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The Federal Government paid about ₦205bn as electricity subsidy in the third quarter of last year, according to data obtained from the Nigerian Electricity Regulatory Commission (NERC) latest report.
The Commission’s third quarterly market report revealed the government incurred a subsidy obligation of about ₦205bn in 2023/Q3 (average of ₦68bn per month), which is an increase of ₦69bn compared to the ₦135bn (average of ₦45bn per month) incurred in 2023/Q2.
This increase in subsidy payment, according to the report, was largely attributable to the government’s policy to harmonise exchange change rates due to the absence of cost-reflective tariffs across all electricity distribution companies (DisCos).
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 to the Nigerian Bulk Electricity Trading (NBET) invoices that are to be paid by DisCos. The amount to be covered by the DisCo is based on the tariff that they are allowed to charge and set out as their Minimum Remittance Obligation (MRO) in the periodic Tariff Orders issued by the commission.
The NERC said the rise in the government’s subsidy obligation meant that in Q3/2023, DisCos were only expected to cover 45 per cent of the total invoice received from the commission
The development comes on the heels of a report by NERC, that DisCos did not remit about ₦50bn to the power sector in the third quarter of last year.
According to NERC, the DisCos failed to remit about ₦50bn to NBET in Q3/2023.
Under the market remittance section of the Q3 2023 Quarterly report, NERC said that the cumulative upstream invoice payable by DisCos was about ₦208bn, consisting of ₦167bn for generation costs from NBET, and ₦41bn for transmission and administrative services by the Market Operator (MO).
Of the amount, NERC said the DisCos collectively remitted the sum of ₦158bn consisting of ₦124bn for NBET, and about ₦34bn for MO), leaving an outstanding balance of ₦50bn. This translates to a remittance performance of about 76 per cent in 2023/Q3 which is down by about 19 per cent, compared to the 95 per cent recorded in 2023/Q2.
In 2023/Q3, the MRO-adjusted invoice from NBET to the DisCos was ₦167bn, while the total remittance made was ₦124bn, which translates to a 74 per cent remittance performance.
The remittance performance of DisCos to NBET in 2023/Q3 (74 per cent) was a 25 per cent decrease compared to the 99 per cent remittance performance recorded in 2023/Q2. The notable decline in remittance performance by DisCos is a result of the 18 per cent decrease in remittance in 2023/Q3 (₦124.53bn), compared to 2023/Q2 (₦152.48bn) even though the MRO adjusted invoice in 2023/Q3 (₦167bn) increased by about 9 per cent compared to 2023/Q2 (₦154bn).
The total revenue collected by all DisCos in 2023/Q3 was about ₦268bn out of the ₦349bn billed to customers. This translates to a collection efficiency of 76 per cent.
The DisCos’ overall collection efficiency increased by 1 per cent from 75 per cent recorded in 2023/Q2. This is explained by the fact that, although there was a marginal difference in total collections in 2023/Q3 (0.09 per cent) compared to 2023/Q2 (₦268bn), the total billings declined by 1.4 per cent (compared to ₦354.61bn in 2023/Q2).
All DisCos except Eko and Abuja recorded improvements in collection efficiency in 2023/Q3 compared to 2023/Q2. The DisCos with the most significant improvements in collection efficiency were Kaduna, Ikeja and Yola with about 5 per cent, 3 per cent and +2.9 per cent increases in collection efficiency respectively, between 2023/Q2 and 2023/Q3.
Eko and Abuja DisCos had 3.1 per cent and 1.2 per cent decreases respectively in collection efficiencies. The overall increase in collection efficiency in 2023/Q3, NERC said could be attributed to the implementation of various collection campaigns by DisCos, to improve remittance from post-paid customers.
“The most proven method for reducing collection losses is the installation of meters (especially prepaid meters for non-maximum demand customers).
“Therefore, DisCos are expected to utilise one or more metering frameworks provided for in the NERC MAP and NMMP metering regulation (2021) to improve end-use customer metering in their franchise area. This will reduce commercial and collection losses and will ensure the flow of funds to upstream market participants in the sector.
“Furthermore, DisCos must also continue to evaluate options for improving the optimisation of their energy delivery in line with the Service Based Tariff (SBT) regime to ensure that sufficient energy is supplied to customer groups/clusters with the highest collection efficiencies.
“Prompt payment of upstream invoices is critical for securing the availability of generation and transmission capacities. The waterfall regime pushes DisCos to boost their collections because most of their allowed revenues rank low in the waterfall.
In 2013, the CBN set up an escrow mechanism as part of the conditions for the Nigerian Electricity Market Stabilisation Facility (NEMSF) intervention that was extended to the DisCos. Under this arrangement, all the revenues of the DisCos are escrowed, with DisCos only having access to these funds after relevant deductions to meet their loans have been made. This escrow mechanism also provided visibility into the financial performance of the DisCos concerning collections.
On remittance by international customers in Q3, 2023, NERC said none of the four international customers being supplied by GenCos in the NESI made any payment against the cumulative invoice of $11.16m issued to them by the MO for services rendered in 2023/Q3.
Using the exchange rate of ₦775/41 at the time, makes about ₦8.5bn not remitted by the four international customers.
Similarly, NREC said none of the 16 bilateral customers operating in the Nigerian Electricity Supply Industry (NESI), made any payment against the cumulative invoice of ₦2.8m issued to them by the MO for services rendered in 2023/Q33.
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