Power sector loses N159.85bn in 2021 over non-payment for unused power

By Emmanuel Marculay

The challenge posed by Electricity Generation Companies, GENCOs, in Nigeria continued in 2021 despite efforts to improve the power supply chain in the country.

Data obtained by EnergyDay revealed that between January and December, 2021 GENCOs recorded losses associated with non-payment for unused electricity at N159.85 billion.

However, the figure indicated a drop in losses when compared with N266.11billion in the corresponding period of 2020, translating to a decrease of 39.93 percent.

This comes as authoritative industry report sighted by EnergyDay also showed that average Nigeria’s unutilized power generation has dropped year-on-year, YoY, to 2,248.50 Megawatts, MW in 2021, from 3,742.43 MW in 2020, indicating a decrease of 39.92 per cent.

This may be a reflection of inadequate investment in the transmission subsector over the years.

Specifically, the highest non-payment for unused electricity put at N29.31 billion was recorded in March 2020 while the least non-payment for unused electricity put at N8.95 billion was recorded in February 2021.

Similarly, the highest unutilised power, 3,291.15MW, was recorded in September 2021 compared to 4,489.00MW recorded in April 2020, while the least unutilised power of 1,634.87MW was recorded in February 2021 compared to 1,717.03 MW recorded in December 2020.

This showed that adequate investment has not been made over the years to transmit and distribute electricity to consumers, including households and companies after eight years of privatisation.

Meanwhile, the development has denied the nation of substantial power which could have been utilised to boost economic and other activities sector-wide. It has also constrained GENCOs from generating revenue from their unutilised power over the years, especially as the data noted that although available generation capacity exceeded 5,000mw, it has not resulted in 100 per cent invoice settlement.

According to one of the reports, “The current situation in the Nigeria Electricity Supply Industry, NESI, represents an absurdity of sorts, all the legacy and National Integrated Power Projects, NIPP, power plants are operating with quasi Power Purchase Agreements, PPAs, which clearly presents a scary situation for any investor, as no guarantee of any sort is in place to assure any form of return on investments.

GENCOs’ investors are exposed to the vagaries of an investment climate bereft of a private-sector friendly regulatory environment. Left to look up to robust assurances from multilaterals, export credit agencies, ECAs, development finance institutions, DFIs, and insurers to mitigate these risks, either through guarantee instruments, political risk insurance, or the ‘halo’ effect that multilateral entities like MIGA provide.

“The implication is that project lenders price these risks in their interest rate margins and carefully scrutinise the project for weaknesses that may allow the relevant authorities to backtrack on their commitments, a major risk (lack of sanctity of contract). Power remains a national problem, as over 40 per cent of the GENCOs available capacity is not being enjoyed by consumers due to constraints. However, due to system constraints, the generated power is rejected or forced to be reduced to match the infrastructure that transmits and distributes this power to the customer.

“Records show that monthly ‘unutilised capacity’ was averaging about 50 per cent up until 2020 before it fell to about 30 per cent in 2020 when GENCOs’ available capacities were forced to drop because of systemic challenges.”

It noted that the “stranded capacity has consistently grown since 2013 till date, thereby making GENCOs increased capacity not translating to a corresponding increase in power supply to consumers.

It is international industry best practice in critically underserved countries, that available generation capability should be equal to average generation (energy utilised).

”In Nigeria, available generation has met increased stranded capacity as the generation PPA with NBET provides for capacity payment which is not being made. Citing World Bank 2021, as a result of these power challenges, about 85 million people, representing 43 per cent of Nigeria’s population are reportedly without access to grid electricity, making Nigeria the country with the largest energy access deficit in the world. This has become a big challenge and an inhibitor to the Nigeria Electricity Supply Industry, NESI, weakening the efforts of the generation companies in recovering unavailable capacities and exploring expansion of capacity, considering the massive fixed charges incurred to keep such units available.”

Experts

Commenting on the development, the minister of power, Mamman Saleh, had said some of the major challenges facing the nation’s power aspirations were lack of adequate infrastructure, implementation of policies, revenue, and distribution of power.

He said it was sad that while Nigeria has 23 power generating plants connected to the national grid with the capacity to generate 13, 000 MW of electricity, it could only distribute about 4500.

“We have over 13, 000 MW of generation capacity but what we are able to distribute is about 4500,” he said. ”Beyond this ‘misalignment’ of energy capacity, we have the challenge of paltry remittance from the downstream participants, that is the distribution companies as well as the problem of low uptake of stranded capacity in the whole power system of unserved grid buyers.”

Managing Director, Aiteo Power and Gas Group, Mr. Ransome Owan, offered three new perspectives he opined would radically address Nigeria’s power challenges.
He stated that it was time Nigeria started/enhanced a ‘free meter saturation programme’ which would increase energy capacity, access, and revenue ultimately. He also proposed a ‘city by city power 24/7 programme’, which he said should be a leaf borrowed from the nation’s mobile phone industry.
He noted that, “Nigerian should stay the course of privatisation, and avoid policy somersaults”.

He also said while reforms were necessary, it was also important to make the sector investment-friendly.

He said “The velocity of metered electricity or power to the consumer must be equal to the revenue coming back to the operators. However, in our nation, there is an inequality sign which translates to revenue shortfall and this is one of the challenges we must address.”

Meanwhile, Muazu Magaji, Chairman, NNPC AKK Pipeline Project Delivery and Industrialisation Committee, called for “adjustment in the current privatisation equity” so as to enhance the optimal performance of the sector.

“We need to refocus to have an identity of its own and a brand we must be able to hold accountable,” he said. ”There are of course vested interests as in every sector, but we must have the courage to do the right thing for our people.

Group Managing Director, Sahara Power Group, and Chairman, Ikeja Electric Plc, Kola Adesina, said: “The challenges currently hampering the power sector is the absence of a commercially viable plan. Those of us that have invested haven’t made money. So why would anyone want to invest? If you want to invest, you want to first talk to the existing investors and find out whether or not they are making money.

“We are not making money. But if we arrest the issues affecting investment, there would be an improvement because money loves to go to where money is. So if the sector is investment-friendly, the price of the commodity is right, policies are clear and consistent, regulations are fair and known to all, then so much money will be available.

Previously, until we created the Service-Based Tariff, it was taken by the system and adopted as a way of life. Where is the Service-Based Tariff when people are enjoying 20-22 hours of power? In Nigeria, that would be alien. But today, it is happening. We now have to sequence the number of hours people enjoy electricity and make them pay accordingly. So, things are getting better than they were in 2013.

“But are they as good as they should be? No. So we are not where we wanted to be, but we are better than we were before. We were doing 2,200MW and 2,500MW at the time we took over. Now, we have gone to over 5,000MW. But is that the way we should have grown? No, that is slow.” However, he, added that the time has come to deliver more electricity to consumers who should be able to pay. He said: “Government is paying but it is not sustainable. My own framework will be for consumers to pay for the power they are getting. It’s simple. Governments shouldn’t be the one paying, but consumers should be. Until we deregulate the sector to the point that consumers should be responsible for the power they are receiving, then we are not going to go as far as we should.

“This is because, the danger of subsidy in any way or form is the fact that the money being used to subsidise can be used elsewhere. The question is: what is the government subsidising? Is it production or consumption? But in Nigeria it is consumption. If you subsidise consumption, you are not going to do well with the economy. If the government says to those of us that are in the business that it wants to make our production sharper – we understand, but not consumption.

“Anyone that wants consumption should pay for it. Then, you will see phenomenal growth in the system. We don’t have enough generating plants. The total installed capacity is about 14,000 megawatts for a nation of over 200 million. That’s ridiculous. So, what is it that would incentivise investment in that space? It’s difficult but it’s the hard truth.”

The issue is now an emergency as some of the GENCOs cannot sustain their businesses with heavy debt burden running into billions of naira. Nigerian Bulk Electricity Trading, NBET as a means of insulating itself from the obligations it was saddled with, came up with disclaimer (exculpatory) clauses and several versions of the quasi Power Purchase Agreement, PPA given to the legacy plants via the security trust deed, the PPA activation agreements and other addenda’s transferring its obligation to a third party to bear.

“Rather than activate the PPA agreements, blames are traded by both NBET and DISCOs as to their inability to provide the needed guarantees for five years, leaving the GENCOs in limbo bearing all the associated risks, since there is no risk management framework in the sector. The lack of adequate risk management mechanism implies that the problem of the sector continued unabated since the GENCOs are unable to bear all the risk.

Similarly, in an interview with EnergyDay, President, Nigeria Consumer Protection Network, Kunle Kola Olubiyo, called for massive investment in the transmission and distribution in order to transmit and distribute more electricity to consumers. He said that several activities are currently scuttled in the private and public sectors because of low and unstable power supply, adding that many locally produced products and services are not competitive in the global market, due mainly to the high cost of production.