CBN intervention to power sector scale down by 6%
The balance sheet of the Central Bank of Nigeria (CBN), has been dipped by six per cent, a report by Augusto& Co has revealed.
The report further indicated that multiple interventions which included subsidies to the power sector from the CBN have gulped about ($4.9 billion) N2 trillion as at 2020.
The report titled, ‘‘The State of the Nigerian Electric Power Industry – Is there any light at the end of the Tunnel?” explained that 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 CBN.
It added that, despite this level of intervention, the generating companies had estimated receivables of over N400 billion in 2020 alone, adding that whilst the interventions have been central in ensuring the profitability of operators along the Industry’s value chain, they remain insufficient and unsustainable.
Augusto & Co maintained that since the privatisation exercise that commenced in 2013, the Nigerian Electric Power Industry 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, the research firm said have culminated in weak and erratic power supply and a dependence on self-generation by many businesses and households.
Furthermore, it noted that electricity distribution in Nigeria remains plagued by high technical, operational and commercial inefficiencies.
In 2020, the report stated that the country’s 11 Distribution companies (DisCos) only billed for 74 per cent of the energy received from the transmission company, below the 81 per cent reported in the prior year.
According to the report, 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 COVID-19 pandemic.
“Agusto & Co 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. Consequently, the aggregate technical, commercial and collection (ATC&C) losses for the 11 DisCos rose to 51 per cent in 2020 from 45 per cent in 2019. 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 research firm further noted that these challenges have not only weakened the ability of operators to meet electricity demand but also threatened their financial viability, with significant implications for the fiscal health of the country.
The firm averred that, 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.”
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.”
