PRESS RELEASE: DISCOS REQUIRE N8.7BN TO MEET NERC’S REMITTANCE ORDER AND THIS REQUIREMENT MAY RESULT IN STAFF REDUNDANCY AND FURTHER COMPROMISE THE INJECTION OF EFFICIENCY INTO DISCO OPERATIONS- ANED

The Electricity Distribution Companies (DisCos) have implored the National Assembly to intervene in the current liquidity crisis in the power sector, saying they will need N8.7 billion to comply with the remittance order set by the Nigerian Electricity Regulatory Commission (NERC).

A statement issued by ANED’s Executive Director, Research and Advocacy, Barr. Sunday Oduntan in a breakdown of the required amount, said the DisCos will require a monthly amount of N725 million to meet the threshold of 35 percent remittance level set by NERC in the meantime.

“To meet the new remittance expectations, DisCos will have to finance an average gap of N725 million per month (estimated at N8.7 billion per year), until increased collections bridge the gap,” the DisCos noted.

ANED in the statement said while the DisCos were expected to do a minimum remittance of N12.69bn (about 35%) for the July 2019 billing cycle from a total N35.79bn invoice from the Nigerian Bulk Electricity Trading Plc (NBET), the DisCos actually remitted N8.06bn.

The outstanding was N4.63bn as the DisCos group said the eight DisCos performed up to 23% of the 35% required of them for the month.  The inability of the DisCos to meet the 35% threshold specified by NERC is a direct result of the liquidity crisis in the power sector. It said the Average Technical Commercial and Collection (ATC&C) losses have remained high due to lack of liquidity, unattractive investment terrain and customer apathy to pay bills – a product of suspicion based on estimated billing and electricity theft..

A situation further complicated by three (3) years of delayed Minor Reviews and non-payment of electricity bills by the Ministries, Departments and Agencies (MDAs)a

Additionally, with over five decades of significant neglect of the sector, the massive investment that is required for the injection of efficiency that Nigerians desire continues to be undermined by inconsistent and uncertain policy and regulatory changes and undelivered privatisation commitments, the aforementioned representing strong disincentives to investors.

“The establishment of remittance threshold is good for NESI. However, realistic levels and timelines for DisCos to ramp up is key for sustainable compliance.” While the DisCos said they await a cost reflective tariff from NERC, they however said it takes time increase collection level.

A conclusion previously reached by NERC and the Bureau of Public Enterprises (BPE), as indicated by the following statement – “Cost reflective tariffs do not attract immediate performance improvements. Expectations need to be managed by government”

Explaining the implication of injecting N725m monthly to NERC’s expected remittance order, ANED stated that, with the DisCos’ required revenue, in terms of operational and capital expenses already significantly far short of what is required, that the amount represents DisCos’ average monthly salaries.

“Compliance with NERC Order will impair this critical obligation to DisCos staff, which will create labour unrest and reduce overall performance,” the statement said.  Potentially, the results would be a need for significant staff reduction and associated operational failure, compromising the DisCos’ ability to distribute electricity to their customers.

The Association recalled that there was such protest at Kaduna DisCo last week, by its staff, for its inability to meet its salary and pension payment obligations.

ANED appealed to the Committee to intervene so that the current N600bn federal government power sector intervention goes beyond year 2020 – “to cushion the effects of tariff hikes, allow investments to be injected by both TCN and DisCos, and to mitigate shortfalls to the Generation Companies (GenCos) and gas suppliers.”

ANED also requested that NERC amend the Remittance Order to ensure compliance and that electricity debts owed by MDAs, currently, in excess of N100 billion, be taken off or be discounted off the energy bills NBET provides to the DisCos, to minimize the difference between current DisCo remittances and the NERC specified threshold.  The MDA debts constitute a leakage from DisCo remittance.

FACTS ON NERC’S NOTICE OF INTENTION TO CANCEL DISTRIBUTION LICENSES

Background

NERC issues notice to cancel DisCo licenses on October 10th, 2019. NERC’s decision was hinged on potential breach of the provisions contained in section 74 of EPSR Act 2005; Terms & Conditions of DisCos’ licences; and 2016-2018 Minor Review of MYTO & Minimum Remittance Order for 2019 specifically for:

  • Minimum remittance threshold not met; and
  • Lack of the minimum financial securitization of discos payment to NBET & MO [unencumbered LOC covering 3 months.

Why are we here?

NERC says DisCos remittances are not met.

  1. a) What is remittance?

Remittance is the monies electricity customers pay to DisCos for energy supplied by DisCos, which DisCos in turn have to pay upstream to the value chain in sector – Nigerian Electricity Bulk trader, Market Operator, TCN, NERC, Generating Companies (GenCo) and gas suppliers.

  1. b) Why are DisCos unable to meet remittance levels set by NERC?

Majorly, DisCos cannot pay up all their bills to the market because:

  1. NERC refused DisCos proposition for a ramp-up payment over a period, considering that the problems of illiquity of the market have not been solved NERC.
  2. MDAs are owing over 100billion to DisCos and they are not paying;
  • The ATC&C loss levels used by NERC to set the remittance order is superficially unrealistic, compared to the actual losses;
  1. Due to the fact TCN is following the Merit Order Dispatch according to regulation, that the total available generation from the least cost generation should be taken first. Regrettably, TCN due to its illegal deals with Eligible customers, are not drawing all the energy generated by the Hydro stations before taking from the more most expensive thermal plants, thereby increasing the cost of electricity to the customers.
  2. DisCos need to maintain the lines and supply and pay staff, therefore creating serious hardship to remit the levels demanded by NERC all at a go. Meeting the remittance threshold at this time, would compromise the ability of the DisCos to meet payroll and/or reduce their staff.
  3. c) Is the NERC’s notice to cancel DisCos licences prudent or beneficial to electricity customers and?

The answer is NO.

  1. d) What is the Impact of NERC notice to cancel DisCos licenses?

Numerous and fatal. Some of the major consequences are:

  1. Potential Labour unrest due to inability of the DisCos to pay salaries and, potentially, reduce staff.
  2. Inability of DisCos to have money to maintain the lines and supply.
  • A run on DisCos finances from 3rd party service providers, contractors, suppliers and the Bank
  1. Potential systemic bank failure, due to their exposure in the power sector.
  2. The sector will become highly volatile and unstable, with potential catastrophic outcomes.
  3. Lack of access to finance for CAPEX and investments
  • NERC action sends wrong signals to foreign investors and the multilateral stakeholders that Nigeria is NOT open for investment.

What is the way forward?

  • NERC can provide incentive-based regulation to stimulate the sector.
  • Extend the federal government intervention beyond 2020.
  • DisCos ought to have been given fair hearing, with a mutual determination of a remittance threshold that is viable and fair to the value chain.
  • Allow MDA debts to be deducted at source or net-off from DisCos’ NBET bills
  • Ensure transparent, consistent and participatory regulation making.
  • Ensure that TCN complies with merit order dispatch.

Signed

Barrister Sunday Oduntan

Executive Director, Research and Advocacy,

Association of Nigerian Electricity Distributors

Issued on Wednesday October 24, 2019

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