In a twist of ironic fate, the eleven electricity distribution companies, which came into being in Nigeria following the privatisation of power generation and distribution in the value chain, four years ago, appear caught up in the spell that consumed the legacy companies, and which the sale of the assets to core investors was intended to solve.
Wrapped up in a spell that refuses to go away, the problems include inadequate investments, lack of maintenance of power infrastructure, outdated power plants, low revenues, high losses, power theft and non-cost reflective tariffs. Neither do they appear to be going away anytime soon.
The most distressing of these problems, according to the DisCos is the lack of a cost reflective tariffs. This prevents them from collecting and remitting revenue to the rest of the electricity supply chain.
However, many analysts and observers of the power situation in the country, think that before DisCos can succeed in their demand for cost-reflective tariffs, they must deliver efficient services to their customers. And this, they say, the DisCos have failed to do.
Odion Omofoman, an energy expert and the chief executive officer of New Hampshire Capital Limited, told business a.m. in an interview that apart from DisCos suffering from non-cost reflective tariffs., they have not really improved on their service delivery and are still not being cost efficient enough.
He points to the fact that distribution infrastructure, including transformers and feeder lines, are not handled properly and maintained. “If a transformer serving a particular area is faulty the DisCos might not attend to the problem quickly,” he said, adding that DisCos can’t make money in those kinds of situations because, “when people don’t consume power, they won’t pay for it.”
Nigerian electricity consumers have for decades written to their monopolist power suppliers as inefficient and had looked to privatisation to provide a different mindset in service delivery especiallyly given their experiences with other private sector organisations.
In the last four years, many said there have been disappointments because they haven’t seen any difference from what they went through in the hands of the legacy companies – National Electric Power Authority (NEPA) and Power Holding Company of Nigeria (PHCN).
Analysts such as Omofoman say under such circumstances customers are bound to offer resistance and would find an increase in tariff absurd because they are not getting what they are paying for.
As if non-cost re ective tariff was not enough problem for the DisCos, they are forced to reject generated power from the country’s transmission company, Transmission Company of Nigeria (TCN) because existing distribution infrastructure is limited and obsolete.
Omofoman gave another example of some DisCos who only recently implemented a customer enumeration programme, including Ikeja Electricity Distribution Company (IKEDC), Ibadan Electricity Distribution Company (IBEDC) and Abuja Electric Distribution Company, saying this ought to have been done much, much earlier.
“Customers’ enumeration is very critical in the sense that you must know how many customers you are serving and the type of customers you are serving, in order to appropriately bill them,” he said.
It begs the question, he said, rhetorically asking: “On what basis were they charging the customers, since there are various types of customers, including low voltage customers, medium voltage customers and so on?”
The corollary of this is that it affects revenue requirements and collections, since the number and type of customers were not known in the rst instance.
Despite the fact that the DisCos were relatively inexperienced prior to taking over the distribution networks, which were in really bad shape, they still have to bear a large portion of the blame, say experts familiar with the situation.
Omofoman said that part of the problem is the inexperience of DisCos because they didn’t really understand the operations of the distribution networks.
“A lot of investors, in my view, didn’t really understand the state of the networks they were buying into and, unfortunately, didn’t try to give the right people the free hand to operate; so over time, the inexperience built up to what we are seeing today. They literally learnt on the job but at the same time, it costs them credibility,” he said.
The lack of investment into the assets acquired during privatisation is also seen as another ma- jor problem plaguing the DisCos.
Omofoman described this as another reason responsible for the huge revenue gap that the DisCos are facing, noting that without in- vestments it is going to be di cult for them to improve revenues.
One finger of blame is being pointed in the direction of government, which sold the assets to the DisCos. That blame rests on the fact that it owes DisCos a lot of money in unpaid electricity supplied to its different agencies. This huge debt is said to be affecting their ability to operate efficiently.
Besides the debt, DisCos blame the government for its inability and unwillingness to set an appropriate tariff, which would enable the DisCos to earn more revenue. For many players in the electricity space in Nigeria, this problem rests squarely in the lack of a political will by the government, which is happening as it trumps politics over economics wisdom in dealing with a matter that is purely economics.
DisCos also give this as the reason for the low level of capital funding in the distribution networks.
With government lacking the will to move on this crucial matter of tariff, the DisCos would vote to set tariffs as they see fit. Otherwise, they want the government to at least review and set the tariff to reflect current macro economic realities in the country.
Government has been thinking about this for at least three years and it is yet to make up its mind.
Tari reviews typically take place in form of minor and major reviews. The minor reviews usually take place in six month intervals, while the major review comes up every ve years. e minor reviews are supposed to re ect the macro- economic environment under which business is being done. The electricity regulatory body, Nigerian Electricity Regulatory Commission (NERC) introduced the Multi-Year Tariff Order (MYTO) framework, a framework for electricity pricing and is charged with the responsibility of reviewing the tariffs. None has been done since 2016 when the tariff was pegged at N31 per kilowatts. Some experts say maybe the macro-economic environment has not changed an awful lot to wake up NERC from its slumber. Or that it is playing politics against the common sense of economics which, as a regulator, it ought to be considering.
The electricity tariff is overdue for a review, many say and the macroeconomic factors like foreign exchange rate, inflation, and cost of financing are supposed to be factors under consideration for such a review.
“The current tariff has not been adjusted to reflect that,” Omofoman said.
According to him, when the last tariff was adjustment in 2016, the exchange rate of the naira had not moved from N305 to the dollar. It was just N197 to the dollar.
The DisCos are bearing the brunt of this huge shortfall because “the DisCos are being billed at N305 but we are being charged at N197. So there is a large shortfall,” he noted.
He stated that the tariff was due for a major review where adjustments to customers’ class would have to be made, with consideration for power generation and other factors.
People with expert knowledge in energy investment such as Omofoman believe that if all the challenges DisCos face are resolved today, they would still experience a natural shortfall.
According to him, service delivery on the DisCos’ end is the only thing that can save the sector, and in order to increase their revenue collection efficiency, the government has to provide an enabling environ- ment for DisCos to operate.
He advised DisCos to improve on their service delivery because everything relies on them, and to ensure that consumers are happy to pay the rates that are charged. He said that even if the tari is in- creased to N100 per kilowatts, people might still not pay if they don’t have power.
Solving these two critical issues would mean that 80 percent of the electricity market issues are solved, he added.
Frontpage December 4, 2017