Restoring liquidity into Nigeria’s electricity market

The very headline for this piece seems implausible because it suggests there was a time the electricity market was liquid. But the 2013 power sector privatisation exercise was designed to bring liquidity into the market, only the players derailed from the original plan.

In the nifty arrangement designed for the sector, DisCos would collect and pay the Nigerian Bulk Electricity Trading (NBET) Plc who will pay every other operator in the value chain – GenCos, GasCos and TCN. It was assumed that the DisCos would collect a cost reflective tariff hence Multi Year Tariff Order (MYTO) was developed.

Like a pack of cards, the plans tumbled down when political interference marred the process. First the privatisation exercise was abused towards the end, when the competent people driving the process were fired and replaced with those pliable to special interests, the regulator was weakened and became susceptible to political interference especially in matters of tariff and the DisCos became the enfant terrible of the electricity market.

Currently the biggest threat to liquidity in the electricity market is the result of pricing power below market price to score cheap political points. Market operators say tariffs are not cost reflective and the worst effect is felt by the DisCos.

Reports indicate that, as at November 2017, the aggregate debt of the Discos to NBET stood at about N536 billion, in addition to outstanding acquisition debt in the region of N400 billion according to analysts at Olaniwun Ajayi, a legal firm that specialises in energy practice among others.

Chuks Nwani, energy lawyer and vice president of PowerHouse International, an energy consultancy said: “The prevailing Disco tariff today was modelled against variables that have been overtaken by time and events and therefore does not reflect the true pricing of electricity. MYTO 2015 for Discos were built on 196/$1, 8.3 percent inflation rate, certain available capacity and therefore the final tariff was a product of this variables,”

“You recall that from late 2015 there were changes in these variables which would require reciprocal adjustment of the tariff but the government did not allow NERC to increase the tariff to meet up with the current realities. The shortfall that the Discos could not account for becomes a debt for the market which the government is under obligation to pay since it is at their instance that the tariff was not increased,”

“This is why the government has to fully implement the revised customer tariff plan even if at the end of the day, the government is not going to fully pass it on to the customer, but it has to act fast to bring in liquidity to the market as this will save the sector from total collapse and attract new investments,” said Nwani.

But this government is unwilling to address the issue squarely. Babatunde Fashola, minister of Power, Works and Housing insists that DisCos are not even providing cost reflective service and if they improve collections by metering more people, this could assuage the loses they suffer.

But this argument is disingenuous because it assumes the problem is only poor collections, but the real challenge is capacity. Customers who are metered pay as they should for power while those without meters are forced to pay charges that would have been criminal had the regulator been alive to its responsibilities. Addressing power theft needs serious investment which can only be made available through cost reflective tariff.

The Federal Government provided stimulus packages such as the N213 billion Central Bank of Nigeria Nigerian Electricity Market Stabilization Fund in 2016 and the N701 billion Payment Assurance Guarantee in 2017 but they “have failed to adequately address the issue, and it is uncertain to what extent the US$2.5 billion to be provided by the World Bank Group as part of the Power Sector Reform Programme (PSRP) will ultimately help matters,” said analysts Olaniwun Ajayi.

ISAAC ANYAOGU