Yemisi Izuora
Electricity distribution companies in Nigeria have warned of the dire consequences of recent Eligible Customer Regulation by government saying it may create disruption in services as Discos may run into more financial difficulties.
The Eligible Customer regulation is condition that allows for certain customers who consume more than 2 megawatt hour, MWhr of electricity per month to exit the DisCo network and contract directly with power generators for the supply of power whose primary objectives are to promote competition and increase the supply of power.
The regulation was recently issued by the Nigerian Electricity Regulatory Commission, NERC, thus prompting the Discos to issue notice of Force Majeure to the Bureau of Public Enterprises (BPE).
Making further clarification on the matter, Sunday Oduntan
Executive Director Research & Advocacy, of the Association of Electricity Distribution Companies, ANED, umbrella body of the 11 Discos in the country said, “As DisCos, we believe that these are laudable objectives and are nothing less than that which we seek, as we strive to inject the efficiency into our operations that will improve the power supply experience for our customers.
While we do not question the legitimacy of the Honourable Minister of Power, Works and Housing’s right to declare Eligible Customers, we believe that the declaration is premature and is inconsistent with the pre-conditions established under the Electric Power Sector Reform Act (EPSRA), 2005”.
Speaking further Oduntan said, “In particular, the level of competition envisaged for such declaration, that should be in tandem with sufficiency of power supply, does not currently exist. Nor has there been an implementation of the Competition Transition Charge that is specified under the Act.
Why is the issue of Competition Transition Charge important? Eligible Customers are the premium customers that cross subsidize the cost of providing electricity to the residential class of customers. Such cross subsidization, for some DisCos, is based on a ratio of N10/kWh of Eligible Customer consumptionto N1/kWh of residential class consumption. The same class of Eligible Customers also contribute an average of 60 percent toDisCo revenues”.
According to him, With the removal of Eligible Customers from the DisCo network, the huge revenue gap that is left is expected to be imposed on the residential class of customers by an increase in their tariffs, under the Competition Transition Charge. An initial analysis of the impact of the Eligible Customer regulation indicates the need for a minimum tariff increase of N4 per kWh on the residential class customers.
In other words, residential customers, some of whom are already dealing with issues of affordability, will have to bear the burden of the premature implementation of the Eligible Customer regulation.
He stated that while there may be policy announcements that try to counter this fact by stating that such increases will not be imposed on the consumers, the question must be, “How will the gap be addressed?”
“If the answer is via a subsidy, it is then important to highlight that the current market shortfall of N892 billion (through August 2017) is a product of similar commitments that have not been met, Debt free books, Cost reflective tariff, Payment of N100 billion of subsidy, Payment of MDA debt, Commitment to return of and return on investment for the investors”, he added.
Oduntan warned that the Eligible Customer regulation will further contribute to the DisCos’ inability to recover the revenues that will enable them to make the capital investment that is critical to injecting efficiency into the supply of electricity to their customers, adding that the notice of Force Majeure submitted by the DisCos, in itself, is not a declaration of Force Majeure, but is standard to any commercial agreement, and is predicated on the concern that the DisCos, already on the verge of bankruptcy, will be further constrained in meeting the obligations of their Performance Agreements with BPE no difference from a previous situation in which the regulator, arbitrarily, removed Collection Losses from the DisCos’ tariff in April 2015, a contributor to the current market shortfall.
He also warned that, “Unless we begin to see a consistency of sector governance, a critical requirement for the viability and sustainability of the Nigerian Electricity Supply Industry (NESI), it is unlikely that we will achieve the objective of 24/7 power supply, an outcome that all Nigerians deserve”.