NERC Puts Power Sector Q1 Shortfall at N112 Billion

.Plans tariff reset, assessment of Discos’ capital spend
Chineme Okafor in Abuja

The Nigerian Electricity Regulatory Commission (NERC) has put the total financial shortfall recorded by Nigeria’s electricity market within the first quarter of 2018 at N112 billion.

The NERC said in its first quarter (Q1) 2018 operational report of the sector, that out of the total sum of N163.1 billion invoice for energy the Nigerian Bulk Electricity Trading Plc (NBET) issued to the electricity distribution companies (Discos) in the market, as well as for service charged by the Market Operations (MO) department of the Transmission Company of Nigeria (TCN), only N51.2 billion representing 31.4 per cent of the invoice was settled by Discos.

It explained that this created a huge shortfall of N112 billion in the market within the period.
There are however other financial shortfalls that had built up in the past.
The quarterly report was obtained from the NERC website.
The commission also disclosed it was planning a review of the retail tariff used by the Discos to sell electricity to consumers, as well as, taking a look at how they spent the capital budgets approved for them by it so far.

“The commission has initiated a process for thorough technical assessment of Discos’ utilisation of capital expenditure allowances for relevance and cost efficiency.

“The commission is also planning a tariff reset that adequately provides for revenue requirement necessary for TCN and Discos’ optimal performance.

“Similarly, to resolve the issue related to gas supply shortage, the government has started the implementation of gas payment assurance facility for power generation to enable Gencos fulfil their payment obligations to gas suppliers,” said the commission in the report.
On the commercial performance of the industry, the NERC noted that financial illiquidity had remained the most significant challenge affecting the industry’s sustainability.

It explained that: “This serious liquidity challenge is partly attributed to non-cost-reflective tariffs, and high technical and commercial losses aggravated by consumers’ apathy to payment arising from estimated billing and poor quality of supply in most load centres.
“Out of the N171.1 billion billed to customers in the first quarter of 2018, only N106.6 billion was recovered, representing 62.3 per cent collection efficiency.
“Therefore, out of every N10 worth of electricity sold during the quarter under review, N3.8 is uncollected,” it added.

According to it: “The liquidity challenge in NESI was further reflected in the Discos’ remittances relative to NBET’s and MO’s invoices. In the first quarter of 2018, whereas Discos were issued a total invoice of N163.1 billion for energy received from NBET and for the service charge by MOs, only N51.2 billion (31.4 per cent) was settled by Discos, creating a huge shortfall of N112.0 billion.”

NERC stated that in the period under review, the total invoice issued to international customers to Nigeria’s power market, and which included Benin and Niger Republics, as well as a special customer, was N12.2 billion.

It however said no payment was received from these customers, and that the Nigerian government has continued to engage governments of the neighbouring countries to ensure payments for the electricity purchased.
In the quarter under review, NERC stated that total collapse of the electricity grid worsened and increased from one recorded in the last quarter of 2017 to six in Q1-2018.
“Five of the system collapse incidents occurred in January 2018 while one occurred in February 2018. The system collapse was attributed to lack of generation by Egbin, Olorunsogo and Omotosho power plants, among others, due to gas constraints which resulted from the breakdown in the Escravos gas pipeline.

“This incident confirms the concern that the commission expressed in the previous reports, on how sudden operational disruption in some plants could affect grid stability given the share of the industry output contributed by those plants,” it noted.

It equally said that the system collapse incidents were partly attributable to lack of adequate ancillary services which the System Operator could have used to offset the impact on the grid of the plants that suddenly shut down their operation, adding that it has started work with the TCN to procure adequate ancillary capacity that could forestall frequent system collapse.

August Inflation Predicted to Remain Unchanged
Analysts at FSDH Merchant Bank Limited have predicted that inflation rate (year-on-year) will remain unchanged at 11.14 per cent in August 2018, same rate recorded the previous month.
Although the Lagos-based firm stated that it observed moderation in prices of some food items in August, the contraction in the agriculture sector may place pressure on food prices in coming months.
The National Bureau of Statistics (NBS) will release the inflation rate for August this Friday.

The Food Price Index (FPI) of the Food and Agriculture Organisation (FAO) published in August 2018, had noted that food prices in the international market increased marginally in August from the July levels.
The prices of sugar, edible oil and dairy dropped in August compared with July while the prices of cereal and meat increased.
The depreciation of currencies in Brazil and India against the dollar resulted in the decrease in sugar prices.

However, tight export in wheat and maize forced prices up, the report stated.
“FSDH Research’s analysis indicates that the value of the naira depreciated at both the Nigerian Autonomous Foreign Exchange (NAFEX) and the parallel market at end-August 2018.
“At the NAFEX and parallel markets, the value of the naira depreciated by 0.40 per cent and 0.08 per cent to close at $/N362.65 and $/N306.15 respectively at the end of August. “The marginal increase in the international prices of food coupled with the depreciation in the value of the naira placed an upward

pressure on prices of some consumer goods in August.
“The prices of food items that FSDH Research monitored in August 2018 moved in varying directions. The movement in the prices of food items during the month led to a 1.10 per cent increase in our Food and Non-Alcoholic Index. This Index increased year-on-year by 12.76 per cent, up from 251.66 points recorded in August 2017.”

The firm also observed an increase in the prices of Transport and Housing, Water, Electricity, Gas & Other Fuels divisions between July and August 2018.
Therefore, FSDH estimated an increase in the Composite Consumer Price Index (CCPI) in August, which it stated would produce an inflation rate of 11.14 per cent, same as the figure recorded in July.