FG failure to meet obligations to Disco, Gencos reason for poor service delivery

Industry experts in the power sectors have enumerated the areas where both the government and power companies have failed but however said the government could have done more to safe the country from the current inefficiency being witnessed in the power sector.

The experts who spoke against the background of the recent statement credited to Babatunde Raji Fashola to the effect that the federal government is not to blame for the poor service delivery the country is experiencing as regards the power supply.

They asked; “Did the government meet all its obligations that were pre-conditions to the Discos’ ability to implement the requirements of their Performance Agreement?”

Itemising some the areas the government was expected play major roles to enhance service delivery, they said foreign exchange rate has been a major inhibition to investments to the sector couple with lack of cost reflective tariff.

They said the transaction on which the privatisation exercise was based was on N198 to $1, but today it is N364 to $1 despite the fact that the Naira has been devalued.

Rahila Thomas of Energy Market Regulatory Consultants (EMORC) said perhaps there would not have been so much issues the way we are experiencing in the industry today if the government had acted promptly in some areas it was expected to intervene.

Speaking of the exchange rate which is a major issue that has been not allowed investors to bring in some money into the sector, she said; “It would be difficult for investors to bring money under this kind of exchange regime without the government doing something about the cost reflective tariff”

Another industry operator said since it is part of government obligations to provide essential service to her citizens which power is part, the government and the private sector have a joint obligations to make the sector work and should not engage in blame game

She said since a lot was agreed with the companies before the privatisation took place and those things have not happened, essential because of the government inactions , it would be difficult to take off its hand

Prof. Wumi Iledare, President of the Nigerian Association for Energy Economics (NAEE), an affiliate of the International Association for Energy Economics (IAEE), had called on the government to tackle the major issues that stare the sector in the face.

He said “there is the need for the government to go back and review the agreement it signed with the operators in 2013. Also, we believe that the current tariff does not make the Discos profitable.

The agreement between the Federal Government and the Discos, that preceded the power industry privatization exercise in 2013, clearly spelled out the responsibilities of the different parties involved.

The government’s covenants were to provide a cost reflective tariff, pay N100 billion subsidy and make the DISCOs debt-free to enable them to deliver adequate and sustainable power to consumers.

The Disco’s obligations were to deliver 1.7 million pre-paid meters to consumers, improve customer service delivery, extend the distribution network, and reduce power interruptions while delivering stable power to consumers.

Barely five years after, the government has not yet put in place the cost reflective tariff. In other words, the cost of providing electricity to consumers remains higher than the tariff they pay. It has not also paid the subsidy agreed upon in the agreement.

Consequently, Discos stated that the development had affected their ability to provide meters as well as to meet their other obligations. This poor liquidity situation has constrained the DISCOs from investing substantial resources towards expanding their capacities in order to supply adequate and stable power to consumers at affordable cost.

The financial situation of the Discos is worsened by the unwillingness of banks to provide loans to them, apparently, because the banks have not yet been able to recover the huge loans previously provided to enable the Discos to procure the privatized companies.

It was alleged that the Central Bank of Nigeria, CBN, had also warned banks to be careful with Discos and other investors in the sector as it could not guarantee their ability to operate efficiently as well as repay loans.

The situation of DISCOs is also affected by the Federal Government’s inability or unwillingness to contribute 40 percent funds (in line with its interest) to enhance investment in the sector.

In a situation where many consumers do not have prepaid meters, DISCOs continue to base their bills on estimation or guesswork at the detriment of the masses.

The revenue shortfalls adversely affect the ability of the DISCOs to make capital investments in metering, network expansion, equipment rehabilitation and replacement that are critical for service delivery.”

The Government on their own part says that they created an N701 billion Payment Assurance Guarantee for NBET to ensure that payments to GENCOs improved and this has increased to 80 percent payment on invoices, up from 20 percent, in the hope that with improved power production, DISCOs will collect and remit more.

Olusola Bello