The 11 electricity Distribution Companies (Discos) in Nigeria recorded 51 per cent Aggregate Technical, Commercial and Collection (ATC&C) losses in 2020, up from the 45 per cent recorded in 2019, owing to the impact of the COVID-19 pandemic on the power sector, the latest electricity market report by Augusto & Co, has revealed.
The report tagged: ” State of the Nigerian Electric Power Industry – Is there Any Light at the End of the Tunnel?”, obtained by THISDAY, stated that in 2020, the country’s 11 Discos only billed for 74 per cent of the energy received from the Transmission Company of Nigeria (TCN), below the 81 per cent reported in the previous year.
It added that billing efficiency, which has historically been impaired by 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 noted that the impact of the pandemic was more visible among 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.
It said collection efficiency also fell marginally to 66 per cent from 68 per cent one year before, pointing out that the high loss level remained one of the many reasons for the resistance from electricity consumers on tariff increases, especially in the absence of a significant and immediate improvement in power supply.
The research and financial advisory firm pointed out 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.
It said despite the series of amendments to the tariff structure, cash flows from the Multi-Year Tariff Order (MYTO) have remained insufficient to fully cover the costs of electricity supplied.
According to the report, 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.
It maintained that electricity has thus consistently been sold at a discount, with end-user electricity tariffs much lower than the cost of electricity supplied.
The report however noted that the shortfall from non-reflective tariffs has been borne in large parts by the federal government through multiple intervention funds and payment assurance facilities from the Central Bank of Nigeria (CBN) totalling close to N2 trillion or $4.9 billion, as of the end of 2020, equivalent to 6 per cent of CBN’s balance sheet.
It observed that despite this level of intervention, the generating companies had estimated receivables of over N400 billion in 2020 alone, adding that while the interventions have been central in ensuring the profitability of operators along the industry’s value chain, they remained insufficient and unsustainable.
The report noted that more recently, there have been notable efforts by the primary regulator, the Nigerian Electricity Regulatory Commission (NERC) to minimise the challenges faced by operators in the power industry, particularly, the raising of tariffs to near-cost reflective levels and adjustment to match consumption via an initiative dubbed Service Reflective Tariffs (SRT).
Noting that the new tariff model as the name indicates was expected to reflect and match the quality of service received by the ultimate consumers of electricity, the analysts concluded that distribution companies would therefore discriminate in the application of tariffs and that consumers who enjoy longer daily supply would 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,” it stated.
It said since the privatisation exercise that commenced in 2013, the Nigerian Electric Power Industry (NESI) 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 weak and erratic power supply and dependence on self-generation by many businesses and households. Furthermore, electricity distribution in Nigeria remains plagued by high technical, operational and commercial inefficiencies,” the research firm said.
It advised that to achieve the objectives of privatisation, reforms needed to be accompanied by a strong and enabling regulatory environment, stressing that improved access to finance, efficiency in billing and metering as well as secure gas supply was vital to reaping the benefits of privatisation in the long run.