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Economy | Power & Energy

Discos Still Battling Liquidity Challenges

Jan 13, 2023   •   by CSL Research   •   Source: CSL   •   eye-icon 253 views

 

Based on a This Day news report, the Nigerian Electricity Regulatory Commission (NERC) in its Q2 2022 report, noted that power Distribution Companies (Discos) were only able to collect N188.29bn as revenue out of the total of N265.68bn billed between April and June 2022, implying an average billing efficiency of 78.17%, representing an increment of 0.79% from the 77.38% recorded in Q1. “Many customers continue to default in payment of their billed amounts in part due to a lack of willingness to pay (including unsatisfactory Disco services). This has led to mounting commercial losses recorded by Discos,” the NERC stated. The commission emphasised the imperative for Discos to employ technologies NER operational procedures to increase both billing and collection performances, in order to forestall long term financial challenges. 

 

We had noted that the most potent factor driving the liquidity squeeze in the power sector stems from the non-cost reflective tariffs charged by the Discos. This has remained a major clog in the wheel for the Discos, making most of them technically insolvent. The cash flow generated from end consumers (in a case where they get paid for all they distribute) significantly falls short ofthe breakeven point needed to keep operations running due to poor pricing. Matters worsen when we factor in payment defaults, power theft and Aggregated Technical Commercial and Collection (ATC&C) losses. We note that the Federal Government has had to intervene on different occasions to keep the industry on its feet. The problem of cost-reflective tariffs stems from the MYTO framework used to guide pricing. The framework’s cost assumptions are far from current realities. 

 

Besides the non-cost reflective tariffs, the huge metering gap for end-use customers is still a key challenge in the industry. According to NERC, of the 12.54m registered energy customers as at March 2022, only 4,740,114 (37.79%) have been metered. This implies that a total of 7,802,467 power users are without meters and receive estimated electricity bills. However, according to a recent punch news report, the Federal Government has said that 6mn meters are to be deployed nationwide in the first and second quarters of this year to reduce the number of unmetered electricity consumers in Nigeria.

 

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