Electricity distribution companies (DisCos) collect an estimated 60 percent of electricity billing, according to an operational report by the regulator, but the coronavirus pandemic has seen them collecting half of their regular collection, operators say.
This means that DisCos are losing over 70 percent of their market invoice.
Yola DisCo is reportedly the worst hit, reporting collection losses of nearly 80 percent.
“The DisCos are in a serious financial situation,” Chuks Nwani, a Lagos-based energy lawyer, said by phone.
If the DisCos are under a financial strain, it trickles down to other players in the value chain including generation companies (GenCos), gas companies, the Transmission Company of Nigeria (TCN) and the Market Operator. These operators will see a fall in their revenue because DisCos’ collections are used to pay everyone else.
Worse still, the government may continue to subsidise the sector at a time it is cash-strapped and battling to contain the spread of the novel coronavirus in Nigeria.
Nigeria’s electricity market is grossly illiquid. The 11 DisCos recorded cumulative losses of N787 billion in their 2018 financials, a 10 percent increase from the previous year.
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 in the form of various interventions to assuage a lack of market price for electricity and inefficiency of operators.
This has led to a situation where the power sector is privately owned but nationally financed.
The Federal Government has eased a lockdown on economic activities imposed five weeks ago to halt the spread of the coronavirus, but many people who have hunkered down at home all this while are prioritising their basic needs over settling electricity bill.
Under normal circumstances, many customers reluctantly settle their bills due to the threat of disconnection, but with the hardship from the lockdown, it is now worse. Inquiries show that DisCos are ramping up efforts to improve collections.
“I received a call two days ago from an agent of Ikeja Electric,” said a customer who simply identified himself as Dare. “She was courteous and politely reminded me of my outstanding electricity bill. The problem is, I don’t money.”
The bulk of collections received by DisCos are from customers on prepaid meters. However, Abdullahi Abdullazeez, spokesman of Kaduna DisCo, told BusinessDay recently that they were also witnessing increased cases of meter by-pass and so they were ramping monitoring.
Nwani said the Nigerian Bulk Electricity Trading Company (NBET) and the market operator would need to factor this fall in revenue arising from the pandemic when they make a request for debt settlement.
With the increasing impact of rising foreign exchange on operating cost, as well as anticipated gas shortage (as the bulk of the commodity used in energy generation is associated gas which will fall as low oil prices drive down demand and production), the pandemic will leave the sector in worse shape.
Funke Osibodu, CEO of Benin Electricity Distribution Company, said DisCos have seen supply disruption, rising cost due to exchange rate volatility and loss of revenue due to the coronavirus.
“Our costs have gone up but revenue has gone down, as our industrial and commercial customers have been hard hit leading to fall in demand,” Osibodu said in a recent webinar organised by PwC Nigeria.
Analysts say it is time for the regulator to redesign the electricity market so that the energy sector can become an enabler for the economy. This can be done by recapitalising the DisCos to allow the involvement of GenCos, state governments and banks in the ownership of DisCos.
There is also need to fix governance at the public and private aspects of the power sector and the regulator needs to be proactive in fixing the market, said Eyo Ekpo, director, New Frontiers Limited and a former commissioner, Nigerian Electricity Regulatory Commission (NERC).
Osibodu said that DisCos are trying to ramp collection through the application of more technology tools in their collection. But without fully metering customers, such efforts provide little relief. DisCos have only metered 60 percent of their customers six years after privatisation.
The absence of governance and functional electricity market has shut out the power sector from access to private equity funds, including the pension funds.
A functional market allows operators to generate returns on their investments but Nigeria’s electricity market does not even guarantee recovery of invested funds.
Experts say the government should stop selling power as social service and the regulator must ensure that operators play by market rules and respect contracts.
Osibodu said that DisCos are trying to ramp collection through the application of more technology tools in their collection. But without fully metering customers, such efforts provide little relief.
DisCos have only metered 60 percent of their customers six years after privatisation.
