New Electricity Tariff: GenCos demand funding plan for N1.7trn shortfall

High tension electric powerlines
High tension electric powerlines

The Nigerian government has no feasible plan on how to fund the N1.7 trillion shortfall in cost consequent upon the adjustment in electricity tariffs announced by the Nigerian Electricity Regulatory Commission (NERC) last January, the electricity generation companies (GenCos) said in Abuja on Monday.

Last January, NERC announced a new multi-year tariff order (MYTO) it said would replace the previous one issued in 2015.

Although the statement announcing the new price regime said it would come into effect on January 1, the electricity sector regulator later said the deadline for the commencement of the implementation was rescheduled to April 1.

The federal government had given its commitment to continue to subsidise the over N1.7 trillion gap in electricity cost to consumers pending the adjustment in tariffs by NERC.

But the Executive Director, Association of Power Generation Companies (APGC), Joy Ogaji, said the GenCos are yet to see any plan by the government, either in the 2020 federal budget or in the 2015 MYTO, on how the shortfall would be funded.

Mrs Ogaji challenged the government to make any such funding arrangement known to Nigerians.

“The electricity generation companies are concerned about the new electricity tariff scheduled to become effective on April 1, 2020.

“Our concerns relate to the fact that NERC has not captured all the ‘changes’ in the relevant macroeconomic variables and available generation capacity in updating the operating MYTO-2015 in line with the provisions of the MYTO methodology,” Mrs Ogaji said.

“The seeming gaps are shown through the four parameters considered in the minor review namely: inflation, interest rates, exchange rates and generation capacity as it affects or impacts our business.

“Dealing with market shortfall holistically: We are concerned about the financing of the shortfalls, given that there is no provision in the 2019 or 2020 budget. What is the PSRP financing initiative?

“What is not clear is who will take charge of the financing plan. Do these plans and facilities even exist? If so, what are the terms under which they were created? If not in existence, right now, who is working to create them and when would they be ready?” she asked.

A fortnight ago, NERC unfolded plans to stop the payment of any form of tariff support, except for the less privileged Nigerians in the sector by 2021.

In a consultation paper on the proposed extraordinary tariff review of the MYTO -2015 Tariff Order for the Nigerian Electricity Supply Industry (NESI), NERC said it intervened earlier by settling a N701 billion tariff shortfall in 2017 and 2018.

The commission said while the intervention so far represents an unsustainable fiscal burden on the Nigerian treasury, the total tariff-related revenue shortfall for all market participants for the period 2015 – 2019 was about ₦1.72trillion.

But on Monday Mrs Ogaji urged NERC to explain how it arrived at the MYTO review that did not capture the shortfalls in the sector.

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She said the sector operators were concerned about the inequitable distribution of the remittances required to effect the review tariff order.

Whereas the tariff review made provisions for GenCos to receive 36 per cent of their revenue requirements, the DISCOs are expected to receive 100 per cent if they fulfil their obligations.

“Why this differential treatment? What’s the justification behind GenCos getting only 36 per cent of their revenue requirement, while the DISCos will receive a 100 per cent if it just manages to make the minimum remittance that the DisCos have never adhered to?”

The GenCos also asked NERC to address the issue of previous failed reviews and say how to make a difference in the current review.

On the framework for monitoring and enforcement of compliance, Mrs Ogaji said NERC needs to address the issue of previous failed reviews and how this review will be different in terms of effectiveness and implementation.

“The issue of the requirement for DisCo revolving letter of credit to NBET (Nigerian Bulk Electricity Trader). Is there any modality in place to ensure that the DisCos provide the required three months revolving letter of credit? If not, this review is as good as the rest,” she said.

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