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Nigerian consumers pay more for less power

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By Abraham Adekunle

Power sector reforms yields more cash than electricity for DisCos.

For a long time, Nigerians have battled erratic power supplies and the hope of getting improved power supply has remained a lost hope. Ironically, the reforms in the power sector seem to be improving the financial fortunes of the sector. The sector has recorded a 78.16 percent year-on-year growth to the country’s gross domestic product (GDP). However, supply has not materially improved for many Nigerian electricity consumers. These electricity power reforms commonly refer to changes in ownership and structure of an electricity system, with the purpose of introducing private ownership and competition.

As expected, the discussions on how to implement these reforms have largely focused on improving the technological and financial performance of the sector. In other words, the reforms have helped only the supply stakeholders, such as the distribution companies (DisCos), while leaving consumers largely untended. In a latest report, the National Bureau of Statistics (NBS) affirms the growing increase in expenditures and energy cost. Specifically, the NBS disclosed that Nigerians, including companies and government agencies, paid a sum of N828 billion for electricity in 2022 alone.

The bureau revealed a number of stats in the report.

NBS revealed in its latest electricity report that the amount represents an 8.79 percent increase when compared to N761.1 billion paid in 2021. The report, which was published on April 18, 2023, showed that the electricity payment in January was N68.28 billion, N68.33 billion in February, N68.11 billion in March, N62.73 in April, N64.82 in May, N60.85 billion in June, N62.61 in July. The payment for August, September and October stood at N69.42 billion, N70.58 billion, and N70.67 billion respectively, while in November and December, the payment was N77.35 billion and N84.28 billion, respectively.

In terms of electricity company share of revenue, the report revealed that in the third and fourth quarter of 2022, Ikeja Electricity Distribution Company (IKEDC) customers paid the highest. The DisCo generated N40.5 billion and N45.62 billion in the third and fourth quarters of 2022, respectively. The NBS also revealed that the number of electricity customers in Nigeria increased from 10.93 million in the third quarter to 11.05 million in the fourth quarter. Ibadan Electricity Distribution Company (IBEDC) recorded the highest number of electricity customers, showing an increase from 2.17 million in the third quarter to 2.22 million in the fourth quarter of 2022. Benin DisCo recorded fewer electricity customers in the fourth quarter than it did in Q3 2022. From 1.25 million customers in the third quarter, it had 1.18 million customers in the fourth quarter of 2022.

Factors that contributed to the growth of the power sector.

Analysts say recent reforms to improve cash returns, which includes hiking tariff and ramping meter supply, are having some impact in the revenue trajectory of the sector. Several factors contributed to the significant growth recently recorded in the Nigeria’s electricity sector. In particular, the implementation of the service reflective tariffs (MYTO 2020), the intervention by the Central Bank of Nigeria, and the implementation of the National Mass Metering Programme (NMMP). These interventions became effective around Q3/Q4 2020, and the cumulative effect came to the forefront in the Q2 of 2021 in terms of the year-on-year growth numbers. The expectation is that there will continue to be increased revenues from the DisCos, especially if the NMMP implementation continues to progress as scheduled.

Nevertheless, Nigeria’s power generation has continued to hover below 4,000MW despite a 13,000MW output. The creaking grid has collapsed either partially or totally four times this year, largely due to dearth of spinning reserves – an excess capacity meant to compensate for shortages. The overall effect of this is that electricity supply is improving in areas where collections are growing. In other areas, operators are not making investments to improve their network. In the rural communities, power cuts last for months, and even major cities, like Lagos, areas like Festac, Ajah, Ejigbo and others, are poorly served. This paralysis’s economic activities in these areas. Thus, the unprecedented growth recently recorded by the sector has not necessarily translated to increased supply of electricity.

Minimum remittance threshold reform to eliminate stranded power.

Asides the aforementioned reforms, the Nigerian Electricity Regulatory Commission (NERC) has also introduced a minimum remittance threshold for each DisCos, which stipulates a mandatory payment that must be made to the bulk trader for electricity received. The commission introduced guidelines for ‘Merit Order Dispatching,’ which involves ranking electricity generation and dispatch by the Transmission Company of Nigeria (TCN) in ascending order of costs with the cheapest electricity – such as those from Hydro plants with no fuel cost component – ahead of more expensive plants. The order also provides guidelines on the alignment of invoicing for capacity charge and energy delivered as well as a framework for the settlement of any imbalance between DisCos and TCN. The Merit Dispatching Order should eliminate the shift of responsibility for load rejection between DisCos and the TCN. Analysts say that the case of the 2,000MW of stranded power will be eliminated when this is done.

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