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NEPI: Power value chain risks bill collection deficit

FACTORS

 

Agusto & Co lists several factors including the ‘no disconnection’ measure implemented by the DisCos during the Covid-19 lockdown period to be responsible for poor collecting

 

The entire power value chain will suffer major slowdown in bill collection this year. The Nigerian Electric Power Industry (‘NEPI’) Report, released by Agusto and Co at the weekend, noted that the distribution companies (DisCos) would be the first to suffer this deficit.

 

“Agusto & Co expects a decline in collections in year 2020 given the significant slowdown in the economy following the outbreak of the coronavirus (Covid-19) pandemic with the attendant lock-down order imposed by the Federal Government on economic activities in H1’2020,” the report read. “Our pessimism for DisCos’ collections is based on several factors (outlined in the report) including the ‘no disconnection’ measure implemented by the DisCos during the  Covid-19 lockdown period.

 

We believe that the ‘no disconnection’ stance will affect internally generated revenues such as disconnection and reconnection fees. “From the time of the Nigerian Electric Power Industry (NEPI’s) privatisation exercise in 2013 till date, the Industry, the Agusto report read, “has remained constrained by insufficient revenues, weak cash flows, high leverage and low liquidity due largely to unreflective tariffs and low generating capacity. While electricity demand is estimated at 25,790 megawatts (MW), the highest power generation has stagnated at about 5,375MW.”

 

The report continued: “Unreflective tariffs also impede the ability of the Industry operators to generate sufficient cash flows and heighten the liquidity challenges in NEPI. “As a result, the Nigerian Electricity Regulatory Commission (NERC) has introduced several policies to curb some of these fundamental limitations such as the Meter Asset Provider (MAP) regulation which is a means to liberalise the distribution market while resolving the challenges surrounding estimated billing and collections.

 

“However, while NEPI’s end consumer rate is growing at an average rate of 75,000 new customers every month, metering penetration has decreased from about 45.3% in January 2017 down to 40.6% in December 2019. Inadequate metering and limited technology in remote meter monitoring continue to contribute to the DisCos’ high loss levels.”

 

Moreover, NERC, the report added, “has commenced the enforcement of the minimum remittance order (which stipulates the  minimum remittance obligation for a DisCo having adjusted for tariff shortfall).

 

“This order is expected to end the erstwhile discretionary remittance regime by DisCos and should constrain the DisCos’ earnings in the short term. Low remittance has adversely affected the ability of Nigerian Bulk Electricity Trading Plc (NBET) to honour its financial obligations to the GenCos as well as constrained the ability of other service providers such as NERC to perform their statutory obligations.

 

“Nevertheless, NEPI’s strengths include assured electricity power demand with Nigeria’s growing population, operators’ access to several intervention funds such as the Nigerian Electricity Market Stabilisation Facility (NEMSF), the Power and Airline Intervention Fund (PAIF) and the Payment Assurance Facility (PAF). “The Nigerian Government’s financial support provided through energy programmes of the Central Bank of Nigeria (CBN) was estimated at N1.1 trillion as at December 2018.

 

The Nigerian government also supports NEPI through the implementation of favourable policies such as the power sector recovery plan. “In addition, Nigeria is blessed with abundant gas reserves, the largest gas deposits in Africa estimated at 201 trillion cubic feet (TCF) together with about 600 trillion cubic feet unproven gas reserves.

 

The abundance of gas reserves if adequately explored should provide a sustainable pathway to electricity generation in the long term and reduce the level of repressed and unmet electricity power demand in the country.”

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