Power Sector Revenue Shortfall Now N809bn

• Debt to NIPPs now N105bn, Discos monthly shortfall is N38bn
•Banks reportedly shying away from lending to sector
Chineme Okafor in Abuja
The total financial shortfall of Nigeria’s electricity market has reached N809 billion and may add up by the end of 2016, operators in the market yesterday disclosed.

The Managing Director of the Niger Delta Power Holding Company (NDPHC), Chiedu Ugbo, and Executive Director of the Association of Nigeria’s Electricity Distributors (ANED), Azu Obiaya, said the country’s electricity sector is currently under a very serious liquidity crisis that could undermine its progress.

Ugbo and Obiaya spoke at the October edition of the Nextier Power Dialogue in Abuja. They explained that the sector was in a dire straits and needs urgent policy intervention.

Obiaya who spoke from the Discos perspective, stated that the combination of regulatory decisions taken by the Nigerian Electricity Regulatory Commission (NERC) on the deployment of a cost reflective tariff, huge debts owed by government agencies as well as customers’ push-back on the electricity tariff have contributed to the huge shortfalls recorded by the market.

He said the Discos now record an average monthly shortfall of N38 billion, while debt owed by the government for energy supplied to its ministries and departments had as at July 2016 increased to N53 billion.

According to him, the revenue shortfalls of the Discos could reach N309 billion by the end of 2016, and that high demand customers like the Manufacturers Association of Nigeria (MAN) do not pay bills based on the MYTO 2015 model.

He stated that the current situation of poor revenue collection due to prevalent payment defaults has been encouraged by Nigeria’s indecision on what economic philosophy it wants to adopt for the power sector, adding that the sector has continued to run on a tariff that is not cost reflective.
Obiaya also stated that with the current market situation, banks have been reluctant to lend funds to Discos for capital injection.

“From the period of November 1 to December 2014, MYTO 2.0 was not cost reflective and as a result of that we have a revenue shortfall of N298 billion as at December 2014.
“There has to be a boundary between economic efficiency and social welfare, either we elect as a government to be socialist or a capitalist,” he added.

ObiayaHe explained that the decision of NERC to freeze a class of consumers tariff in 2015, cancel collection losses amongst other regulatory decisions and the country’s economic challenges have also compounded the situation.

Speaking on the financial and operational challenges of the NDPHC in its eight power stations that generate and transmit about 1700 megawatts (MW) of electricity into the national grid, Ugbo said their challenges are quite similar to what other generation companies experience, and that up to N105.235 billion is owed to the NIPPs so far by the market as unpaid cost of energy supplied.

“Since Olorunsogo which was the very first to come into the grid in January 2011 to August 2016, the total energy invoiced by the eight operational power plants amounted to N235 billion, out of that about 55.3 per cent of the invoice is what has been paid because at the initial stage before the interim period we were getting significant payments and after the interim period, there was also significant payment by the Discos,” Ugbo said.

He gave a breakdown of the company’s transaction with the market, saying: “So, we have about 44.7 per cent total in debt. We got a tiny percentage from the CBN intervention – N8 billion, that is why the oustanding debt is a bit reduced. But as I speak today, as at August which was the last invoice, we were owed by the market about N105 billion, and it is not imaginary but based on the invoice as settled by the entity saddled with the responsibility to do that and that is the Market Operator.

“The Market Operator settlement process shows we are owed N105.235 billion as at today. Just to take us back to history, in 2011, we invoiced N8.2 billion; in 2012, we invoiced N21.9 billion; 2013 – N46.9 billion; 2014 – N51.3 billion; 2015 – N62.4 billion and 2016 – N44.6 billion, and that is the total of N235.4 billion.

“Of these invoices, in 2011, we got 39 per cent, 2012 we got 26 per cent, 2013 we got 62 per cent, 2014 we got 72 per cent of the invoice, 2015 we got 62 and 38 per cents in 2016. It keeps going down in 2016, and for the June invoice, we got about 18.5 per cent and 19 per cent in July.”

Ugbo further said: “Very soon, we might run out of money and that means that about 500 people will not have jobs. For the legacy period, we received about N30.58 billion, for the interim rule period, w3 received N15 billion and for the Transitional Electricity Market period, we received N59 billion.

“When you compare this to our operational expenses, you will see that we are already in trouble. From the collections, our gas bill in January and February N3.8 billion, March was N3.4 billion. There is no month we have a gas bill less that N2.4 billion. The total we owe for gas now is about N42.207 billion.”

He said the liquidity affects the NDPHC such that it is not able to fully utilise its available generation capacities because of the lack of gas.
The managing director of the NDPHC also said because of the challenges, the company records significant plant idle time at their locations.

“We have low productivity and inability to meet obligations. This company is owned by the three tiers of government and they have made investments and should expect returns on their investments but we are yet to post any returns to the governments because of the lack of liquidity in the sector. As a going concern, this is challenging us. Are we able to continue to do business in the sector?” he askeds.