility was provided to address the shortfalls in revenue collections caused by needed escalations in the electricity tariff and legacy gas debts.

• N14 Billion National Mass Metering Programme (NMMP) Facility

The CBN, in 2021, earmarked and disbursed the sum of Fourteen Billion Nairas (N14 Billion) to the DisCos under the NMMP. The loan facility was provided at an all-in interest rate of not more than 9 per cent per annum. The loan was for the procurement of 263,860 prepaid meters to address the huge metering gap and eliminate arbitrary estimated billing. The facility was provided as a loan to the DisCos to be repaid from the DisCos’ accounts on an amortized schedule over a maximum of 10 years but not exceeding 2030.

Recommendations

No list can encapsulate all the DisCos can do to combat their many challenges. However, some solutions include promoting a cash-less policy for cash transactions, engaging in aggressive cash-drive activities, and prioritizing service delivery to their Maximum Demand (MD) customers. In addition, the provision of meters to customers would aid the DisCos’ billing and improve their collection efficiency. Furthermore, smart Metering their distribution transformers and deploying regular evaluation teams would help the DisCos curb energy theft and infrastructure vandalism. Likewise, investing in developing DisCos’ personnel, network upgrades, and rehabilitation would benefit the NESI.

Conclusion

It is common knowledge that the NESI is far from optimal. Among the players in the value chain, the distribution sub-sector is the most turbulent. Therefore, there is a need to explore the various challenges facing this sub-sector and provide long-lasting solutions to improve electricity service delivery and energy access in the country. If the DisCos and other stakeholders implement the recommendations presented above, it will go a long way in reducing their ATC&C losses and ensuring they can meet their minimum remittance obligations to the electricity market.