Report: Declining Discos’ Collections May Worsen Liquidity Challenge

The liquidity challenge in the Nigerian electricity sector may become worse due to the decline in collections this year by the distribution companies (Discos), a report by Augusto & Co. has warned. According to the Pan-African rating agency, it was expected that a significant slowdown in the economy following the outbreak of the coronavirus (COVID-19) pandemic, with the attendant lockdown order imposed by the federal government on economic activities in first quarter of 2020, would hamper discos’ collections.

It said the pessimism about Discos’ collections was based on several factors, including the, “no disconnection,” measure implemented by the Discos during the COVID-19 lockdown period.

The report added: “We believe that the ‘no disconnection’ stance will affect internally-generated revenues such as disconnection and reconnection fees.

“Moreover, Nigerian Electricity Regulatory Commission (NERC) has commenced the enforcement of the minimum remittance order, which stipulates the minimum remittance obligation for a Disco having adjusted for tariff shortfall.

“This order is expected to end the erstwhile discretionary remittance regime by Discos and should constrain the Discos’ earnings in the short term.

“Low remittance has adversely affected the ability of Nigerian Bulk Electricity Trading Plc (NBET) to honour its financial obligations to the Gencos as well as constrained the ability of other service providers such as NERC to perform their statutory obligations.”

The Nigeria Electric Power Industry’s (NEPI) strength includes assured electricity power demand with Nigeria’s growing population, operators’ access to several intervention funds such as the Nigerian Electricity Market Stabilisation Facility (NEMSF), the Power and Airline Intervention Fund (PAIF) and the Payment Assurance Facility (PAF).

Since the privatisation of the distribution and generation segments of the nation’s power industry some seven years ago, the industry has been enmeshed in crisis of insufficient revenues, weak cash flows, high leverage and low liquidity due largely to unreflective tariffs and low generating capacity.

While electricity demand was estimated at 25,790 megawatts (MW), the highest power generation has stagnated at about 5,375MW. Unreflective tariffs also impede the ability of the Industry operators to generate sufficient cash flows and heighten the liquidity challenges in NEPI.

As a result, NERC has introduced several policies to curb some of these fundamental limitations such as the Meter Asset Provider (MAP) regulation which is a means to liberalise the distribution market while resolving the challenges surrounding estimated billing and collections.

However, while NEPI’s end consumer rate is growing at an average rate of 75,000 new customers every month, metering penetration has decreased from about 45.3 per cent in January 2017 down to 40.6 per cent in December 2019. Inadequate metering and limited technology in remote meter monitoring continue to contribute to the Discos’ high loss levels.