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ATC&C Losses of 11 DisCos Leap to 51%—Agusto

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ATC&C Losses

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.

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

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Apprehension Over AMCON MD’s Visit to EFCC

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AMCON Ahmed Kuru

By Aduragbemi Omiyale

The visit of the Managing Director of Assets Management Company of Nigeria (AMCON), Mr Ahmed Kuru, to the office of the Economic and Financial Crimes Commission (EFCC) is already causing apprehension.

Mr Kuru was reportedly grilled by the anti-graft agency on Wednesday after he was invited by the organisation for questioning.

Already, it is being speculated that his ordeal with the EFCC may be connected with the plans by AMCON to name and shame chronic debtors, who took loans from commercial banks but refused to repay as promised.

Yesterday, the AMCON MD was grilled by the agency over allegations bordering on the diversion of assets and the sale of the properties to his associates at ridiculous prices.

According to reports, Mr Kuru allegedly sold properties valued at billions of naira belonging to Atlantic to another despite a court case on the assets.

Atlantic was accused of loan default with Skye Bank and the properties in collateral were seized and allegedly sold below the prevailing market value while the action was instituted in court.

Amid these accusations, the EFCC is yet to comment at the time of filing this report.

AMCON is an agency set up by the federal government to acquire all toxic loans of commercial banks, with the aim of recovering them.

In November 2021, the agency submitted a list containing its top 1,000 obligors owing N4.4 trillion to the National Assembly.

Mr Kuru had said with the support of the parliament and the Judiciary, recovering the total current exposure on all Eligible Bank Asset (EBAs), which stands at N4.4 trillion, may be possible before the sunset period.

He had lamented that more recently, due to the socio-economic downturn, the market values of assets have significantly reduced, lower than the valuation at the point of EBAs purchase, making it extremely difficult to consummate sales transactions.

“To enable AMCON to succeed in its national call to duty, AMCON solicits the continued support of this Distinguished Committee. The Judiciary must be encouraged to respect the provisions of the law that require them to fast-track cases before them, issue certificates of judgement on properties, which the Corporation has no collateral and demand debtors to deposit Judgment sum before proceeding to appeal any judgement,” he had stated.

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NSCDC Denies Operating Illegal Oil Bunkering Site

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Illegal Oil Bunkering Site

By Adedapo Adesanya

The Nigerian Security and Civil Defence Corps (NSCDC) has debunked the rumour that its marine exhibits yard in Ogbogoro jetty, Obio/Akpor Local Government Area of Rivers State, was an illegal oil bunkering site.

This was made known by the Rivers State Commandant of NSCDC, Mr Aliyu Bature, who explained that the Ogbogoro jetty has remained its marine exhibits yard for over 10 years.

He added that every marine exhibit like boats, vessels, barges drums, arrested by or handed over to the Corps by sister agencies for oil theft are usually detained at the yard, pending investigation and court prosecution.

This follows claims made by Obio/Akpor LGA Chairman, Mr George Ariolu, that the NSCDC marine exhibits yard in Ogbogoro was being used for illegal bunkering activities.

In the reaction to the allegation, Mr Bature disclosed that the NSCDC Commandant General, Mr Abubakar Audi, in December 2021 visited the said yard, maintaining that it was a known fact that the yard has been the Corps’ marine exhibits yard.

The agency said some of the exhibits, including 220 drums of AGO and eight Cotonou boats in the yard were seized by the Nigerian Navy and handed over to the NSCDC last week, while other vessels were taken by operatives of the Corps.

He disclosed that the agency has got an intelligence report that hoodlums were planning to attack the yard, by setting it ablaze in order to destroy the exhibits, assuring that such plans will be strongly resisted.

“This place is our marine exhibits yard and not an illegal dump. Most of the exhibits here were arrested by the Navy and handed over to us, while some of the arrests too were made by us.

“The commandant general was here in December and he’s aware that this place is our exhibits yard.

“The Commandant General has deployed personnel to ensure the place is secured, Ogbogoro jetty is a no-go area for anybody because destroying this place means destroying the exhibits to prove that these products were all stolen.

“We had it on good authority that hoodlums were planning to attack this place in order to destroy the exhibits and we will not allow that,” the statement said.

The NSCDC also urged members of the public to report any personnel of the organisation who is involved in the business of aiding and abetting oil theft, illegal bunkering and vandalism, warning that the agency will not hesitate to show such person the way out.

“If any of our personnel is caught, please report the person to us and we will discipline the person accordingly.

“The NSCDC leadership does not in any way condone acts of indiscipline. We are charged to protect critical national assets and if any of our personnel is involved, we will not take it likely.

“That is why those who were in charge of the anti-vandal unit have been disbanded, and are being investigated currently by the committee set up by the Commandant General,” the statement said.

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Senate Re-amends Electoral Bill, Okays Direct, Indirect, Consensus Primaries

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Senate President Ahmad Lawan

By Modupe Gbadeyanka

The Electoral Act (Amendment) Bill, 2021, which passed by the National Assembly on November 18, 2021, and sent to President Muhammadu Buhari for assent but was rejected, has been re-amended.

The President declined assent to the bill because the parliament inserted a clause that makes it mandatory for political parties to elect candidates for elections only through direct primaries.

On Wednesday, the Senate adjusted this clause and approved direct, indirect primaries or consensus as to the procedure for the nomination of candidates by political parties for the various elective positions.

The upper chamber of the legislative arm of government, in a statement signed by Mr Ezrel Tabiowo, the Special Assistant on Press to Senate President, Mr Ahmad Lawan, said the recommended Clause 84(3) was also approved.

The section stated that “a political party that adopts the direct primaries procedure shall ensure that all aspirants are given equal opportunity of being voted for by members of the party.”

Clause 84(4) further provides that “a political party that adopts the system of indirect primaries for the choice of its candidate shall adopt the procedure outlined below; (a) In the case of nominations to the position of Presidential candidate, a political party shall, (i) hold special conventions in each of the 36 states of the federation and FCT, where delegates shall vote for each of the aspirants at designated centres in each State Capital on specified dates.”

The clause provides that a National Convention shall be held for the ratification of the candidate with the highest number of votes.

The amendment followed a motion for its re-commital to the Committee of the Whole, which was sponsored by the Senate Leader, Mr Yahaya Abdullahi.

In his presentation, the lawmaker noted that the rationale for Mr Buhari withholding assent bordered on his observation in Clause 84.

President Buhari in the letter dated December 13, 2021, and addressed to Mr Lawan had explained that his decision to withhold assent to the electoral bill was informed by advice from relevant Ministries, Departments and Agencies of Government after a thorough review.

According to the President, signing the bill into law would have serious adverse legal, financial, economic and security consequences on the country, particularly in view of Nigeria’s peculiarities.

He added that it would also impact negatively on the rights of citizens to participate in government as constitutionally ensured.

Mr Abdullahi, however, explained that the motion for re-commital of the bill to the Committee on the Whole was against the backdrop of the “need to address the observation by Mr President C-in-C and make necessary amendment in accordance with Order 87(c) of the Senate Standing Orders, 2022 (as amended); and relying on order 1(b) and 52(6) of the Senate Standing Orders, 2022 (as amended).”

Accordingly, the chamber rescinded its decision on the affected clause of the bill as passed and recommitted same to the Committee of the Whole for consideration and passage.

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