The Liquidity Challenge In The Nigerian Power Sector - Deal or No Deal?

1. Reportedly, the country currently has an installed electricity generation capacity of 12,522MW, with available capacity of only approximately 4,500MW due to gas supply constraints. Of the available capacity, about 7% are lost across the transmission lines, leaving only about 93% of generated electricity reaching the end-users/consumers (technical losses). However, the DisCos only collect revenue for less than 50% (some estimate this to be below 30%) of the electricity distributed to end-users[14].

   Reportedly, the country currently has an installed electricity generation capacity of 12,522MW, with available capacity of only approximately 4,500MW due to gas supply constraints. Of the available capacity, about 7% are lost across the transmission lines, leaving only about 93% of generated electricity reaching the end-users/consumers (technical losses). However, the DisCos only collect revenue for less than 50% (some estimate this to be below 30%) of the electricity distributed to end-users[1]. This is as a result of consumers’ refusal to pay their bills, theft/bypassing of meters, and a huge number of unmetered customers who enjoy free power without being billed for their consumption. The case of the refusal by Government’s MDAs and military units to pay their bills, now running into hundreds of millions of Naira, has been one of the biggest challenges (if not the biggest challenge) facing DisCos and this also amounts to setting a bad example for the private consumers of electricity in the country.      

   Central to the survivability of the whole value chain, is the collection of revenue for power generated and distributed. Thus, when DisCos are able to get consumers to pay their bills for power supplied, the DisCos are in turn able to pay NBET or the GenCos for the electricity supplied. In the same vein, the NBET will have enough cash to fulfill its obligations under the various power purchase agreements (“PPAs”) executed with the GenCos; who in turn will be able to pay the gas companies.

   Recommendation:

   Adequate infrastructure has to be put in place for the metering of all consumers while more incentives should be provided for local manufacturers of electricity meters, to reduce costs of procuring the meters by the DisCos.

   Also very important is the quality of customer services rendered by the DisCos. In this connection, we recommend improved and qualitative services to end-users of electricity as well as robust and inclusive community relations initiatives, that will give consumers a stakeholder’s impression in the electric power value chain. These efforts will collectively reduce apathy among consumers and improve on the amount of electricity bills that are settled.

________________________

[14] See: “Understanding and overcoming Nigerian gas-to-power challenges” by Bolaji Osunsanya, MD, Oando Gas and Power; PwC‘s Annual Power and Utilities Roundtable 2016.