Electricity Sector Losses N365bn In 6 Months — Economic Confidential

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Electricity Sector Losses N365bn In 6 Months — Economic Confidential

Collapsed Infrastructure: Electricity Sector Losses N365bn In 6 Months

Insufficient gas supply, distribution and transmission infrastructure have continued to plague the power sector, forcing it to record losses amounting to N365 billion in the first half of 2020, H1’20.

The losses, which also occurred mainly because of inadequate infrastructure, equipment failure and low water reserves, were recorded along the value chain by Generation Companies, GENCOs and Transmission Company of Nigeria, TCN, involved in the generation and transmission of power respectively.

However, this represents 23 per cent increase year-on-year (YoY) when compared to N279.81 billion losses suffered in H1’19. A breakdown showed that, in the first half of 2020, the losses stood at N56.4 billion, N55 billion and N66 billion in January, February and March respectively. In April, May and June 2020, the losses stood at N64. 6 billion, N61.6 billion and N61.8 billion respectively.

Power Allocation

Energy Vanguard findings showed that the average energy sent out to the 11 Distribution Companies, DISCOs, by TCN in H1’20 surged marginally by 0.3 per cent to 3,958 megawatts, when compared to 3,948mw recorded in the corresponding period in 2019.

However, statistics obtained by Energy Vanguard from the National Control Centre, NCC, Osogbo, Osun State, showed that of 28 generating plants, 26 sent out an average of 4,896.99mw in H1’20 to the TCN thus, indicating an increase of 19.3 per cent when compared to 3,949.6mw sent out by 27 generating plants in H1’19.

Nevertheless, the disparities in figures indicated the line losses recorded along the value chain as electricity is supplied by the GENCOs to the TCN.

Power Generation

In the first half of 2020, ASCO and AES generating plants did not generate any power.

Similarly, in the corresponding period of 2019, Dadin Kowa Power Station, Egbin ST6, ASCO and AES generating plants did not generate electricity. However, this development exposed the inability of the nation’s power sector chain, including, DISCOs, Transmission Company of Nigeria, TCN, and GENCOs to meet the expectation of consumers.

In an interview with Energy Vanguard, Executive Secretary, Association of Power Generation Companies, GENCOs, Mrs. Joy Ogayi, said: “This shows low/minimal optimisation of generation capacity due to constraints on the transmission and distribution networks.

“Without these constraints, additional 3,000mw could be made available to customers and serve as an incentive for Generation Companies, GenCos, to recover the unavailable capacity of over 5,000mw.

“For the short term, Nigeria needs to optimise what is available and what can be recovered, while in the medium to long term with effective planning, Nigeria can achieve new capacities by embracing renewables and suspend thermals, but only after collective utilisation is at its peak.

“Sequencing is key. This approach will be a cheaper, more effective and bench-markable in meeting the power requirement in Nigeria.

“The emphasis here is phased planning of the generation capacities in view of the fact that what is available plus installed, is not enough to meet demand forecast which stands at over 22,000mw.

“The impact is more on the GenCos, which due to lack of effective contracts to backstop the gas supply agreements are in a tight corner. Instances abound where GenCos have had to resort to other means other than the electricity market to support the gas and other services just to put power on the national grid.”

Negative Impact

However, in an interview with Energy Vanguard, the Secretary General, Network for Electricity Consumers Advocacy of Nigeria, NECAN, Mr. Uket Ogbonga, said: “Everyone, including individuals, households, companies and government ministries and agencies needs adequate and stable supply of electricity.

“This means that the losses associated with generation, transmission and distribution constrain the delivery of adequate power to them, thus hindering the development of the nation’s economy.”

Major Problems

Investigation showed that the GenCos have continued to lament the non-payment for energy generated by the DISCOs through the Nigerian Bulk Electricity Trading Plc, NBET, thus worsening illiquidity and development of infrastructure in the sector.

“This, it was gathered happens because NBET buys electricity in bulk from generation companies through Power Purchase Agreements and sells through vesting contracts to the DISCOs, which then supplies it to households.

“Nevertheless, the DISCOs through its umbrella body the Association of Nigerian Electricity Distributors, ANED, stated that some problems, especially energy theft and lack of payment by households constrained them from paying 100 per cent for energy received.

“According to NBET, N173.35 billion was the outstanding to be paid by the 11 DISCOs in the first quarter of 2020.

“According to data obtained from NBET, the DISCOs were given a total invoice of N224.84 billion for the energy received in the four-month period but only paid N51.49 billion or 22.90 per cent during the period.

A breakdown showed that the 11 DISCOs received a total invoice of N52.13 billion in January, N52.01 billion in February, N52.62 billion in March, and N68.08 billion in April 2020. They paid N14.96 billion (29 per cent) in January; N13.04 billion (25 per cent) in February; N6.07 billion (12 per cent) in March; and N9.84 billion (14 per cent) in April.

Another major setback in the power chain is the constant rejection of energy transmitted to the DISCOs by TCN. For instance, the DISCOs failed to distribute 8,733.39mw of electricity transmitted to them by TCN from August 24 to 30, 2020, thus further worsening illiquidity in the sector.

However, reacting to load rejection allegation, ANED, stated: “The often bandied issue of load rejection by DisCos seemingly seeks to hide all of the above issues.

“The DisCos’ uncertainty on the energy to be received from the TCN has become a major threat and it will hurt the core of its performance improvement plans as many of them are based on the basis of the projections done by NERC in its June 2019 Minor Review 2019.”

NERC Intervention

In a document sighted by our correspondent, NERC stated: “Where it is established that the TCN is unable to deliver load allocation, the TCN shall be liable to pay for the associated capacity charge.

“Where a DisCo fails to take its entire load allocation due to constraints in its own network, it shall be liable to pay the capacity charge as allocated in its vesting contract.

“The average tariff for each DisCo was determined considering the projected energy off-take of the company based on its percentage load allocation in the vesting contract.

“NBET shall continue to invoice the DisCo for capacity charge and energy based on its load allocation and metered energy respectively in accordance with the December 2019 Minor Review of MYTO 2015 and Minimum Remittance Order for Year 2020.”

Implementing The New SRT Plan

Meanwhile, the DisCOs, which commenced the implementation of a new Service Reflective Tariff Plan, SRT, across their franchise areas, have stated that SRT would enhance the implementation of a framework for enforcing market discipline, including market remittances.

MAN, AEPF Kick

In a chat with Energy Vanguard, the former chairman, Manufacturers Association of Nigeria, MAN, Ogun Chapter, Mr. Wale Adegbite, stated that the tariff increment would lead to a significant increase in the cost of production in Nigeria.

He said: “Electricity constitutes a significant input in the manufacturers’ production process; this development will further increase the cost of production, in turn, results in a hike in prices of goods.”

Similarly, the All Electricity Protection Forum, AEPF, threatened to sue NERC if the recent increment in electricity tariffs is not reversed. According to the Public Relations Officer of AEPF, Mr. Gideon Balogun, the increment was unjustified because the DisCos had not met the conditions of Section 76 (2) (b) of the Electric Power Sector Reform Act, EPSRA 2005.

“The Multi Year Tariff Order, MYTO, stipulates that increment can only be done every five years with the last approved increment occurring on February 3, 2016.

“Stakeholders did not accede to the increment at several meetings with the DisCos, but had insisted on improved supply before any increase in tariffs.

“We, therefore, demand immediate reversal of the tariff increment and full implementation of capping method order 197/2020 which will, as one of its objectives, fast track the metering of consumers by the DisCos.”

FG’s Response

Nevertheless, Mr. Aaron Artemis, Special Adviser, Media and Communication to the Minister of Power, Mr. Sale Mamman, in an interview with Energy Vanguard, said: “DisCOs, are private enterprises being regulated by Nigerian Electricity Regulatory Commission, NERC.

“They buy electricity from Nigeria Bulk Electricity Trading Plc, NBET, to sell to Nigerian households. The major source of electricity generation is gas and hydro plant.

“The Nigeria power sector is a market chain, where the generating companies, generate electricity through gas and hydro plant and send to the Transmission Company of Nigeria, TCN, who now transmit to the different DISCOs in the country.”

Conclusion

Artemis noted that the various problems and losses would be greatly reduced when investors increase their capacities to generate funds as well as invest in new facilities to deliver adequate electricity to consumers nationwide.

Nevertheless, in a document – Transition to Cost Reflective Tarff – obtained by Energy Vanguard, which harped on the place of metering, the Lagos Chamber of Commerce and Industry, LCCI, added: “Equitable billing demands that electricity consumers are metered.

“This is the only way to engender the confidence of consumers in the billing process. Metering should therefore be accorded a high priority.”

VANGUARD 

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