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Rift Deepens Among Operators as FG Orders GenCos to Sell Power to End Users

Transcorp Power Limited

As rift between the Nigerian Power Generation Companies (GenCos) and its Distribution counterparts (DisCos) deepens, over the unpaid N500bn accumulated debt owed the GenCos by DisCos, the recent decision by the Federal government declaring direct electricity purchase from the Power Generation Companies (GenCos), by a group of consumers across the country has been adjudged promising and a welcome development by industry watchers and a big sigh of relief to the power generation entities in the country.

Though this not without its attendant kicks by the DisCos, particularly on federal government’s plan to escrow the latter’s accounts over its failure to meet the terms of the privatization agreements. But expectedly, it was indeed a big sigh of relief for the twenty-six power generation companies in Nigeria, the  GenCos, as federal government directed that certain customers can now buy electricity directly from them, but the aftermath development indicates  it is not yet uhuru as rift deepens between the Nigerian Power Generation Companies (GenCos) and its Distribution counterparts (DisCos),  over the government plan to escrow the latter’s account, the proposed N701billion federal government intervention fund and non remittance of accumulated  debts to the tune of about N500 billion owed the Gencos by Discos.

Informavores Online authoritatively gathered that the huge debts incurred by the various electricity distribution companies (DisCos) have almost crippled the activities of the GenCos, hence the Federal government declaration of right of access to purchase electricity directly from the GenCos by willing customers, pursuant to section 27 of the Nigerian Electric Power Sector Reform Act (EPSR) 2005.A

The move has however been adjudged promising and a welcome development by industry watchers at a time the sector faces liquidity challenges, indicating a big sigh of relief for the 26 GenCos through their umbrella body- the Association of Power Generation Companies (APGC).

There are fresh insights as to why the operations of the different power generation companies (GenCos) across the country have been rendered prostrate, and plans by the GenCos to bypass the Discos and supply power directly to certain class of customers due to the huge indebtedness by the DisCos.

The APGC have described the declaration as a welcome development when the Minister of Power, Works and Housing, Mr. Babatunde Fashola analysed the eligibility’s status, that bulk customers who are willing and have the capacity can procure power directly from the Generation Companies (GenCos) bypassing the Distribution Companies (DisCos).

At a press briefing in Abuja, its Executive Secretary, Mrs. Joy Ogaji said the move, tagged, ‘Eligible Customer’, will encourage competition and liquidity in the power sector.

Describing their plight as “Monkey dey work Baboon dey shop”, Ogaji laments how GenCos have cried fowled in their quest to compel the distribution companies to settle the backlog of over N500billion in accumulated debt for power generated and supplied from 1st November 2013 till date, thus reducing their ability to pay for gas and maintain their plants amongst other obligations.

The APGC boss added that the declaration will boost liquidity in the power sector and stimulate more competition for the DisCos, the Transmission Company of Nigeria (TCN) and the GenCos to serve customers for the better.

The eligible customer directive is yet to commence as she said the Nigerian Electricity Regulatory Commission (NERC) is working on the framework that will address registration and tariff setting among other conditions.

APGC also confirmed that GenCos now operate fewer turbines to generate power based on the quantity of gas that they can pay for.

“To procure gas, we need money. Currently, GenCos are owed N500b and gas companies owed nearly N200m. Most gas suppliers say they can’t supply anymore until we pay.

“Most of them like Shell, Total offer pay-before-service routine and the electricity market is only remitting about 30 per cent. Most of the GenCos can’t operate all their machines; it depends on what they can pay. We are in that state, a precarious and pitiable one,” she lamented.

On eligibility status, she continues:

“DisCos are actually able to get power through this arrangement on the grid. Those DisCos willing to get additional power qualify as Eligible Customers as well.

“If they have more customers and are not getting enough due to the strict national grid allocation, they can ask for extra power. In that case, a DisCo will need a bilateral contract not with the Nigerian Bulk Electricity Trading Plc (NBET) but with a GenCo, and the Transmission Company of Nigeria being the third party,” she explained.

The GenCos claimed that they have been at the receiving end of the lack of liquidity in the sector and blamed the Discos for not been transparent in the revenue for electricity consumers across the country.

However, gas suppliers have equally corroborated the claim that there is enough gas to generate power but that the generation companies cannot pay for gas.

Since power supply worsened in recent months, which had prompted Africa’s richest man and president of Dangote Group, Alhaji Aliko Dangote, to call on the federal government to cancel the power privatization, there had been blame games among industry players.

The controversy nevertheless have sparked federal government anger, having forewarned the Discos to tread parts of honour and respect terms of agreements as enshrined in the regulatory agency (NERC)’s Acts in ensuring steady electricity supply is distributed to Nigerians.

However, the new order by the federal government, though not without the familiar kicks by the Discos, particularly against the federal government’s plan to escrow the Discos accounts over its obvious failure to meet the terms of the privatization agreements.

The DisCos through its Association of Nigerian Electricity Distributors (ANED) have opposed the move saying the electricity market was immature and not competitive to declare eligible customers.

ANED’s spokesman, Mr. Sunday Oduntan recently said, “Our understanding is that Eligible Customers may only be declared by the Minister when a competitive market exists in the Nigerian Electricity Supply Industry (NESI).”

ANED insisted that such competitive market, “currently, does not exist,” adding that Section 28 of the EPSRA states that DisCos “must be compensated for any reduction in their ability to “earn permitted rates of return on their assets” or any inadequacy in their revenues.”

However, indications emerged that, all players in the Nigerian Electricity Supply Industry (NESI) have actually failed to meet the terms of the privatization agreement leading to the recent liquidity challenges that have crippled power supply in recent months, and the Gencos, one of the key in the electricity supply value chain is at the receiving end of the crisis due to occupational imbalance.

While the Gencos cried fowled of non remittance of proceeds by Discos, Discos on their part blame the federal government and electricity consumers for the failure of the sector, the government has also accused the companies of frustrating its effort to activate their agreements in the Transitional Electricity Market (TEM), which should bind them to objective service delivery.

On several instances of breaches of the market rules, NERC has responded with appropriate sanctions against erring Discos.

But despite NERC’s sanctions, some of the Discos have continued to flout the market rules by extorting customers through exorbitant estimated bills. Ironically, while some Discos have embarked on massive rollout of free prepaid meters to their customers, others, which operate under the same market conditions, have suspended the provision of prepaid meters, citing high cost of forex difficulties.

However, the 11 electricity distribution companies in the country recently kicked against an alleged attempt by the federal government to escrow their account as part of the measures to resolve the liquidity challenges.

The Discos, under the aegis of the Association of Nigeria Electricity Distributors (ANED), have embarked on a spirited campaign to absolve themselves of any blame for the apparent collapse of the power sector, accused the federal government of failing to fulfill the terms of the privatisation agreement, including the provision of N100 billion subsidies. The excuse by the distribution companies is that the tariffs paid by customers are not cost-reflective enough for them to recover the actual cost of power and remit to NBET. They also blame their revenue shortfall on MDA debts and failure of customers to even pay at all. Apart from the over 3,000MW lost to vandalism, the Discos noted that the MDAs were indebted to the sector to the tune of N100 billion.

Countering such argument, the Transmission Company of Nigeria (TCN) is also not left out in the game, TCN say the Discos are to blame for rejecting power allocated to them.

The Nigerian Bulk Electricity Trading (NBET) on its part, has claimed that it has insufficient fund to pay the Gencos because the Discos make under-payment for the power they buy and distribute to their customers.

But the reality, according to Discos, is that the sector is operating at a loss since two and a half years plus with no bank willing to lend money to them, as the banking sector is already exposed to oil, gas and power sectors by over N3 trillion.

In his reaction, the Minister of Power, Works and Housing, Mr. Babatunde Fashola has accused the Discos of becoming a stumbling block to the smooth regulation of the power sector by NERC, saying there are instances where the Discos have by their actions impinged on NERC’s regulatory responsibilities. He had also alleged that the Discos were largely responsible for the delay in the settlement of debts owed them by the MDAs.

Fashola, had challenged the Discos to also use the same campaign, which they have mounted in the form of advertorials, to tell Nigerians that they refused to submit their annual statement of accounts to the Nigerian Electricity Regulatory Commission (NERC) as required by the power reform law.

“Advert should also have told the Nigerian public how many Discos have gone to court to frustrate the attempt by NERC to hold them to their contracts so that they can pay the Gencos who have been sacrificing, the gas producers who have not received payment and who have continued to act patriotic,” Fashola had said.

The federal government is of the view that the fact that the Discos are hiding their books from the regulator is a strong indication that they are not telling Nigerians truth about their financial state.

Asides the facts that electricity distribution companies have refused to submit their audited accounts to the Nigerian Electricity Regulatory Commission to foreclose the fact that they have something to hide and stop casting doubts on the claim that they have negative balance sheets, which they have used to justify exorbitant estimated bills slammed on consumers, it would also be recalled that, NERC sometimes ago revealed that some Discos are super-rich with hundreds of billions of naira stacked in their bank accounts, and yet unable to effectively metered electricity customers  across the country.

To resolve the liquidity challenge in the power sector, the government recently unveiled a plan to create an escrow account for the power sector, in the wake of continuing revenue shortage in the Nigerian Electricity Supply Industry (NESI), with N701 billion intervention fund for the Nigerian Bulk Electricity Trading Plc (NBET) to pay generation companies (GenCos) for services rendered, to be spread over a period of three years.

Funnily, Discos in its usual manner did pick hole in the move, saying that it would prevents the injection of cheap and needed capital that is critical to the rehabilitation and improvement of electricity infrastructure.

Speaking through their trade association, the Association of Nigerian Electricity Distributors, ANED’s Director of Research and Advocacy, Mr. Sunday Oduntan, told journalists in an interactive session in Abuja, said, “You cannot have a supposedly private sector-owned and managed business in which the government now seizes control of its revenues.”

“It is a contradiction in terms and practice.”

Describing the N701 billion interventions for the Gencos as “too partial,” Oduntan said it was necessary for the government to take a holistic approach towards resolving the liquidity problems.

But GenCos also countered that Discos opposition to central revenue management initiative suggested that they might be hiding something from other operators.

Dr. Joy OgajiDr. Joy Ogaji, also said at the briefing that claim by the Discos that the proposal was an attempt by the government to nationalise their operation was unfounded.

She noted that concerns raised by the Discos on the proposal were worrying especially on the basis that the revenue in question belonged to the entire market and not just them.

Ogaji also argued that this would also send the right signals to potential investors and licensed generation investors to advance their commitments to the sector.

Continuing, she held: “The issue of everyone crying wolf should be fast gone. There have been blame games being played by the various players in the sector; it does not matter whose voice is loudest.

“The truth is, the generation companies have in keeping to the terms of their contract, generated power which has been sold by NBET to the distribution companies. What the generation companies want is to be paid fully for power received and sold. If one claims electricity consumers are not paying, let us see the payments transparently.

“If centralising the payment system is tantamount to nationalising, the question that comes to mind is: what does selling the electricity and keeping the money all to one-self mean? If Discos claim they are not collecting enough, then they should open their books to make it plain for all to see and confirm their story. He who asserts must prove,” she added.

Indeed, since the power assets were handed over to the new investors on November 1, 2013, some of the Discos have demonstrated lack of capacity to run these assets. Rather than explore other funding options, some of these companies have resorted to extorting consumers through exorbitant estimated billings, concealment of their books from NERC, blackmailing government, and flouting market rules.

Observers say, though the government shares part of the blame, there is indeed, a lack of sincerity on the part of most Discos, who have resorted to blackmailing the government and consumers.

Meanwhile, Fashola has declared four categories that can buy power from GenCos by signing a Distribution Use of System (DUOS) to use the DisCos networks or through the Transmission Use of System (TUoS) if they are larger industries connected to the facilities of the Transmission Company of Nigeria (TCN) directly.

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Sola Omosola Akingboye
Sola Omosola Akingboye

Sola Omosola Akingboye graduated from Lagos State University, Ojo and also an alumni of International Institute of Journalism, Abuja. The Abuja based Media Consult is a member of NUJ, FCT Chapel; Member, Nig Energy Correspondents and affiliate of other proffesional bodies such as Believe in Nigeria Initiative (BINI); Change Agent for Positive Transformation (CAPT); OSHA Association for Industrial Safety in Nigeria. He is currently an Associate Editor and Chairman Editorial Board Informavores.com.ng.