Guest of the week

Discos losing billions monthly to theft, difficult customers — IBEDC MD

Managing Director, Ibadan Electricity Distribution Company (IBEDC) Mr. James Donnachie speaks in this exclusive interview recently with the Publisher/Editor-in-Chief Dr SAMUEL IBIYEMI on the challenges of theft, nonpayment for electricity by difficult customers and absence of cost reflective tariff. He also highlights the achievements of IBEDC in the area of electricity meters’ installation, systems upgrade and proffers solutions to inadequate electricity supply. Excerpts

What is your update on metering of customers?

We are supposed to provide about 150,000 meters a year but in 2013, we did about 24,000.And by the end of last year, we had installed over 144,000 meters.

 In 2015, we did not do much but in 2016, we were a lot more successful. What happened last year? And why is it so little? We have never had a good and cost reflective tariff to recover money being invested as capital expenditure. This business has always been negative.

Our tariff has always lagged behind the cost of investment.  According to what we recorded, our bill for the month of December was N5.439 billion but what we were able to collect N3.834 billion we were short of N1.605 billion. So, if you think of N1.6 billion in our book, of course we have to run with expenses.  During the year 2016 we billed customers N64.447 billion and were able to collect N39.872 billion. In 2016 alone, we were short of N24.575 billion we were N3.5 billion short of the expected revenue.  How can we find money in this case as investment in provision of meters when we have the size of revenue loss in a year?

What are the problems responsible for the huge loss?

Straightaway, we have a major problem which is foreign exchange rate (FOREX). This has increased from N198 per Dollar to over N305 in the official market. I can promise you now that you can’t buy One Dollar at the official rate except the black market and that is N500. So, we are spending more than double the price of anything and everything is driven by the Forex market in this industry.

Natural gas is supplied to the generating companies in dollars. The hydropower is sold in dollars and even the water generated is charged in dollars. So, the Forex is a major influence on our ability to buy meters. The other factor which is even bigger than FOREX is generation. We have not been able to receive what they promised to give us from generation. In other words, if I can’t give you anything to sell, how can I sell it?

We need to get an average power of 900 mega watts (mw) but we got 235mw. We are way below what we need to sell. So, our customers continue to complain about the darkness, however, but if I don’t get power, I can’t sell it. And that is a single major issue. So, you see how little   is the value of energy that we are receiving and this is a big problem. If the gas power generating stations can’t generate, they can’t blame DISCOs for not selling. It is a major problem.

Specifically, what is the solution to the metering problem?

In order to answer the question on metering, we have been able to identify revenue as a challenge to our capital expenditure (CAPEX) which is in FOREX. Last year, we had a more successful year. This year we plan to have higher capital expenditure, although it all depends on finance availability. We are  currently  involved in the process of installing  49,000 meters  if we are able to source FOREX  needed and funds to be able to finance the liquidity issue of the industry.

The customers owed us N24 billion which they paid us short last year. For instance, members of   Manufacturers are owing N1.979 billion. If this debt is paid, this would help us to buy meters. Remember that meters is not the only problem.

  If you add this challenge to our inability to get all the FOREX, you will see that we have been losing money  every single month because we can’t collect the tariff. If you want to buy something to sell, how would you profit from it? If you bought something for N10, would you sell it for N5.

At least I have to sell at N12?

Exactly. But I can’t do it because legally I am bound by NERC to. We talked about that under the 2017 expectation. In December 2016, we billed N5.4 billion to the customers but collected N3.85 billion. So, you can see how low that is. The bill we get from NEMSA and NIBET is N5.6 billion so my bill that I get from them is higher than what I can charge. And until we can fix that, it remains a big problem. We are not trying to fight nor blame anybody but the industry is not in a good position.

The DISCOs cannot fund the problem of FOREX on behalf of government neither can we do that on behalf of customers but you can only get your money from two places: government and customers.

The customer does not want to pay, he doesn’t understand the total cost of electricity.  Most of them are upset with us because of power inconsistency and quality.  Nobody wants to lend me money to buy meters.

Was there no feasibility study on the business?

Remember, it was stated clearly we will do AT & T losses and NERC will also give us a fair tariff. We will make money and be cost reflective. For political reasons, there was a freeze in 2015 and who has to pay that but us? It was not our decision. Is that my fault? The minister of Power is looking at 2016 and 2015 but not talking of 2013 and 2014. They owe us over N100 billion. How do I collect that money? I am not trying to point fingers but facts. We need a solution and support from government and the World Bank. The problem has been there since 2013 and has gotten bigger without it being fixed. We are just talking. So, we over invested but we have overspent. We over delivered in naira but under delivered in numbers.

The generation and FOREX are big issues creating the liquidity challenge in order for us to move forward. It is also somebody’s problem from the gas supplier to the generator, to the TCN, to ourselves and to the customers. If the customer pays his bill, and I say to them, you have 20,000 customers but you have to pay.

 How are we going to get money to invest in the community? We need to work with government, NERC together to solve these issues. There are too many pointing fingers. We need to be honest and think from everybody’s side and get a better solution but we are not doing that.

Is it not better for you to outsource the collection of your electricity bills?

There is a big problem. For me to send someone in my area to collect the money in cash, do you trust them when they get the money? I have lived in South Africa for 20 years where nobody comes to me to collect my bill for electricity? It is done electronically in South Africa. In this country, every single thing we do is on paper. These are practical reasons that are unresolved. I have to give you a letter of termination but I don’t know where you are. So, to keep track of everything is a nightmare.  We have big focus on customers’ metering and network development.  We want to be the best. It’s going to take a long time, money and dedication.  The most important thing is for our customers   to be honest and truthful to work with us and not fight us. Why am I checked four times before I board the plane? It is because two planes flew into the World Trade Center about 15 years ago?  The average person that gets on the plane is a very nice person but you have to be careful because of that dangerous person who made the bomb. We need to get everybody to pay their bills.

If we look at the estimated billing. The average crazy bill is N 7,000 but to me that is not a lot of money but when a lot of customers are yet to pay for several months, that will be a lot of money. Customers don’t understand how much electricity costs.

What kind of enlightenment are you doing in terms of energy conservation?

When you want to educate, you go through the media and it costs a lot, but overall we need to work together as a team understanding that there are only 6.2 million registered consumers in Nigeria. We have 1.5 million of those which is by far the biggest. We didn’t say we are going to do 100,000 meters. We said come and look in our store, we have liquidity issues which the government should quickly resolve. We have been here for few years in the business, yet we have not made one kobo and we are not planning to make.

Why are discos not generating profit?

This is because of the current tariff arrangement.  We have proposed to put in a cost- reflective tariff. Because the tariff is based on your losses, what happens if the tariff will have to go up three times. The price will go up thrice and  the industrial price will go up from 42 per cent to 104 per cent. the problem with that is the price.

What you do to  the financials that back this up, the problem is the model that only allows 24 per cent  AT&T losses but we are running at 50 per cent today. So. even if we collect the money, you are still going to lose.

How do you recover your losses?

Well, there are two things. First is, what is allowable which is 24 per cent and that was before we took over which is based on wish list . The reality is 50 per cent. There are places in Africa where they are metered fully. Collection is about people wanting to pay because they have to pay. That is my worry. We installed 150,000 metres, we have not seen an increase in collection, why? Because of meter bypass. How can we blame  low electricity generation on  Discos’ fault ? Whose fault is forex? How can we solve that and fix it together?

We are the ones facing consumers . that’s the challenge and we are nowhere near devising the solution to solve it. But I can tell you if I had no liquidity, I’d be spending a lot more money on meter. We want to have more people have more electricity.  The minister is talking about no tariff review, how can we not talk about tariff review when I cannot pay my bills. And it is not part of the original plan when we took over. The plan was to get a tariff that will cover the cost.

What are you doing in terms of negotiating with others?

Well, we will continue discussing and negotiating.

How soon do you hope to resolve this problem?

I have been in this industry for almost two years and I have not seen any development.. I have only seen Discos going bankrupt. Generation has worsened and my tariff has not improved. The inflation is high, costs are high and generation lower and we are in the middle.

What amount of power are you receiving now?

It changes every single day.

What’s the average per week?

It is not only quantity of power, it is a quality of power. I can’t even tell you the average because one minute, it may be 3,000 Mega  and the next minute it is 2,000MW.. The third week in January, we have had two system collapses. And I understand, the lower the generation, the more difficult it is to balance the system. We are hopeful and praying that we see a solution to the liquidity issue in the industry.

To be continued.

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