How FG subsidizes 80% distributed power despite privatization

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In a document obtained on electricity subsidy, it has been revealed how the federal government subsidises about 80 percent of distributed power, despite almost seven years after power privatisation. The revelation follows the call for an end to electricity subsidy by the Vice Chairman of the Nigerian Electricity Regulatory Commission, NERC, Sanusi Garba. According to the document by the Association of Power Generation Companies, APGC, it noted that government subsidises between 75-80 percent of distributed power, describing the move to mean that the country “had yet to come to terms with the tenets of privatization”. The Gencos while analysing how it arrived at the quantum of electricity subsidy currently being paid for by the federal government, explained that electricity generated in Nigeria is either rejected or forced to be reduced by an average of 4,210 megawatts daily due to transmission and distribution constraints. According to it, although the supply growth from pre-privatisation to date showed that available generation capacity, which was 3,427.5MW had increased by 138.34 percent to 8,169MW, however, the Gencos are able to recover just 4,741.5MW. “…due to system constraints, generated power is rejected or forced to be reduced to match the infrastructure that transmits and distributes this power to the customer,” the Gencos stated. “A case in point: Between January to August 2020, despite an available generation capacity of 8,169MW, Gencos were only allowed to generate 3,959MW, thus losing an average of 4,210MW daily,” according to the document. The group explained that it was important to note that for power generation company to continue to stay in business, its duties transcends efficient operations to include income generation from power generated, adding that with a total available installed generation capacity of more than 8,000MW and maximum wheeling capacity of not more than 5,500MW, there would always be a recurrence of over 2,500MW idle generation. “Idle generation represents capital investment not able to yield revenue that will hence impact the ability of the Gencos to support efficient operations and service loans used in developing the power plants,” the document stated. It said out of the 5,500MW able to be transmitted by the Transmission Company of Nigeria, TCN, the Discos currently cannot distribute more than 4,500MW, leaving another 1,000MW of generation capacity unutilised. “In total, due to the combined technical incapacitation of TCN and the Discos, the Gencos are unable to deploy a total of 3,500MW of capacity that would ensure sustainable profitable operations”. “If one considers the fact that the Discos have in the recent past been operating around 3,500MW or below, this figure escalates to 4,000MW of idle capacity.” It added, “In effect, the Gencos are not able to deploy over 4,000MW of idle power.” Out of the over 4,000MW wheeled by TCN in first quarter of 2020, APGC explained that the Discos remitted only an average of 20 percent (800MW) of this power as revenue to the Nigerian Bulk Electricity Trading company. This, it said, made a total of 7,200MW generation capacity that was not yielding revenue for the Gencos, and is currently being subsided by the government. Just a few days ago, NERC’s Vice Chairman had said electricity subsidy had cost Nigeria N540billion in 2019. According to him, the amount spent on electricity subsidy should be invested in other sectors such as health and education. “Now what has been happening is that over the last few years, government had been subsidising rates paid by end-users significantly. In 2019, the subsidy was something in the region of N540bn that has been paid.” He stressed the need for electricity consumers to pay for what they consume instead of the government paying subsidy on electricity every year, adding that this was why the commission had to provide service reflective tariffs. “The time of the review has actually been shifted twice, in consideration of the exigencies that obstructed everybody, particularly the COVID-19 pandemic and other situations. “But you cannot continue to defer the review indefinitely because you should look at electricity supply as a value chain. Generation companies are spending money to produce electricity and TCN (Transmission Company of Nigeria) is transmitting that electricity to the distribution companies.” He added, “If you continue to suppress prices, somebody has to take a hard cut in terms of cost; somebody’s revenue will not be covered”. Garba said, “Yes, government can continue, as a policy, to subsidise, but the path to sustainability of this industry is an electricity market that is financially sustainable. “Therefore, after the peak of the COVID-19 pandemic, it was considered appropriate to do what is right in terms of what is provided in the law and also what is in the methodology of the commission itself.” According to him, electricity is a commodity somebody has to pay for and rates review cannot be postponed indefinitely. Garba said, “If you continue to defer the rates review, unless government has the resources to fill in the gap, the implication is that you will see service plummeting significantly. “This is because at the end of the day, the generators will not be paid. And if the generation companies are not paid, it means that they will not be able to pay for gas. And so the 3,000 megawatts, 4,000MW and occasionally 5,000MW that we are getting now will significantly come down.” On 30 September 2013, following the privatisation process initiated by the Goodluck Jonathan regime, the Power Holding Company of Nigeria, PHCN ceased to exist. In its stead, NERC, alongside eleven power distribution companies were formed.
For More Enquiry: 08052442020

In a document obtained on electricity subsidy, it has been revealed how the federal government subsidises about 80 percent of distributed power, despite almost seven years after power privatisation.

The revelation follows the call for an end to electricity subsidy by the Vice Chairman of the Nigerian Electricity Regulatory Commission, NERC, Sanusi Garba.

According to the document by the Association of Power Generation Companies, APGC, it noted that government subsidizes between 75-80 percent of distributed power, describing the move to mean that the country “had yet to come to terms with the tenets of privatization”.

The Gencos while analysing how it arrived at the quantum of electricity subsidy currently being paid for by the federal government, explained that electricity generated in Nigeria is either rejected or forced to be reduced by an average of 4,210 megawatts daily due to transmission and distribution constraints.

According to it, although the supply growth from pre-privatisation to date showed that available generation capacity, which was 3,427.5MW had increased by 138.34 percent to 8,169MW, however, the Gencos are able to recover just 4,741.5MW.

“…due to system constraints, generated power is rejected or forced to be reduced to match the infrastructure that transmits and distributes this power to the customer,” the Gencos stated.

“A case in point: Between January to August 2020, despite an available generation capacity of 8,169MW, Gencos were only allowed to generate 3,959MW, thus losing an average of 4,210MW daily,” according to the document.

The group explained that it was important to note that for power generation company to continue to stay in business, its duties transcends efficient operations to include income generation from power generated, adding that with a total available installed generation capacity of more than 8,000MW and maximum wheeling capacity of not more than 5,500MW, there would always be a recurrence of over 2,500MW idle generation.

“Idle generation represents capital investment not able to yield revenue that will hence impact the ability of the Gencos to support efficient operations and service loans used in developing the power plants,” the document stated.

It said out of the 5,500MW able to be transmitted by the Transmission Company of Nigeria, TCN, the Discos currently cannot distribute more than 4,500MW, leaving another 1,000MW of generation capacity unutilised.

“In total, due to the combined technical incapacitation of TCN and the Discos, the Gencos are unable to deploy a total of 3,500MW of capacity that would ensure sustainable profitable operations”.

“If one considers the fact that the Discos have in the recent past been operating around 3,500MW or below, this figure escalates to 4,000MW of idle capacity.”

It added, “In effect, the Gencos are not able to deploy over 4,000MW of idle power.”

Out of the over 4,000MW wheeled by TCN in first quarter of 2020, APGC explained that the Discos remitted only an average of 20 percent (800MW) of this power as revenue to the Nigerian Bulk Electricity Trading company.

This, it said, made a total of 7,200MW generation capacity that was not yielding revenue for the Gencos, and is currently being subsided by the government.

Just a few days ago, NERC’s Vice Chairman had said electricity subsidy had cost Nigeria N540billion in 2019.

According to him, the amount spent on electricity subsidy should be invested in other sectors such as health and education.

“Now what has been happening is that over the last few years, government had been subsidising rates paid by end-users significantly. In 2019, the subsidy was something in the region of N540bn that has been paid.”

He stressed the need for electricity consumers to pay for what they consume instead of the government paying subsidy on electricity every year, adding that this was why the commission had to provide service reflective tariffs.

“The time of the review has actually been shifted twice, in consideration of the exigencies that obstructed everybody, particularly the COVID-19 pandemic and other situations.

“But you cannot continue to defer the review indefinitely because you should look at electricity supply as a value chain. Generation companies are spending money to produce electricity and TCN (Transmission Company of Nigeria) is transmitting that electricity to the distribution companies.”

He added, “If you continue to suppress prices, somebody has to take a hard cut in terms of cost; somebody’s revenue will not be covered”.

Garba said, “Yes, government can continue, as a policy, to subsidise, but the path to sustainability of this industry is an electricity market that is financially sustainable.

“Therefore, after the peak of the COVID-19 pandemic, it was considered appropriate to do what is right in terms of what is provided in the law and also what is in the methodology of the commission itself.”

According to him, electricity is a commodity somebody has to pay for and rates review cannot be postponed indefinitely.

Garba said, “If you continue to defer the rates review, unless government has the resources to fill in the gap, the implication is that you will see service plummeting significantly.

“This is because at the end of the day, the generators will not be paid. And if the generation companies are not paid, it means that they will not be able to pay for gas. And so the 3,000 megawatts, 4,000MW and occasionally 5,000MW that we are getting now will significantly come down.”

On 30 September 2013, following the privatisation process initiated by the Goodluck Jonathan regime, the Power Holding Company of Nigeria, PHCN ceased to exist. In its stead, NERC, alongside eleven power distribution companies were formed.

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For More Enquiry: 08052442020

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