Despite ₦‎2.8 Trillion Subsidy, Power Averages 3,000MW In 10 Years

• Privatisation has failed, review necessary – stakeholders
• DisCos’ under-payment hits N47b monthly, ATC&C losses at 75%

Despite the despondent state of electricity supply in Nigeria, the Federal Government has spent nothing less than N2.8 trillion to subsidise electricity consumption from 2015 to June, 2023.

There are indications that the tariff shortfall may climb to record high in the second half of this year following the suspension of the sector’s Multi Year Tariff Order, implemented through the Service-Based-Tariff (SBT). The SBT had relieved the government and passed the burden of the sector’s inefficiencies to consumers.

Crumbling due to the liquidity crisis, Nigeria’s power sector has distorted the books of financial institutions and pushed Small and Medium Enterprises as well as manufacturers out of business while failing to report profit.

This comes as stakeholders in separate interviews, insisted that the privatisation of the electricity sector has failed and that cosmetic solutions being deployed by the government would only add salt to the wound.

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With daily electricity off-take by the distribution companies hovering around an average of 3,000 megawatts in the last 10 years as DisCos’ remittances remained below par despite series of intervention by the Nigerian Electricity Regulatory Commission (NERC), Aggregate Technical Commercial & Collection (ATC&C) losses by some DisCos still stand at about 75 per cent.

After privatising the power sector with an intention of making it self-sufficient, in 2015, the Federal Government spent N225 billion in tariff subsidies, in 2016, N308 billion was spent, in 2017, it was N351 billion, N440 billion in 2018, N528 billion in 2019, in 2020, it was N501 billion, in 2021, it came to N251 billion, in 2022 it was N144 billion and in the first half of 2023 it was N57 billion.

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Although the subsidy came down from N528 billion in 2019 to N144 billion in 2022 as the SBT used unrealistic yardsticks to make consumers pay more for unimproved supply, the current economic indices, especially the floating of the naira, inflation and foreign exchange crisis may push the subsidy to record highs.

NERC disclosed that the DisCos currently underpay the market by N36 billion monthly with an additional monthly liquidity gap of N11.56 billion arising from underfunding of DisCos operation. This brings the average monthly working capital gap (total revenue shortfall) of the DisCos to N47 billion.

With electricity generation standing at about 4,500 megawatts, the poor management of the grid has in the last one decade pushed the national grid to collapse for over 134 times.

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As the President Bola Tinubu administration returned subsidy payments on Premium Motor Spirit (PMS), the energy subsidy coming from the electricity and PMS meant that tougher times could be ahead for the country’s economy.

Energy Scholar at the University of Ibadan, Prof. Adeola Adenikinju said the problems in the electricity sector are fundamental, stressing that a partial approach would not solve the problem.

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“The sector requires a holistic, general equilibrium approach. Piecemeal solution would be like covering a wall crack by simply putting a paper wall over it,” he said.

Adenikinju said the stakeholders in the sector have a role to play in finding solutions to the fundamental problems in the industry, noting that the ATC&C losses are symptoms of bigger problems of the sector.

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Former Chairman of NERC, Sam Amadi said the situation of the sector shows that “the privatization failed.”

“We have to sit down and review the assumptions of privatization and think through how to amend some of the errors and redirect the sector toward coherence and efficiency,” Amadi said.

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According to him, the market has missed every parameter of efficiency, stressing that there is both a modeling and project implantation problem.

Amadi said: “It is time for bold actions based on accurate and realistic assessment and diagnosis of the problems.”

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Recall that the Federal Government has about 40 per cent share across the DisCos.
Lawyer and Executive Coordinator of NEPA Wahala, Emeka Ojoko said by standing in the gap, the government may be acting as guarantor in those offtake agreements to provide a minimum level of revenue assurance to the GenCos’ lenders.
According to him, if the difference between cost of energy supplied and revenue received is too high, it would negatively affect the entire value chain.
“Now, if you check the debt stock profile of the DisCos, you will find that the government is one of the biggest debtors. Governments in its agencies, institutions and parastatals rarely pay their bills on time or at all,” Ojoko said.

He disclosed that, like fuel subsidy, electricity subsidy is prone to abuse and fraud with the high level of opacity.
Managing Director of Mainstream Energy Limited, Lamu Audu said given the financial constraints of the government, the liberalization of the power sector remained the only way out.

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“While this transition may be painful, akin to the removal of subsidies, it is necessary to attract private investment and enable companies to charge tariffs that would allow them to recoup their investments,” he said.

Audu said the Transmission Company of Nigeria needs the right efficiency.
Founder & CEO at ZKJ Energy, Inc and former Managing Director Nigerian Bulk Electricity Trading Plc (NBET), Rumundaka Wonodi said affordability remained a critical concern in fueling the liquidity crisis in the sector amidst energy theft and worsening economic problems.

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He noted that the current generation capacity would not deliver the needed energy for the country, adding that the electricity grid must be reliable and carry at least 8,000 megawatts.

“I believe that once we have more power, the current energy cost would reduce and increase consumer satisfaction,” Wonodi said.

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