Reflections On The Disconnection Of Electricity Companies From Nigeria’s National Grid

Reflections On The Disconnection Of Electricity Companies From Nigeria's National Grid

Author: Ngozi Chinwa Ole and Lynda Ugo Ezike

Reports in the national dailies about the disconnection of debtor electricity distribution companies (Discos) and generation companies (Gencos) from the national grid by the Federal Government reverberated through the nation. This move by the Federal Government was a result of the failure of the Discos to meet up with their payment obligations including ancillary services bills. The inability of the Discos and Gencos to timeously or adequately pay their outstanding bills partly emanates from the inability of electricity consumers to pay cost-reflective tariffs. There are laws designed to enable investors to recoup their costs in the electricity industry post-privatisation. The Electric Power Sector Reform Act (EPSRA) 2005 is the primary law for this purpose. Among other things, it provides for the establishment of support mechanisms including the Power Consumer Assistance Fund (PCAF).

It is apt to reiterate that the Discos and Gencos are unable to meet up with their financial obligations like paying outstanding invoices and/or posting letters of guarantees partly because of consumers’ inability to pay a cost-reflective tariff. The inability of consumers to pay is because of the lamentable level of poverty in Nigeria. According to the World Bank’s report on Nigeria’s poverty assessment for the year 2022, four in ten Nigerians live below the national poverty line (citation). Similarly, the National Bureau of Statistics results of the year 2022 multidimensional poverty index (MPI) survey mirror the aforementioned report by the World Bank as it stated that 63% (133 million persons) of Nigerian residents are multidimensionally poor. Consequently, underprivileged power consumers are unable to afford a cost-reflective electricity tariff. Even the amount of revenue collectable by the Discos is obscured by collection losses occasioned by corruption and meter bypassing by some poor consumers. The latter leads to a multipliers effect of the inability of Nigerian Bulk Electricity Trading Company (NBET) to offset the cost of electricity purchased from GENCOS. Resultantly, GENCOS are unable to secure a steady supply of gases because there is no underlying gas supply agreement between them and, the companies.

Another underlying cause of Discos and Genco’s indebtedness is the debt profile of Ministries, Departments and Agencies (MDAs). MDAs are currently the highest debtors to Discos. Their debt profile constitutes the majority of the collection losses of the Discos. The act of MDAs not paying their bills is inexplainable but appears to tilt towards a lack of the will to as opposed to a problem of affordability. Given that MDAs are the extension of government, Discos cannot dish out such sternness as they would if a private consumer were to owe.

The drafters of the EPSRA 2005 – which is the principal law governing Nigeria’s electricity sector, envisaged the negative ramifications of the poor electricity consumers in Nigeria and provided for a solution through the establishment of a financial mechanism, called the Power Consumer Assistance Fund (PCAF). While the PCAF is a financial tool provided for by the drafters of EPSRA to deal with/take aim at the matter pertaining to the financial sustainability crippling the development of the electricity sector. Precisely, section 83 of the EPSRA states that the Nigeria Electricity Regulatory “Commission shall set up and administer a fund under the name of ‘the Power Consumer Assistance Fund…” and the said “Power Consumer Fund shall be used to subsidize underprivileged power consumers as specified by the Minister”. Implicit in the latter is that the PCAF was brought forth to tackle the issue of financial sustainability of electricity projects through the payment of subsidies that bridge the gap between the tariff paid by the disadvantaged electricity consumers who cannot afford a cost-reflective tariff. The EPSRA further provides that the PCAF shall be derived from the contributions of eligible consumers and any subsidies received from the Federal Government of Nigeria as appropriated by the National Assembly (section 83 (3)). More specifically, Section 86 of the EPSRA 2005 provides that: “where the minister has determined that subsidy payments from the Power Consumer Assistance Fund should be disbursed to distribution companies for electricity supplied to designated consumers, or classes of consumers, the Commission (NERC) shall disburse the subsidy to such distribution companies at the rate for the duration specified by the Commission.”

Despite the efforts made by the Federal Government to address the financial sustainability issues of the electricity sector by way of the EPSRA regulatory framework, there are still identifiable gaps and defects pertaining to the establishment of the PCAF. First, although there is a binding obligation on the NERC to establish the PCAF, there is no provision that expressly stipulates that there be a deadline or timeline for the mandatory establishment of the PCAF by the NERC. As a result, NERC is yet to set up the PCAF regardless that over a decade has elapsed since the adoption of the EPSRA.

A second primary problem relating to the PCAF is the paucity of funding sources, thereby negating the possibility of addressing the challenge of financial sustainability of the electricity of sector. Section 83(3) of the EPSRA 2005 states that the PCAF shall be funded by eligible customers and contributors. Taking into cognizance the earlier-mentioned poverty rate in Nigeria, very limited funding can be secured from the contributions of eligible consumers and customers – as most consumers can barely afford to pay the electricity tariffs. As it stands, the Discos are currently running commercial and collection losses of over 50% of their anticipated revenue. Given that they are yet to even recover their basic cost of investments through the payment of eligible customers, it remains to be seen how the PCAF can be funded. Thus, the only light at the end of the tunnel would be funding provided by the Federal Government as allocated by the National Assembly. What is more, the PCAF does not cover collection losses occasioned by the refusal of MDAs to pay accruing tariffs.

In the final analysis, the Federal Government is, under the Public Good Theory, obligated to underpin a viable electricity sector in order to provide electricity to consumers. It is therefore recommended that the Government steps in to ensure that the electricity sector is a viable one by making amendments to the affected provisions of the EPSRA or other relevant regulations. The PCAF should be up, running and fit for purpose. Government should own up to their responsibilities of ensuring that they lead by example through the MDAs paying their scheduled dues timely. On their part, the Discos should make the most out of the situation by cutting off non-paying consumers as they cannot continue to run collection losses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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