CO-CREATED CONTENT How CBN escrow of DisCos’ bank accounts saved sector from collapse
EDistribution Companies (Discos) only managed to remit N265.03 billion of the expected N519.77 billion to the Nigerian Bulk Electricity Trading Company (NBET) in the first six months of 2021.
Data from the Nigerian Electricity Regulatory Commission (NERC), the latest in the series, revealed that despite intermittent government intervention, liquidity in the sector has remained a major challenge.
In the first two quarters, spanning January to June, the data showed that only about half of the total expected payments to NBET were made by the 11 Discos to NBET and the Market Operator (MO).
From January to March, the Discos received N260.07 billion invoices for the energy they got from the bulk trader and for service charges by the MO, out of which only a sum of N134.92 billion was settled.
In the same vein, for the second quarter, between April and June, while the power distributors were billed N259.70 billion, only N130.11 was remitted.
Basically, NBET purchases electricity from the Generating Companies (Gencos) through Power Purchase Agreements (PPAs) and sells it to the distribution companies through vesting contracts.
It also manages and administers the financial flows for the physical supplies on the network, encourages operation of a competitive market and promotes a contracts-based market that allocates risks efficiently to parties responsible for them.
Privatised in 2013, the power sector, aside from failing to perform, has been in financial crisis, requiring perpetual intervention fund from the government.
In a bid to stem the tide, The Central Bank of Nigeria (CBN) directed Deposit Money Banks to take charge of the collection of electricity bill payments.
A circular signed by Hassan Bello, director of banking supervision had linked the move to the recommendation of the Power Sector Coordination Working Group to improve payment discipline in the Nigerian Electricity Supply Industry (NESI).
Recall that the Distribution Companies (DisCos) are responsible for the sector’s revenue collection. While there was clamour for an increase in tariff, the sector’s inability to improve on the collection and reduce losses, a basic part of DisCos Key Performance Indicators, as well as inability to make remittance to the Bulk Electricity Trading Company almost grounded it.
Energy experts have claimed that the decision by the Central Bank of Nigeria (CBN) to escrow the bank accounts of electricity distribution companies in August 2020, saved the power sector from collapse.
The apex bank decision restricted transactions on the bank accounts of the 11 utilities by allowing payments to flow in but blocked withdrawals by the DisCos.
With the Nigerian Electricity Supply
Industry (NESI) said to be burdened by about N819.97 billion bank loans, escrowing the accounts made repayment of loans to the Federal Government (including the CBN) first priority, followed by 100 per cent payment of market operator’s invoices and the invoices from the Nigerian Bulk Electricity Trading (NBET) Plc before others.
Speaking on the policy, former Managing Director of NBET, Mr. Rumundaka Wonodi pointed out that while it remained critical to ensure DisCos perform their operations, the account escrowing ensured transparency in the sector.
According to him, “So far it has helped in increasing revenue in the sector. So many people have accused the DisCos of poor remittances; the initiative will make everything open. But it needs to be widened.”
On his part, former Chairman of Nigerian Electricity Regulatory Commission (NERC), Dr. Sam Amadi noted that the gains in the revenue may remain elusive if it doesn’t translate to improved operations of the DisCos.
“I don’t think it has significantly improved power supply to homes and businesses”, Amadi stated, stressing that the purpose of the escrow was to enable the CBN to recover its fund so that it is not frittered away or used by the DisCos to finance their investment.
According to him, “The CBN intervention is special funding to deal with the liquidity crisis and legacy debt in the sector. It was supposed to be repaid but through a convenient process that will not adversely affect DisCos’ investment plans. The gains are two folds: whether CBN is getting repayment as and when due. I think through the escrow the CBN can guarantee itself repayment”.
On his part, Mr. Chijoke James, National President, Electricity Consumers Association, said while keeping the financial status of the sector healthy was important, improving the quality of service to consumers was more critical.
He, therefore, urged the apex bank to ensure that investment in distribution infrastructure and meters for consumers was also given paid special attention.
“We want to see all consumers provided with electricity meters and an end to the estimated billing system in Nigeria. We cannot continue to allow the distribution companies to shortage consumers by issuing them bills for the electricity they did not consume.
“We find this unacceptable and will continue to advocate against such unjust practice by the DisCos”, he added.
Recent industry data released by NERC had shown that electricity consumers across Nigeria paid N565.16 billion for energy in the first nine months of 2021.
The data showed that the amount collected by electricity distribution companies was 34.02 per cent higher than the N372.92 billion collected over the same period in 2020.
The Association of Power Generation Companies (APGC) has backed the Federal Government’s intention to escrow the revenue account of power Distribution Companies (DisCos), saying it would enhance equity in revenue sharing, transparency and attract investors to the power sector.
It however, advised the Federal Government to involve the GenCos in its decision-making process as it was yet to know whether the N701 billion electricity purchase guarantee fund approved for Nigeria Bulk Electricity Trading (NBET) was a loan, subsidy, or payment of the over N500 billion owed by the government.
APGC’s position contradicts that of the DisCos, which had argued that the government’s plan to escrow its revenue account would amount to nationalisation of already privatized assets.
The Federal Government through the Nigeria Electricity Regulatory Commission (NERC) said that following inadequate remittances and frequent complaints of shortfalls in revenue generation by the distribution companies, it would escrow the revenue accounts of DisCos. The move, it argued, would ensure that all parties would be certain of the revenue profile of the sector.
However, the Executive Secretary of the APGC, the umbrella of GenCos, Dr. Joy Ogaji at a press briefing yesterday maintained that the introduction of centralised revenue account would motivate performance and improvement in the Nigeria Electricity Supply Industry (NESI).
Meanwhile, the distribution companies have alleged a revenue shortfall of N809 billion in the power sector. It also picked holes at the federal government’s recent approval of N701 billion for the Nigerian Bulk Electricity Trading Plc (NBOT) to pay generation companies for the services rendered.
Director of Research and Advocacy Association of Nigerian Electricity Distributors (ANED), Sunday Odunta told journalists in Asaba recently that the DisCos claimed that the amount covering from November 1, 2013, when the new owners of the companies took over till date includes a balance of N90.41b from the N213b intervention by the Central Bank of Nigeria (CBN) to pay off gas supply legacy debt.
ADirectoratPricewaterhouseCoopers, Habeeb Jaiyeola, noted that while the financial discipline has achieved stability in the sector, especially in strengthening the liquidity crisis, there was a need to keep improving collection in the sector.
He noted that controlling DisCos’ accounts remained a temporary solution, stressing that the CBN and other players in the sector must improve infrastructure that would ensure the collection of revenue.