There are three challenges that have sustained the liquidity crisis and constrain new investments in the Nigeria Electricity Supply Industry ( NESI). These are the monopsony of the Nigerian Bulk Electricity trading company, the subsidy regime and the consumers distrust of the electricity market.
The Nigerian Bulk Electricity Trading (NBET) Plc. was established to increase Genco investor confidence in the NESI by shielding the Gencos – and by extension, shielding the natural gas producers – from the significant Aggregate Technical Commercial and Collection (ATC&C) losses at the retail end of industry.
However, NBET has been unable to shield Gencos and gas producers from the liquidity crisis. In the first half of 2019, NBET, on its own, met only 21per cent of its USD 914 million obligation to GenCos. Not only has NBET’s task proved undoable and unsustainable, it has also created an inhibitive and unproductive monopsony at the wholesale end of the NESI.
According to Fadekunayo Adeniyi of Centre for Development Environment and policy, SOAS,University of London, while making case for a parallel Electricity Market in Nigeria said NBET’s monopsony prevents competition and stifles productivity in the wholesale market. Gencos are unable to supply electricity to willing credit-worthy buyers through the national grid because the existing regulatory regime does not support it.
The current regulatory regime requires all on-grid electricity trade to occur through NBET. However, NBET does not have the fiscal capacity to facilitate all wholesale electricity trading because of the unsustainable (ATC&C) losses and non-cost reflective retail tariff.
He said breaking NBET’s monopsony through the introduction of the parallel electricity market (PEM) will help to relieve NBET of its fiscal burden and pave the way for cost-reflective electricity trading to occur directly between Gencos and willing credit-worthy consumers.
Another of the challenges is the provision electricity subsidies to ease the burden of energy bills on vulnerable consumers which is a necessary and moral responsibility of the state. However, it must be done efficiently.
The current electricity regime sustains a retail cross subsidy, which rightly attempts to ease the burden on consumers, who consume lower quantities of electricity than others. However, the current non cost reflective electricity tariff regime, which is effectively an electricity subsidy, is inefficient because it subsidises the entire market, including those credit-worthy consumers who are
not only capable of paying a cost reflective tariff, but are often willing.
The current regime prevents Discos from selling electricity to consumers at a cost-reflective tariff, preventing the Discos from reaching their required revenue targets and causing a liquidity crisis across the entire value chain in the NESI.
While the Discos also have their own billing and collection inefficiencies, the non-cost reflective retail tariff remains one of the sector’s most critical issues. It not only prevents Discos from reaching their revenue targets, it also restricts the Discos capacity to deploy the investments required to reduce other ATC and C losses.
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In the first quarter of 2019, the wholesale market shortfall (Disco remittance shortfall) generated in the NESI stood at NGN 137.3 billion. Of that total, the non-cost reflective tariff was responsible for about NGN 67 billion (48.8%) of the wholesale market shortfall.
Instituting sector-wide cost reflective tariffs is a critical part of the solution to the liquidity crisis. The introduction of the PEM regime would move willing credit worthy consumers into a parallel electricity market, where they will pay above-cost prices.
In addition to the issues above, billing and collection losses in the industry he said are major problems that sustain the liquidity crisis . He said the Discos sometimes attempt to solve this by using estimated billing systems, which unfairly charge paying consumers for electricity theft and unpaid electricity bills caused by others consumers
“Despite this unfair practice, Discos still do not meet consumers’ expectations of electricity supply. In turn, this causes consumer apathy and energy theft, leading to lower collection rates and commercial losses. This circular causal loop is, paradoxically, a cause and effect of a lack of sufficient trust between the NESI operators and consumers”, he said.
The proposed PEM can be used to improve trust between NESI operators and consumers. The
revenue generated from the proposed PEM will ease the liquidity crisis, and can be used to improve
critical parts of the grid infrastructure that will help solve some of the problems in the NESI incrementally.
As liquidity improves, so too should investment, performance, and consumer trust. The PEM will also provide a useful demonstration effect as consumer trust may increase if evidence of reliable supply to PEM consumers in the parallel market is observed.
