By Favour Nnabugwu
Failure by 11 electricity distribution companies in Nigeria, DisCos, to fully pay for electricity allocated to them created a deficit of N66.85 billion in the Nigerian Electricity Supply Industry, NESI, in the third quarter of 2021, according to the Nigerian Electricity Regulatory Commission.
NERC in its third quarter report on the sector’s performance stated that while the DisCos were billed N208.54 billion for energy and administrative services by the Nigerian Electricity Bulk Trading Plc and Market Operator, MO, they collectively remitted a total of N141.69 billion (N100.16 billion for NBET and N41.53 billion for MO), translating to a remittance performance of 67.94 percent during the third quarter.
The report added that the remittance was however 17.84 percent higher than the 50 percent remittance rate recorded in the second quarter of 2021.
The report indicated that Eko DisCo recorded 103.29 percent (N20.40 billion) remittance performance while Abuja, Ibadan, Kano, Ikeja, Kaduna and Yola DisCos had remittance performances of 83.24 percent (N23.05 billion), 58.14 percent (N17.50 billion), 49.37 percent (N8.17 billion), 13.35 percent (N2.46 billion) and 21.19% (N0.96 billion) respectively in 2021/Q3.
“This remittance is consistent with relative stability in collections – the escrow mechanism has ensured that as much of the collections as possible is used to meet upstream market obligations”, the report added.
NERC explained that “as part of the conditions for the several interventions that the CBN has extended to the DisCos, an escrow agreement was set up. Under this arrangement, all the revenues of the DisCos are escrowed with DisCos only having access to these funds after necessary deductions (VAT payments, repayments of CBN loans, payments to upstream players in the NESI – TCN and NBET) have been made. This escrow mechanism provides visibility into the financial performance of the DisCos with respect to collections.
“In June 2020, the remit of the fund manager responsible for the escrow was expanded to include the implementation of the payment waterfall framework which was designed by the Commission to increase upstream market remittance to NBET to cover the cost of energy taken from Generation Companies and MO for transmission and administrative services. Prompt payment of upstream market settlements is critical for securing the availability of generation and transmission capacities. The waterfall regime pushes DisCos to boost their collections because a majority of their allowed revenues rank low in the waterfall.
“In the absence of cost-reflective tariffs, the Government undertakes to cover the resultant gap (between the cost-reflective and allowed tariff) in the form of tariff shortfall funding. This funding is applied on the NBET invoices that are to be paid by DisCos.
“The amount to be covered by the DisCo is based on the allowed tariff determined by the Commission and set out as their Minimum Remittance Obligation (MRO) in the periodic tariff Orders issued by the Commission”.