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Electricity distribution companies think power intervention funds alone will not solve the revenue gap in the industry unless electricity tariff is appropriately priced

|  By Anayo Ezugwu  |  Mar 27, 2017 @ 01:00 GMT  |

DESPITE the N701 billion intervention funds approved by the federal government for the power sector, the electricity distribution companies, DISCOs, have said that it will worsen the revenue shortfall in the sector. The DISCOs under the aegis of the Association of Nigerian Electricity Distributors, ANED, said the fund is just a partial solution to the liquidity challenges facing the sector.

According to Sunday Oduntan, executive director, research and advocacy, ANED, the fund will only solve N300 billion energy supply liabilities, rehabilitate and replace faulty or old turbines and pay for the supply of gas for the thermal generating plants. Oduntan argued that the fund holds the potential for exacerbating the revenue shortfalls that the market is currently suffering from.

While an increase in electricity supply is the desired objective of everyone, he said such outcome without the requisite full recovery of cost via the appropriate pricing of power, would worsen revenue gap in the market.

Since the approved intervention is not expected to be a subsidy to the market, the assumption is that the proposed funding will eventually be recovered from the customers of the DISCOs. For such recovery to be effected, he argued that the Transmission Company of Nigeria, TCN, needs to have the required capacity to wheel the additional power being generated.

“Funding the transmission network is therefore imperative, for the proposed FGN intervention to work.  Increased generation without commensurate wheeling capacity arising from a stable and robust transmission grid will result in stranded capacity and significant lost revenues,” he said.

Oduntan said the intervention fund as announced by Babatunde Fashola, minister of power, works and housing, is a welcome development. “From the little details made available to us, the historical shortfall doesn’t seem to have been addressed within this initiative. This is imperative as Discos need to be able to make the necessary investments in network upgrades, improved customer service, billing and collections, metering, etc., all of which have been major issues in the industry.

“Such investments will not happen unless the DISCOs make the projected annual revenue requirements, which enables access to finance for the required capital expenditure (Capex). Access to such financing is predicated on appropriate pricing of the retail tariff. The growing working capital debt on the DISCOs’ books, less any amounts to be paid under the intervention, will also continue to impede DISCOs’ ability to fund retail distribution Capex requirements.”

Oduntan said it was essential to use this period to appropriately allocate all the risks in the electricity value chain. This includes the need to address the issues of access to foreign exchange (as well as the mitigation of the challenges associated with its volatility through regular reviews as contemplated in the MYTO act), security of gas pipelines, and others.

He is of the view that regulatory certainty and consistency is the foundation for enabling and promoting the commercial conditions that will ensure a viable and sustainable Nigerian Electricity Supply Industry, NESI, and ultimately, the evolution of NESI into the Transitional Electricity Market, TEM phase.

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