Recently, news reports came about the recent takeover of certain discos. The Federal Government (FG) has announced the takeover of three non-performing electricity distribution companies, Kano Disco, Kaduna Disco and Benin Disco, by Fidelity Bank Plc, due to the poor financial performance of the company. This follows an earlier judgement by the government and the Bureau of Public Enterprise for UBA to takeover Abuja Disco in Q4-2021. The seizure of the assets reflects the illiquidity across the supply chain in the Nigeria Electricity Supply Industry.
Recent news articles have framed power generation shortages as the major hindrance to the takeover of the industry. In truth, this shows an apparent lack of understanding of the liquidity crisis across the value chain. Firstly, the metering gap in the sector remains significant, with only 37.6% of the total metered consumers. Also, billing efficiency, which measures how many customers registered are billed, dropped to 76.0%, from 74.0% and 81.0%, in 2019 and 2020. Collection efficiency, which measures the percentage of billed customers who proceed to make payments, was 68.7% in 2021, 65.6% and 67.8% in 2019 and 2020, respectively. Aggregate Technical, Commercial & Collection (“ATC&C”) Losses, which is simply a measure of billing efficiency multiplied by collection efficiency, were at 47.3%, from 50.0% and 45.0% in 2020 and 2019, which measures the primary source of losses in the industry, according to NERC, in 2021. Although the sector remains mainly inefficient, it is also important to note that remittance collection by discos to NBET has increased to 57.6%, from 40.9% to 35.8% in 2020 and 2019. We attribute increased receipt collection to the tariff hikes in 2021.
The sector continues to struggle primarily due to the inability of Discos to collect receipts despite various interventions, such as NERC’s Meter Asset Provider program (2018) (NMMP), which had limited effectiveness in closing the gap. The program looked to relieve Discos of the responsibility to provide meters by using authorised third parties to provide, install, and maintain meters to boost metered customers. The Central Bank of Nigeria (CBN) began its National Mass Metering Programme (NMMP) in November 2020 to fund local manufacturing and importation of meters by meter suppliers and Discos. Despite various program conclusions, the metering gap remained below 41% in 2021. Most of the issues are primarily structural due to infrastructural constraints. To inject additional liquidity to solve the liquidity gap in the industry, the Federal Government and the Central Bank of Nigeria have implemented various schemes, such as the Power Sector Recovery Program, which covers the shortfall in NBET receipts from the Discos to the Gencos.
