Nigeria’s Electricity Market Records N187bn Revenue Shortfall – NERC

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Anthony Akah

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The total of revenue gap in Nigeria’s electricity market in 2015 is N187 billion, according to the Nigerian Electricity Regulatory Commission

| By Anayo Ezugwu | Jan 25, 2016 @ 01:00 GMT |

THE electricity market in Nigeria recorded a shortfall of revenue in 2015. The revenue gap in the Nigerian Electricity Supply Industry, NESI, value chain amounted to N187 billion in 2015 alone, according to a report obtained from the website of the Nigerian Electricity Regulatory Commission, NERC. The report was conducted by the NERC to determine the revenue gap in Nigeria’s privatised electricity sector.

It identified several factors such as the decision of the NERC in mid-2015 to freeze the tariff of electricity distribution companies, Discos, to customers under the residential-2 (R2) class; collection loss removal; and non-adherence to sanctity of Discos’ performance agreement with the Bureau of Public Enterprises, BPE, as the main reasons for the gap.

According to the report, every player in the electricity value chain – the Transmission Company of Nigeria, TCN, Discos, institutional services providers, electricity Generating Companies, Gencos, and gas suppliers were affected by the gap.

The implication of such regulatory decision meant that the Discos did not have a cost reflective tariff as mandated by the reform Act and as required by their sales and performance agreements. They, in this regard, could not carryout necessary investment programmes to improve on their network services; reduce system losses and meter all their customers. Also, the Discos because of the situation were found to be rejecting energy supplied from the Gencos through the TCN to them due to poor capacity of their networks, and as such were unable to settle market invoices in full for energy received due to tariffs being non-cost reflective.

The report equally stated that while there was a declaration of force majeure, market contracts entered into by the Discos could also not be enforced, thus leading to delays in the commencement of the Transitional Electricity Market, TEM. On the generation and transmission segments, the report stated that the TCN had been receiving only about 30 to 40 percent of its required revenue from the market due to Discos’ inability to settle their invoices in full.

TCN in this regard is unable to undertake required investments to remove grid constraints and improve transmission services to Discos and Gencos due to such limited revenue base. For the Gencos, the report noted that they were receiving less than 60 percent of their market revenues for their services to the market and that they had to borrow with interest to pay for gas supplies and other inputs to remain in operations thus suggesting that they will equally require that underpayments due to them is paid with interest.

Also, the shortfalls mean that Gencos are unable to firm up their gas supplies and transportation agreements with producers, as well as expand their capacities. It, therefore, places them on a best endeavour business relationship with gas producers.

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