ANED Declares Force Majeure on High Electricity Users to Quit Discos
The Association of National Electricity Distributor (ANED) through its Executive Director Research & Advocacy, Barrister Sunday Oduntan averred that there is a need for clarification on the recent Notices of Force Majeure that were submitted to the Bureau of Public Enterprises (BPE) by the electricity distribution companies (DisCos), based on the recent issuance of the Eligible Customer regulation by the Nigerian Electricity Regulatory Commission (NERC). The Eligible Customer regulation allows for certain customers who consume more than 2 MWhr of electricity per month to leave the DisCo network and contract directly with power generators for the supply of power.
The Executive Director disclosed that the primary objectives of this arrangement are to promote competition and increase the supply of power. As DisCos, “we believe that these are laudable objectives and are nothing less than that which we seek, as we strive to inject the efficiency into our operations that will improve the power supply experience for our customers.”
According to him, while ANED does not question the legitimacy of the Minister of Power, Works and Housing’s right to declare Eligible Customers, it believes that the declaration is premature and is inconsistent with the pre-conditions established under the Electric Power Sector Reform Act (EPSRA), 2005. In particular, the level of competition envisaged for such declaration, that should be in tandem with sufficiency of power supply, does not currently exist. Nor has there been an implementation of the Competition Transition Charge that is specified under the Act. Why is the issue of Competition Transition Charge important? Eligible Customers are the premium customers that cross subsidize the cost of providing electricity to the residential class of customers. Such cross subsidization, for some DisCos, is based on a ratio of N10/kWh of Eligible Customer consumption to N1/kWh of residential class consumption. The same class of Eligible Customers also contribute an average of 60 percent to DisCo revenues.
Oduntan opined that with the removal of Eligible Customers from the DisCo network, the huge revenue gap that is left is expected to be imposed on the residential class of customers by an increase in their tariffs, under the Competition Transition Charge. An initial analysis of the impact of the Eligible Customer regulation indicates the need for a minimum tariff increase of N4 per kWh on the residential class customers. In other words, residential customers, some of whom are already dealing with issues of affordability, will have to bear the burden of the premature implementation of the Eligible Customer regulation. While there may be policy announcements that try to counter this fact by stating that such increases will not be imposed on the consumers, the question must be, “How will the gap be addressed?” If the answer is via a subsidy, it is then important to highlight that the current market shortfall of N892 billion (through August 2017) is a product of similar commitments that have not been met – a) Debt free books; b) Cost reflective tariff; c) Payment of N100 billion of subsidy; d) Payment of MDA debt; and e) Commitment to return of; and return on investment for the investors.
The ANED boss decried that unfortunately, the Eligible Customer regulation will further contribute to the DisCos’ inability to recover the revenues that will enable them to make the capital investment that is critical to injecting efficiency into the supply of electricity to their customers.
Indeed, the notice of Force Majeure submitted by the DisCos, in itself, is not a declaration of Force Majeure, is standard to any commercial agreement, and is predicated on the concern that the DisCos, already on the verge of bankruptcy, will be further constrained in meeting the obligations of their Performance Agreements with BPE – no difference from a previous situation in which the regulator, arbitrarily, removed Collection Losses from the DisCos’ tariff in April 2015, a contributor to the current market shortfall. “Unless we begin to see a consistency of sector governance, a critical requirement for the viability and sustainability of the Nigerian Electricity Supply Industry (NESI), it is unlikely that we will achieve the objective of 24/7 power supply, an outcome that all Nigerians deserve.”