The failure of Nigerian power distribution companies (Discos) to make complete remittances in 2022 has been revealed in the latest quarterly report from the Nigerian Electricity Regulatory Commission. It showed that a total of N208.8 billion was not remitted to the Nigeria Electricity Supply Industry throughout the year.
These Discos are responsible for distributing electricity to consumers in their respective franchise areas of operation. The 11 Discos are Abuja, Benin, Eko, Enugu, Ibadan, Ikeja, Jos, Kaduna, Kano, Port Harcourt, and Yola. Despite efforts made in 2013 to improve the efficiency and reliability of electricity supply across Nigeria, the Discos never made a complete remittance throughout 2022.
This development is undoubtedly a setback to efforts made by the Nigerian Government to improve the country’s power sector through various reforms over the years. Electric power remains a major concern in Nigeria with several factors such as transmission constraints, inadequate gas supply, and distribution challenges affecting the power sector. Reports have shown that a large percentage of the population has no access to stable power supply, making it difficult to develop critical sectors of the economy.
It remains to be seen how the Nigerian Government would address this issue and hold the Discos accountable for their actions. Nevertheless, immediate action is required to provide adequate power to the people, especially those in rural areas, where access to electricity is a matter of life and death.
The Discos are responsible for collecting electricity bills from consumers and remitting the funds to the power market through the Nigerian Bulk Electricity Trading (NBET) Plc and the Market Operator (MO). However, according to the Nigerian Electricity Regulatory Commission’s figures, the Discos failed to remit N208.8 billion in 2022, including N49.23 billion, N31.3 billion, N58.3 billion, and N69.94 billion in the fourth, third, second, and first quarters, respectively.
The NERC’s Fourth Quarter Report presented that the Discos were billed a total of N231.01 billion, comprising generation costs from the Nigerian Bulk Electricity Trading Company (N188.74bn) and transmission and administrative services from the Market Operator (N42.27bn). The Discos’ total remittance of this amount was N181.78 billion (N145.91bn for NBET and N35.87bn for MO), leaving an unpaid balance of N49.23 billion.
Given that remitting these funds is a crucial obligation of the Discos, this shortfall presents a significant challenge for the Nigerian Electricity Supply Industry’s development. Also, this shortfall is a reminder of the critical need for Nigeria’s power sector to undergo a radical overhaul of the current systems and operations. Urgent measures are required to ensure the adequate supply of electricity, particularly in rural areas.
The Nigerian Electricity Regulatory Commission has linked poor remittance by the Discos to higher technical, commercial, and collection losses than allowed. The commission stated in its report that the Discos’ failure to make timely and complete remittances has become more common due to these losses, which are eroding their bottom line.
The NERC noted that during the third quarter of 2022, the Discos breached the rules by failing to pay the allowed remittance due to the Nigerian Electricity Supply Industry. The commission disclosed that the Discos owed a total of ₦31.29bn from a combined invoice of ₦204.84bn, which was billed for generation costs from the Nigerian Bulk Electricity Trading Company (NBET), and transmission and administrative expenses from the Market Operator (MO).
In the second quarter of 2022, the combined invoices from the NBET and MO to the Discos were ₦185.01bn, divided into generation costs of N149.89bn and transmission and administrative expenditure of N35.12bn. The Discos made a total remittance of ₦156.71bn (N126.3bn for NBET and N30.41bn for MO), leaving an unpaid balance of ₦28.3bn.
These persistent remittance shortfalls bust Nigeria’s efforts to transform its power sector, which has been hampered by insufficient investments, operational inefficiencies, and inadequate regulation. Ensuring that the Discos submit their funds as needed will significantly boost the sector and attract foreign investment.
According to data from the Nigerian Electricity Regulatory Commission, the combined invoices issued to the Discos for the second quarter of 2022 amounted to N175.01bn, with generation costs from the Nigerian Bulk Electricity Trading Company accounting for N142.4bn and administrative/transmission expenses from the Market Operator accounting for the remaining N32.61bn. The Discos remitted a total of N126.69bn (N102.35bn for NBET and N24.34bn for MO) but still owe N58.32bn.
Regarding Q1, 2022 market remittance, the combined invoice issued to the Discos amounted to N205.63bn, comprising generation costs of N164.86bn and transmission/administration services of N40.77bn. The Discos remitted a total of N135.69bn (N109.96bn for NBET and N25.73bn for MO) but owe N69.94bn.
The Commission’s report shows that the Nigerian power sector struggles with a liquidity crisis exacerbated by the power distribution companies’ poor remittances since the industry’s privatisation in 2013. As per the report, power distribution companies’ higher than allowed technical, commercial, and collection losses directly contribute to the Discos’ reduced financial capabilities, leading to inadequate payment to the Nigerian electricity supply industry.
“The Discos’ outstanding debt poses a major challenge to the realization of the government’s efforts to improve electricity supply across the country. Therefore, the Discos must prioritize and improve their operational efficiency and remittances to enable the power sector to meet the increasing demand for electricity,” says an industry analyst.
A significant remittance shortfall presents a significant obstacle to the Nigerian power sector’s progress. There is an urgent need for the Nigerian Government to guarantee the efficient operation of the power sector by increasing investment, implementing better regulation, and ensuring that the DisCos fulfill their obligations for an adequate supply of electricity.
The President of the Nigeria Consumer Protection Network and Coordinator of Power Sector Perspectives, Kunle Olubiyo, has called on the new government led by President Bola Tinubu to take a comprehensive approach to the Nigerian power sector. According to him, there is a need to review the privatisation of the successor distribution and generation companies of the defunct Power Holding Company of Nigeria in November 2013.
It is essential to review the privatisation due to the poor performance of the power distributors since privatisation, he added. He also stated that the 10-year moratorium on power sector privatisation would end in October this year. He advised that the authorities should tread carefully to prevent litigation since the period has been granted to privatised companies.
Olubiyo said, “It is essential to understand the sector’s complex value chain before reviewing the privatisation.” He suggested that, in addition to reviewing the privatisation, a national power supply coverage goal should be established to incentivise private investors and improve power distribution.
A holistic approach would be required to address the power sector’s challenges successfully. It is critical for the Nigerian government to work collaboratively with stakeholders and create enabling policies to attract direct private investment into the power sector.
The Director-General of the Nigerian Electricity Liability Management Company, Adebayo Fagbemi, praised the involvement of banks in the power sector’s day-to-day operations, noting that the presence of banks had curbed the unprecedented impunity in the power sector. He emphasised that the absence of regulatory policy surrounding the power sector had made it difficult for the industry to progress, making the involvement of banks essential.
Fagbemi expressed concern about those who exploit the power sector for their gain. He cited the example that some people earn N15bn monthly and still withhold necessary remittances for services rendered. The absence of enforcement had contributed to a culture of impunity in the power sector, according to Fagbemi. He believes that without banks’ involvement, it would be impossible to curtail corruption in the power sector.
The Nigerian Electricity Supply Industry has struggled with a liquidity crisis, particularly as a result of the Discos’ inadequate remittances since the sector’s privatisation. For the Nigerian power sector to progress, regulatory policies must be enforced. In addition, direct investment by banks, coupled with regulatory enforcement, may be the solution to strengthening the power sector and increasing access to electricity in the country.