NERC: Why Discos Are Unable to Raise Money for Capital Spending

•AFG, World Bank, others target December to eliminate tariff shortfalls

•Cut under-recovery from N1.8trn to N247bn

Emmanuel Addeh

The Nigerian Electricity Regulatory Commission (NERC) said yesterday that the inability of the Distribution Companies (Discos) to approach Nigerian banks to raise funding for capital projects was partly responsible for the current inefficiency in the power sector.

Speaking during the official launch of the  Power Sector Recovery Programme (PSPR) platform, a website that would enhance interactions between the public and the key players in the sector,  NERC Chairman, Mr Sanusi Garba, also noted that initial litigations stalled the growth in the power supply industry.

He stressed that most of the books of the Discos suffered financial “impairments” because the liquidity in the sector was largely stagnant while tariffs did not grow due to court cases.

But Garba expressed the hope that with the sorting out of the bottlenecks, Nigerians will begin to see improvements in the industry which will also reflect in the supply of electricity to Nigerians.

At the official launch of the project in Abuja, Garba noted  that the government was determined to solve problems in the power sector by promoting dialogue with Nigerians on key issues.

Garba explained that the loss reduction targets by the Discos as well as the planned reduction in the Aggregate Technical, Commercial and Collection Losses (ATC&Cs) over a period of five years failed due to the challenges besetting the power distributors.

“Unfortunately, between 2013 to 2016, a number of things happened and I think all of you will agree that reform is a journey. It’s not just something you switch on. Along the journey, things happened, but particularly from NERC’s  perspective, it was the litigations in trying to deal with the minor reviews.

 “And because the commission was incapacitated from doing its main job of making a determination of tariffs based on consumption by consumers, a lot of things happened related to the financial viability of the Discos, because if tariffs remain static, and they have inflation, you have FX rates and so on changing, then obviously, you find that the distribution companies would be largely under-recover their revenues which  somehow limited  capacity to do what needed to be done.

“Because of fundamentally these two or three years of lack of reviews, we have the challenge of the financial records of the distribution companies’ recovery likely impaired, meaning that the companies are unable on the basis of their own financial records and financial performance,  raise the required capex for the much needed improvements and to deliver service,” he argued.

According to the NERC’s helmsman, this also had implications for metering, ability to reduce costs, access to funding, capacity building, among others.

He assured that the federal government was committed to ensuring an efficient electric power supply industry that will guarantee Nigerians adequate, reliable and affordable electricity with the new roadmap.

He added that the objectives of the PSRP include the power sector’s financial viability, improvement in electricity supply reliability to meet growing demand, strengthening of the sector’s institutional framework, implementation of policies that promote and encourage investors’ confidence, and institutionalisation of a contract-based electricity industry.

In his presentation, a top official at the PSRP Secretariat, Belije Madu, explained that although there had been efforts to set the sector on a strong footing in the past, a solid foundation was being laid by the current administration for the growth of the sector.

He listed the absence of a strategy to recoup funding for the sector as a major challenge in the past, but explained that there’s now a clear pathway to ensure that funding is made available.

“Tariff shortfall payment has been cut down from a historical accumulation of N1,891 billion to N247 billion in 2021, and the programme is on course for elimination by December 2022,” he said.

Madu explained that the PSRP involves a set of measures to ensure that a minimum of 4,500 megawatts of electricity is supplied to the distribution grid from this year.

The PSRP is coordinated by the office of the vice president and includes membership of officials from the ministry of finance, the World Bank among others.