NERC to cancel 8 DisCos’ licences over N30bn debt

NERC Chairman, Prof. James Momoh
Prof. James Momoh, NERC Chairman

The Nigerian Electricity Regulatory Commission (NERC) recently notified eight power distribution companies (DisCos) on its intent to cancel their licences in 60 days after they accumulated N30.1 billion energy invoice debts for July 2019.

The Federal Government had unbundled the Power Holding Company of Nigeria (PHCN) into 18 firms and sold them to private owners at $2.5billion (about N903.750bn) in 2013. The assets consist of six generation companies (Gencos) and 11 distribution companies (Discos).

The records of Schedule of Fees obtained from the NERC suggested that during the privatisation process, each DisCo was required to pay N1m application fee to the NERC and $75,000 (about N27.112m) as licence fee. According to the document, the licence is valid for 10 years .

Analysis of this payment shows that the 11 DisCos paid N298.3m as licence fees to the NERC, plus N11m applications fees. For the eight DisCos, at least N216.896, plus N8m, would have been expended on licence fees.

The Association of Nigerian Electricity Distributors (ANED) said the DisCos had invested over $1.4bn in the networks since they took over the operations.

In the event that the cancellation occurs, the Federal Government would have to pay $2bn as compensation to the DisCos.

A document seen recently at the Federal Ministry of Power gave a scenario for this repossession, which could cost $2.4bn for the 10 DisCos.

Officials, however, advised thus, “That was not a desirable outcome. It is noteworthy that government is yet to pay the investor in Yola Disco for its negotiated return to the government.”

The licence fee is also renewable for N500,000 after the 10 years expire. However, this is the sixth year since the privatisation exercise held in 2013. Beside the one-off licence fee, the NERC collects 1.5 per cent of licence charges per kilowatt hour (KWH), including the cost of generation and transmission.

This means that from the monthly electricity invoices for energy delivered to consumers by DisCos, the NERC gets 1.5 per cent share. This monthly 1.5 per cent fee is collected as Ancillary Service Charge (ASC) from the DisCos, and remitted to the NERC by the Market Operator (MO), a department of the Transmission Company of Nigeria (TCN).

Why NERC issued cancellation notice

In a notice signed by Dafe Akpeneye, the Commissioner for Legal, Licencing and Compliance, published on Wednesday, the NERC directed Abuja, Benin, Enugu, Ikeja, Kano, Kaduna, P/Harcourt, and Yola DisCos to prove why their licences should not be withdrawn in two months.

The commission said the DisCos were non-compliant over remittances. “The remittances to the Nigerian Bulk Electricity Trading Plc (NBET) shows that the DisCos have failed to meet the expected minimum remittance thresholds for the July 2019 billing cycle,” it stated.

The NERC said the eight DisCos received a N36.1bn invoice from the NBET for the energy they received in July 2019, but they only remitted N5.91bn, representing just 16 per cent performance. They are getting the NERC sanction for the balance of N30.1bn.

This is the first time the NERC is implementing the Transitional Electricity Market (TEM) rule that mandates DisCos to pay 100 per cent for energy and ancillary services. The NERC is now wielding its hammer on DisCos with the threat of canceling their licences, the first time after the power sector privatisation of 2013.

By November 1, 2019, the privatisation would have clocked six years, but energy payment by DisCos, according to NBET records, had dropped to a paltry 30 per cent average for over three years, with more defaults as they ought to have a three-month guarantee or Letter of Credit (LC) with the NBET anytime.

Due to what the TCN described as electricity market indiscipline by the DisCos, which worsened in the same July 2019, the TCN – Market Operator (MO) suspended six DisCos, including Kano, Ikeja, Port Harcourt and Enugu DisCos from the market in August.

They were only reinstated after they had increased their bank guarantee or LCs to guarantee 100 per cent payment for the ancillary services provided by TCN’s MO and System Operator (SO); NBET and NERC for at least three months.

However, the bulk payment for the energy wheeled to them, which is payable to the NBET, has continually suffered. The NERC had issued the minimum remittance benchmark for each DisCo, considering their liquidity crisis. However, the eight failed in the July 2019 billing cycle.

The analysis of the July 2019 NBET energy invoice shows that Enugu DisCo has the highest failure rate. The NERC said the minimum it could remit was 42 per cent of its N4.112bn invoice, but the DisCo remitted only N400m, representing just 10 per cent.

Abuja DisCo was to remit 45 per cent of the N7.2bn invoice, but it remitted 30 per cent, which was N2.152bn. Benin DisCo failed to remit 30 per cent of N4.37bn bill, but did N771.7m (18 per cent). Port Harcourt DisCo was next in the failure rate. It did not remit its 21 per cent minimum for N3.647bn invoice, but paid N383m to the NBET, which was 10 per cent.

Kano DisCo did N800m (24per cent) instead of 33 per cent of the N3.33bn bill. Kaduna DisCo had N3.834bn bill, but paid N407.78m, which was 11 per cent instead of NERC’s required 18 per cent.

Ikeja DisCo was to pay 49 per cent of N7.4bn, but paid 40 per cent, which is N2.95bn. Yola DisCo was to pay 13 per cent of the N1.95bn energy bill, but only did N194.6m (10 per cent).

Daily Trust on Sunday learnt that the affected DisCos have a chance if they could hold a meeting with the NERC to prove their points of illiquidity as they await at least six-tariff review implementation and an anticipated cost-reflective tariff from the NERC since 2016.

They can also remedy the July debts and increase the funding of their LCs for the next three months as some of them did for the payment of ancillary services to the MO in September 2019.

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