Nigeria: Why It Is Difficult to Meet Nerc's N24.2 Bn Debt Deadline - DISCOs

25 October 2019

Electricity distribution companies (DISCOs) on Wednesday explained why it difficult to meet the 60-day ultimatum by the Nigerian Electricity Regulatory Commission (NERC) to settle over N24.2 billion debt to gas suppliers.

"To meet the new remittance expectations, DISCOs will have to finance an average gap of N725 million per month, about N8.7 billion per year, until increased collections bridge the gap," the DISCOs said in a statement through the Director, Research and Advocacy, Association of Nigerian Electricity Distributors, Sunday Oduntan.

The DISCOs blamed their inability to meet the 35 per cent remittance threshold specified by NERC on the liquidity crisis in the power sector, saying compliance with the NERC order will impair their obligation to their workers, as it will create labour unrest and reduce overall performance.

"Potentially, the results would be a need for significant staff reduction and associated operational failure, compromising the DISCOs' ability to distribute electricity to their customers," he said.

"To ensure compliance with NERC Remittance Order and minimize the difference between current DISCOs' remittances and the NERC specified threshold, the electricity debts owed by Ministries, Departments and Agencies (MDAs), currently in excess of N100 billion, should be taken off or be discounted off the energy bills NBET provides to the DISCOs."

In addition, ANED wants the National Assembly to intervene so that the current N600bn federal government power sector intervention goes beyond year 2020 - "to cushion the effects of tariff hikes, allow investments to be injected by both TCN and DisCos, and to mitigate shortfalls to the Generation Companies (GenCos) and gas suppliers."

Defaulting DISCOs

A fortnight ago, the electricity sector regulator accused eight DISCOs of breaching the terms and conditions of their power purchase agreements stipulated in the Electric Power Sector Reform Act (EPSRA) 2007.

The affected DISCOs include the Abuja Electricity Distribution Company Plc (AEDC), Benin Electricity Distribution Company Plc (BEDC), Enugu Electricity Distribution Company Plc (EEDC) and Ikeja Electric Plc (IE).

The others were Kaduna Electricity Distribution Company Plc (KAEDCO), Kano Electricity Distribution Company Plc (KEDCO), Port Harcourt Electricity Distribution Company Plc (PHEDC) and Yola Electricity Distribution Company Plc (YEDC).

Alleged breaches of MYTO rules

In a published advertorial, the NERC said part of the breaches were in their failure to comply with the directives in the 2016 - 2018 Minor Review of Multi Year Tariff Order (MYTO) and the Minimum Remittance Order for the Year 2019 valued at about N24.2 billion.

AEDC was accused of not remitting over N5 billion out of over N7 billion owed NBET for gas supplies, while BEDC was said to be owing over N3.6 billion out of N4.39 billion, and EEDC's indebtedness to NBET put at N112.6 million.

Also, Ikeja DISCO was accused of owing N4.42 billion out of N7.37 billion; KAEDCO (N3.42 billion out of N3.8billion); KEDCO (N2.53 billion out of N3.33 billion); PHEDC (N3.32 billion out of N3.65 billion and YEDC (N1.76 billion out of N1.95 billion).

ANED reacts

But, in a reaction in a statement on Wednesday, Mr Oduntan said meeting NERC's ultimatum will lead to redundancy in the industry.

ANED argued that while the DISCOs were expected to remit about N12.69billion (about 35 per cent) for the July 2019 billing cycle from a total N35.79billion invoice from the Nigerian Bulk Electricity Trading Plc (NBET), they were able to actually remit only N8.06billion.

With N4.63billion outstanding, ANED said the eight DISCOs performed up to 23 of the 35 per cent required for the month. Mr Oduntan said the inability of the DISCOs to meet the 35 per cent threshold specified by NERC is a direct result of the liquidity crisis in the power sector.

Besides, it said the Average Technical Commercial and Collection (ATC&C) losses have remained high due to lack of liquidity, unattractive investment terrain and customer apathy to pay bills - a product of suspicion based on estimated billing and electricity theft.

In addition, with over five decades of significant neglect of the sector, the massive investment that is required for the injection of efficiency that Nigerians desire continues to be undermined by inconsistent and uncertain policy and regulatory changes and undelivered privatization commitments, the aforementioned representing strong disincentives to investors.

"The establishment of remittance threshold is good for the Nigerian Electricity Sector Industry (NESI). However, realistic levels and timelines for DISCOs to ramp up is key for sustainable compliance."

While the DisCos said they await a cost-reflective tariff from NERC, they however said it takes time to increase the collection level.

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