Liquidity Crisis: Power Sector Operators Seek Cost-reflective Tariff

Operators in the Nigerian Electricity Supply Industry (NESI) have called for the adoption of cost-reflective tariffs for energy to consumers to attract more investments and curb the liquidity challenge in the sector.

While acknowledging that the sector has not delivered on the objectives of the privatisation 10 years ago, they noted that poor liquidity was a major contributor to the market failure.

This is as the federal government has so far spent about N3.34 trillion in the past 10 years to subsidise the sector.

Speaking at the just concluded 2023 NESI market participants and stakeholders roundtable (NMPSR) in Abuja,  chairman and board of directors of Mainstream Energy Solutions Limited, Sani Bello,stated that the absence of a cost-reflective tariff has represented a major challenge that must be addressed to provide sustainable liquidity for the entire value chain.

He explained that the ever-present liquidity challenge exacerbated by inflation and a dearth of foreign currency has continued to affect the industry’s operations. 

“While we acknowledge the effort of the current administration in trying to resolve and improve the foreign exchange environment, we look forward to a way out that will midwife an enabling environment for existing and prospective investors to thrive within the NESI.

“What we continue to tackle today is the lack of cost reflective tariff that will provide sustainable liquidity for the entire value chain, strengthened laws and enforcement of these laws that will criminalise and deter energy theft as well as non-payment of electricity bills,” he said.

In his intervention, the immediate past managing director, Abuja Electricity Distribution Company Plc, Engr. Adeoye Fadeyibi pointed out that presently only Ikeja, Eko and Abuja Disclosure can continue as a going concern.

He noted that negative cash flow in the industry was affecting operations and the ability to improve power supply to customers.

Also speaking, the country director, Energy Market and Rates Consultant Limited, EMRC, Rahila Thomas said with less than 45 per cent of customers metered, customers were wary of constant increases in tariffs.

She observed that ATC &C (Aggregate Technical Commercial and Collection Losses) is one of the major variables driving up tariff cost in the market, stressing that there should be a balance between what the regulator proposes and what’s obtainable in the market.

“Every six months, the regulator is expected to review the tariff using economic indices to bring pricing to market level. Some of these variables are inflation, forex, and generation capacity.

“A review ought to have happened in July and the realities in inflation and forex mean tariff ought to have gone up but for political reasons this hasn’t been done. Government is now paying subsidies that have amounted to N3.34 trillion. Out of that the government has paid N2.8 trillion to support tariffs.

“Unfortunately, all these monies are resting on the books of the DisCos which has impaired their ability to attract funding to improve their network”.

In her remarks, the chairman/CEO, Mojec Meters Limited, Chantelle Abdul said while it was the duty of the distribution companies to provide electricity meters to customers, financial challenges in the sector means they are unable to do so.

“There are about 10 million customers in need of meters. Seven million customers without meters and three million with old meters that need to be replaced. The cost to finance that is about $1.5 billion.

“We are talking about opening up the market and whether the regulator should be regulating the price of meters. Majority of customers are poor and won’t be able to pay for meters”.

While admitting that it would be difficult to grow the sector while relying on government’s intervention or funding, she noted “We need to develop a bankable proposition, and that requires a cost reflective tariff and right pricing of meters”.

Recall that President Ahmed Bola Tinubu, on Monday declared that there is a need to rebase tariffs in the NESI in order to recognise the real costs and loss levels of the entire value chain, and allow for adequate cost recovery for investments.

The President, who declared open the NMPSR with the theme: NESI Privatization and its 10-year Milestone: The Journey so far, opportunities and prospects, said Nigeria needs to have a clear plan to rebase tariffs, so we recognize the real costs and loss levels of the entire value chain, and we allow for adequate cost recovery for investments. We need to be clear on what shortfalls are and how we will finance them. And there must be a clear path to extinguishing historic sector debts to various value chain stakeholders. A reconciliation exercise in this regard is already underway.

Represented at the event by  the Special Adviser to the President on Energy and Power Infrastructure, Office of the Vice President, the President Sodiq Wanka, said,

“We need to quickly develop and execute a clear roadmap for serving profitable pools of customers. This includes industrial and agricultural clusters and strengthened participation in the West African Power Pool in the immediate term.

“And we must deepen engagement with the Nigerian public on power – including communicating sector strategy and key milestones and curbing energy theft through community engagement and penalties.

Operationally, there a number of key imperatives that we must pursue:

80 per cent of grid generation today is from gas. We intend to convene all relevant stakeholders to develop a gas policy for the power sector delineating where the power sector will get gas from and how it will pay for it. We cannot build a sector on best endeavour arrangements.