By Modupe Gbadeyanka
In 2020, the 11 electricity distribution (DisCos) operating in Nigeria recorded aggregate technical, commercial and collection (ATC&C) losses of 51 per cent, higher than 45 per cent in 2019.
The rise in ATC&C losses was largely due to the impact of the COVID-19 pandemic, a report by a local rating agency, Agusto & Co, stated, adding that 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.
The firm said last year, the energy companies only billed for 74 per cent of the energy received from the transmission company, lower than the 81 per cent reported in the prior year.
Billing efficiency, which has historically been impaired by a low metering rate and energy theft, with only 37 per cent of registered electricity customers metered in 2020, was severely impacted by the global health crisis, it added.
Agusto said it believes the impact of the pandemic was more visible amongst consumer groups with post-paid meters and estimated bills given that the social distancing rules and movement restrictions established to curb the spread of the virus impaired the physical billing process. Collection efficiency also fell marginally to 66 per cent from 68 per cent one year prior.
Since the privatisation exercise that commenced in 2013, the electric power industry in Nigeria has remained fraught with many of the same challenges ranging from unreflective tariffs to high loss levels, obsolete infrastructure, weak policy implementation and gas shortages. All of these have culminated in a weak and erratic power supply and dependence on self-generation by many businesses and households.
“These challenges have not only weakened the ability of operators to meet electricity demand but also threaten their financial viability, with significant implications for the fiscal health of the country.
“Despite the series of amendments to the tariff structure, cash flows from MYTO (the Multi-Year Tariff Order) have remained insufficient to fully cover the costs of electricity supplied.
“The fear of the impact of a ‘rate shock’ on consumers and the accompanying loss of political capital has prevented the effective implementation of necessary amendments that will align the MYTO’s assumptions with economic realities. Electricity has thus consistently been sold at a discount, with end-user electricity tariffs much lower than the cost of electricity supplied,” a part of the report said.
“The shortfall from unreflective tariffs has been borne in large parts by the Federal Government of Nigeria (FGN) through multiple intervention funds and payment assurance facilities from the Central Bank of Nigeria (CBN) totalling close to N2 trillion ($4.9 billion) as at the end of 2020, equivalent to c.6 per cent of CBN’s balance sheet.
“Despite this level of intervention, the generating companies had estimated receivables of over N400 billion in 2020 alone. Whilst the interventions have been central in ensuring the profitability of operators along the industry’s value chain, they remain insufficient and unsustainable,” it added.
More recently, there have been notable efforts by the primary regulator – NERC – to minimise the challenges faced by operators 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). The new tariff model as the name indicates is expected to reflect and match the quality of service received by the ultimate consumers of electricity.
Distribution companies will therefore discriminate in the application of tariffs; consumers who enjoy longer daily supply will be expected to pay higher rates and vice versa.
The SRT like other MYTO models has key estimates (and projections) for macroeconomic and industry-specific indicators including inflation, exchange rates and electricity generation.
Other company-dependent factors considered in the determination of tariffs include the amount of electricity received and the aggregate technical, commercial and collection (ATC&C) losses. Ultimately, tariff shortfalls (the difference between end-user tariffs and cost-reflective tariffs) are expected to taper off by the end of 2022, with tariffs fully reflective and sufficient to cover the cost of production, the report further said.
“Whilst a number of the assumptions align with market realities, we note that the inflation and electricity generation estimates in the SRT model are much higher than the actual entries reported for the corresponding periods.
“In our view, these disparities have the potential to impair the attainment of cost reflectiveness. Agusto believes adopting scenario analysis and modelling will provide a more robust framework to determine an appropriate tariff structure for the Industry in a dynamic macroeconomic environment such as Nigeria’s,” it said.
“In addition to the SRT, the primary regulator – the National Electricity Commission (NERC) – introduced a minimum remittance threshold for each distribution company which stipulates a mandatory payment that must be made to the bulk trader for electricity received.
“Furthermore, in February 2020, 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,” it also stated.
Concluding, Agusto said, “While operators are generally optimistic that the new tariffs and accompanying regulations would enhance efficiency and position the Industry on the trajectory towards achieving financial independence and ultimately improvements in the volume and quality of electricity supply.”
“In our view, to truly achieve the objectives of privatisation, reforms need to be accompanied by a strong and enabling regulatory environment.
“Furthermore, improved access to finance, efficiency in billing and metering as well as consistent and secure gas supply is vital to reap the benefits of privatization in the long run.
“While the journey to constant electric power supply remains far and long-winded, Agusto & Co believes the initiatives undertaken by the primary regulator – NERC– if consistently enforced have the potential to move the industry forward in the right direction,” it said.
Infibranches Raises $2m for Energy Distribution Across Nigeria
By Ashemiriogwa Emmanuel
A Nigerian-based fintech and energy startup, Infibranches Technologies Limited, has closed a total of $2 million in a seed round which will be deployed to bridge the gap of energy distribution and financial inclusion across underserved areas of the country.
The fresh funding saw the participation of investors, including an impact investment company, All On, backed by Shell Foundation to support Infibranches in diversifying its energy products to extend towards rural and peri-urban areas.
The two-year-old energy startup was founded by Mr Olusola Owoyemi with the sole aim of providing digital financial services for service providers in the energy sector, as well as its accessibility across Sub-Saharan Africa.
The firm established two products called OmniBranches and Green Energy Plug to achieve its milestone purpose which now serves as its flagship products as large distribution networks, Solar Home System (SHS) distributors, and mini-grid developers, manage their operations.
The OmniBranches leverages an active network of agents with hierarchy management, real-time reporting and reconciliation, cashout, and downline commission management, while the Green Energy Plug focuses on improving energy access by financial inclusion via accessible Application Programming Interface (APIs).
Expressing his enthusiasm at the funding, Mr Owoyemi said that so far, OmniBranches has served over a million customers, adding that the investment will focus on tackling poverty while enhancing financial inclusion.
“Through this investment, Infibranches plans to speed up customer acquisition in its current markets. This will also improve existing products like Omnibranches, which has served over a million customers and introduce new products and services to address energy distribution issues,” he disclosed.
In his contribution, the CEO of Shell Foundation, Mr Sam Parker, noted that, “The initiative’s work with Infibranches has shown how important it is to continue addressing market barriers, enabling enterprises to more quickly expand their life-changing energy solutions to households and SMEs across Nigeria.”
Noting that the partnership will bring about a new renovation into the energy sector, the CEO at All On, Mr Wiebe Boer, said, “We are particularly thrilled about this deal because it’s an innovative business model that solves the payments and collections problems that Solar Home System distributors and mini-grid developers face across Nigeria.
“This partnership merges fintech and renewables in a way we haven’t seen in Nigeria before and will enable tens of thousands of new electricity connections.”
Apprehension as Sokoto Shuts Down Telco Services
By Adedapo Adesanya
The Sokoto State Government has shut down telecommunications networks in 14 of the 23 local government areas of the state as part of the efforts to check banditry, making it the third Northwest States to do so within the last one month.
The telecommunication blackout was announced by Governor Aminu Tambuwal on Monday, September 20 in an interview with the Voice of America Hausa Service.
Mr Tambuwal said the state secured approval from the Minister of Communications and Digital Economy, Mr Isa Pantami, before enforcing the ban which kicked off on Monday.
He said the affected council areas are the most vulnerable to bandit attacks in the state and it has caused apprehension among residents of the councils.
The development in Sokoto followed that of the neighbouring Zamfara, where all parts of the state are affected; and Katsina State where 13 local government areas are affected.
Zamfara had announced its communication shut down on September 3 while Katsina followed six days after on September 9.
The governments of the two North-west states announced the suspension of telecommunications networks and banned weekly markets and sale of petrol in jerry cans, among other drastic measures to check the activities of bandits.
Mr Tambuwal said following the ban in Zamfara, bandits have intensified attacks in Sokoto. He said the measure has proved successful in Zamfara, as a result of which the bandits were fleeing from the state to Sokoto.
“Due to the ongoing military successes in Zamfara State, the bandits are fleeing to Sokoto,” the governor said.
Mr Tambuwal also explained the network ban is effective in Dange Shuni, Tambuwal, Sabon Birni, Raba, Tureta, Goronyo, Tangaza and Isa local government areas amongst others.
Isa local government area shares boundaries with Shinkafi LGA in Zamfara State, while Goronyo and Sabon Birni from west and north respectively have borders with the Republic of Niger in the east.
Mr Tambuwal said the measure was long overdue. He said the seven governors of the region had agreed on the network ban to flush out the bandits but this could not be done.
Lagos, DPR at War Over Tank Farms
By Adedapo Adesanya
The Lagos State Government has warned the Department of Petroleum Resources (DPR) from overstepping its boundaries following the agency’s re-opening of tank farms that violated seeking its physical planning approvals.
It also advised the agency to refrain from aiding unlawful acts in the state.
In a statement, the Commissioner for Physical Planning and Urban Development, Mr Idris Salako, described as worrisome the situation in which the DPR, a federal government agency, jumped the requirement for a planning permit and went ahead to issue licences to facilities whose constructions were not approved by the Lagos State Physical Planning Permit Authority (LASPPPA) and which consequently did not have stage certification or certificate of completion.
“It is even more worrisome that the state government in the bid to ensure orderly, organised and sustainable development, would seal off illegal and unapproved tank farms and filling stations while the DPR would go behind to unseal such facilities,” Mr Salako said.
The Commissioner said the Ministry of Physical Planning and Urban Development was statutorily mandated to regulate all forms of physical developments in all parts of the state.
He added that the law, being clear on the mandate, did not leave room for any conflict of interest, noting that this was buttressed by the supreme court judgment which specifically placed responsibility for physical development within the confines of a state in the state entity.
“We urge the federal government agency to desist from this untoward act and join us in encouraging promoters of these facilities to respect the law by ensuring that their structures have all necessary physical planning approvals,” he said.
On the continued existence of petroleum tank farms in Ijegun-Egba, the Commissioner said that no new approvals were being granted in the area, while the existing ones were being encouraged to cohabit with the host communities, where they were expected to exercise corporate social responsibility measures for the development of the communities.
He urged fresh applications for approval for tank farms to consider moving to the approved locations in Ibeju Lekki Local Government Area.
The DPR had last week reopened eight petroleum tank farms shut down by the Lagos State Physical Planning Permit Authority in Lagos, saying the state-owned agency lacked the constitutional backing to close the depots.
During the activity, the Zonal Operations Controller, DPR, Lagos Zone, Mr Ayorinde Cardoso, who directed the reopening of the depots in Ijegun-Egba, Satellite Town, said in a statement that the oil and gas business was a regulated environment and under the exclusive legislative list as provided by the 1999 Constitution, which exempts it from the purview of LASPPA.
Mr Cardoso also noted that sealing of the tank farms could lead to disruption in the supply of petroleum products which would eventually lead to scarcity across the country.
He listed the depots reopened by DPR as Wosbab Energy Solutions, Emadeb Energy Services Ltd., Mao Petroleum Ltd., Menj Oil Ltd., Oceanpride Energy Services Ltd., A.A. Rano Nigeria Ltd., AIPEC Oil and Gas Ltd. and First Royal Oil Ltd.
According to him, Ijegun-Egba has 13 tank farm operators which receive between 35 per cent to 40 per cent of petroleum products coming to Lagos before being transported to other areas.
Mr Cardoso said, “We were told that LASPPPA sealed the depots today (Monday) for not having their planning permits.
“We don’t believe that is the right approach because these people are providing service to the nation and if you disrupt that service, there will be fuel scarcity everywhere.
“This is why we are taking proactive action to immediately reopen the tank farms and if LASPPPA has any issues with the operators, they should come to us to see how it can be resolved.”
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