The power sector reforms is yielding more cash than electricity for the prospective distribution companies and other allied businesses as Nigerians continue to pay more for less power supply lately.
The hope of getting improved power supply has remained a forlorn hope for most Nigerians.
The irony, however, is that the reforms in the power sector seem to be improving the financial fortunes of the sector as shown in the 78.16 percent year-on-year growth in its contribution to GDP, but supply has not materially improved for many Nigerians.
Electric power reform commonly refers to changes in ownership and structure of an electricity system, with the purpose of introducing private ownership and competition.
Expectedly, discussions over how to implement these reforms have focused on improving the technological and financial performance of the sector.
A latest report by the National Bureau of Statistics (NBS) bears eloquent testimony to the growing increase in expenditures and energy cost.
Specifically, the NBS disclosed that Nigerians including companies, and government agencies paid a total of N828 billion for electricity in 2022 alone.
The amount represents a 8.79 percent increase when compared to N761.1 billion paid in 2021.
NBS disclosed this in its latest electricity report published on its website last Tuesday.
A cursory view of the monthly breakdown from the report showed that the electricity payment in January was N68.28 billion, and in February, it was N68.33 billion.
For March was N68.11 billion, for April it was N62.73 billion, for May it was N64.82 billion, for June it was N60.85 billion, and for July it was N62.61 billion respectively.
The payment for August, September, and October stood at N69.42 billion, N70.58 billion, and N70.67 billion, respectively, while in November and December, the payment was N77.35 billion and N84.28 billion, respectively.
In terms of electricity company share of revenue, the report reveals that in the third and fourth quarter of 2022 Ikeja Electricity Distribution Company customers paid the highest.
NBS noted that the Ikeja DisCo generated N40.5 billion and N45.62 billion in the third and fourth quarters of 2022, respectively.
Also, NBS revealed that the number of electricity customers in Nigeria increased from 10.93 million in the third quarter to 11.05 million in the fourth quarter.
Ibadan DisCo recorded the highest number of electricity customers, showing an increase from 2.17 million in the third quarter to 2.22 million in the fourth quarter of 2022.
Benin DisCo also recorded fewer electricity customers in the fourth quarter than it did in Q3 2022.
It had 1.25 million customers in the third quarter of 2022, and had 1.18 million customers in the fourth quarter of 2022.
On the highest number of electricity customers, Ikeja DisCo came fourth behind Ibadan, Abuja, and Enugu DisCos in the third and fourth quarters of 2022.
When compared with the previous quarter, the sector recorded a growth of 264.23 percent to a real aggregate of N134.19 billion in Q2’2021, as opposed to N36.84 billion recorded in Q1’2021 21.
How reforms boost power sector revenue
Analysts say recent reforms to improve cash returns including hiking tariff and ramping meter supply are having some impact in the revenue trajectory of the sector.
Several factors contributed to the significant growth recently recorded in the Nigeria’s electricity sector, particularly, the implementation of the service reflective tariffs (MYTO 2020), the intervention by the Central Bank of Nigeria, and the implementation of the National Mass Metering Programme.
Analysts said these interventions became effective around Q3/Q4 2020, and that the cumulative effect came to the fore in the Q2’of 2021 in terms of the year-on-year growth numbers.
The expectation is that there will continue to be increased revenues from the DisCos, especially if the NMMP implementation continues to progress as scheduled.
However, Nigeria’s power generation has continued to hover below 4,000mw despite a 13,000mw output. The creaking grid has collapsed either partially or totally four times this year, largely due to dearth of spinning reserves – an excess capacity meant to compensate for shortages.
The net effect of this is that electricity supply is improving in areas where collections are growing. In other areas, operators are not making investment to improve their network. In Nigeria’s rural communities, power cuts last for months and even in major cities like Lagos, areas like Festac, Ajah, Ejigbo and others, are poorly served. This paralyses economic activities in these areas.
Thus, the unprecedented growth recently recorded by the sector has not necessarily translated to increased supply of electricity.
The Nigerian Electricity Regulatory Commission (NERC), the industry regulator, has introduced market reforms including raising tariffs, demanding network improvement to minimise the challenges faced by operators and customers in the industry.
“In particular, tariffs have been raised to near cost reflective levels and adjusted to match consumption via an initiative dubbed Service Reflective Tariffs (SRT),” according to analysts at Augusto in a briefing note.
The analysts say the new tariff model introduced last year as the name indicates is expected to reflect and match the quality of service received by the ultimate consumers of electricity.
“Electricity distribution in Nigeria remains plagued by high technical, operational and commercial inefficiencies,” they noted.
The aggregate technical, commercial and collection (ATC&C) losses for the 11 Discos rose to 51 percent in 2020 from 45 percent in 2019.
“This high loss level remains one of the many reasons for the kickback from electricity consumers on tariff increases, especially in the absence of a significant and immediate improvement in power supply,” they say.
The NERC has also introduced a minimum remittance threshold for each DisCco, which stipulates a mandatory payment that must be made to the bulk trader for electricity received.
It may be recalled that the NERC introduced guidelines for ‘Merit Order Dispatching,’ which involves ranking electricity generation and dispatch by the Transmission Company of Nigeria (TCN) in ascending order of costs with the cheapest electricity – such as those from Hydro plants with no fuel cost component – ahead of more expensive plants.
The order also provides guidelines on the alignment of invoicing for capacity charge and energy delivered as well as a framework for the settlement of any imbalance between DisCos and TCN.
The Merit Dispatching Order should eliminate the shift of responsibility for load rejection prevalent between DisCos and the TCN, and improve the technical and operational efficiencies of these operators.
Analysts say, when this is done, the case of the 2,000mw of stranded power will be eliminated.
In other reforms, in August 2020, the Central Bank of Nigeria issued a circular that all deposit money banks were expected to warehouse and manage collection inflows from all DisCos, (including the collection agents of these DisCos) under specific guidelines as contained in the document.
“The objective of this ‘ring fencing’ is to secure cash collected from the DisCos and ensure that these distribution companies meet their mandatory obligations,” the analysts at Augusto & Co, say.
Apart from these reforms, the CBN invested about N2 trillion as at the end of 2020, equivalent to about 6 percent of CBN’s balance sheet.
“Despite this level of intervention, the generating companies had estimated receivables of over N400 billion in 2020 alone. While the interventions have been central in ensuring the profitability of operators along the industry’s value chain, they remain insufficient and unsustainable,” says Augusto & Co.
Power generation companies still get around 30 percent of their market invoice settled each month, a sore point in the troubled sector.
“The main source of electricity generation comes from fossil fuels especially gas which accounts for 86% of the capacity in Nigeria with the remainder generated from hydropower sources.”
Power generation in Nigeria is mainly from hydro and gas-fired thermal power plants, with the hydro plants providing 2,0l 62MW and the gas-fired 11,972MW.
Solar, wind, and other sources such as diesel and Heavy Fuel Oil (HFO) constitute the remainder with 2,350MW.
Successive and past governments not doing enough
In a related development business mogul and chairman of Geregu Power, Femi Otedola, has ridiculed past and present Nigerian governments for failing to increase Nigeria’s power generating capacity.
Otedola said since he was born, Nigeria has been stuck at 5,000 megawatts, but only Aliko Dangote, the founder of Dangote Cement, has managed to build 2,000 megawatts of power for his cement plant.
He made this known recently during the closing gong ceremony hosted by the Nigerian Exchange Limited (NGX) in Lagos.
Otedola, who is also the largest shareholder of First Bank Nigeria (FBN), said the power sector of Nigeria has a lot of problems which could be solved depending on the country’s leadership.
Under the administrations of President Muhammadu Buhari and Goodluck Jonathan, Nigeria’s power grid collapsed at least 220 times. This is between 2010 and 2022.
Last year, the grid collapsed six times in 10 months, with the country’s power generation fluctuating between 4,000 megawatts and 5,000 megawatts, with the highest level being 5,801.6MW on March 1, 2021.
“The power sector has a lot of problems but they are surmountable problems. It is a matter of leadership in the country and willpower,” Otedola stated.
Otedola said it was appalling and disheartening that all the successive governments had failed to improve the deplorable electricity supply.
According to the investor, new plants built by the government eight to 10 years ago are still sitting idly.
He also stated: “So any government that thinks well will say let us look for few entrepreneurs in this sector that have committed so much capital and time and let them sort out the problem.”
Otedola said he now feels the pain of poor power supply, as he had to install solar power in his power generating company to reduce costs.
“Of course, with Forte and Zenon, I used to control the diesel market. Today, I am crying. I have asked my team (my back office) to start installing solar power to save the cost of diesel. If power is well organised, it is even cheaper,” Otedola said.
It is also instructive to note that one of the sore points that is a snag to the quest for stable power supply is the issue of collapse of the national grid.
From available information, Nigeria’s national electricity grid has collapsed many times over the years, resulting in blackouts throughout the country. The blackouts, which prevent people from meeting routine business and household needs, result in huge economic and social costs.
Power outages have remained a problem in Nigeria for decades, hindering the country’s industrial growth, expansion, profitability and the people’s wellbeing. At best, the average daily power supply is estimated at four hours. Most of the time, days go by without any power supply.
There are also health risks from the emissions of inefficient petrol generators which are widely used in Nigeria.
One of the major problems hindering the performance of electricity distribution in Nigeria is load rejection. Load rejection occurs when the distribution companies reject electricity transmitted by the transmission companies.
The rejection is partly due to the poor state of the transmission and distribution network and faulty power lines.
Light at the end of the tunnel
In view of some experts, opportunities, however, remain in the sector for the introduction of renewable energy sources into the generation mix, seeing that the country has potential for solar power generation and other renewable energy sources, just as they argued that the country should also introduce more competition into the sector to improve performance.
Pray, will Nigerians ever be self-sufficient in the area of electricity generations?
Time, will tell.
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