A Review of the Nigerian Energy Industry

Discos appeal NERC’s order on open book review

26 October  2014, Abuja – The 11 electricity distribution companies (Discos) that have been ordered by the Nigerian Electricity Regulatory Commission (NERC) to remit approximately N19,328,280,638.62 allegedly owed to the Federal Inland Revenue Services (FIRS), Nigerian Electricity Liabilities Management Company (NELMCO) and Operator of the Nigerian Electricity Market (ONEM) are already responding to the commission’s directive, THISDAY has learnt.
It was gathered from the commission weekend in Abuja that a number of the Discos are already beginning to turn in their appeals on the order. The appeals will be collated, studied and a decision reached afterwards.

Dr. SamAmadi, NERC
Dr. Sam Amadi, NERC Chairman

Notwithstanding, an official of NERC told THISDAY that extant penalties for default of the order will still stand after consideration of the appeals which he explained bother on legal issues.

The official also noted that contrary to thoughts that the order was a passive one, the commission remains straight on the directive for funds which are deductions on Valued Added Tax (VAT) for electricity sold to consumers, net available balances as at takeover of the assets by the new operators as well as outstanding on baseline electricity remittance.

NERC had in the open book audit which was conducted by it to ascertain the level of compliance of the Discos with the rules for the interim period of the market also requested from the Discos, comprehensive responses to its observations of inappropriate operating and capital expenditures valued at N9,965,723,480.47 which they allegedly made since taking over.

A detailed excerpt from the comprehensive audit report contained remarks on expenditures which the commission find inappropriate and would not pass to electricity consumers in its review of electricity tariff within the Multi Year Tariff Order (MYTO).

The commission had in the breakdown of the audit directed that N14,380,582,590.05 due to NELMCO be remitted plus accrued interest of 13 per cent per annum starting from December 1, 2013, while accrued VAT worth N3,058,682,868.48 VAT collections in respect of sale of electricity to consumers be remitted to FIRS.

It equally asked Enugu, Kano, Jos, Abuja, Eko, Port Harcourt and Yola Discos to remit N1,889,015,180.09 plus accrued interest at 13 per cent per annum with effect from December 1, 2013 to NELMCO/ONEM in respect of outstanding cash collected in November 2013 in line with the PHCN pre-transaction completion agreement.

The order came with a N10,000 per hour fine on default starting from its expiration at the close of work on October 17, 2014.

Meanwhile, additional modalities for repayment of the N213 billion financial facilities arranged for Nigeria’s electricity sector by the Central Bank of Nigeria (CBN) has been disclosed by NERC.

The commission said that apart from the initial one-year moratorium secured on the loan by it and the 10-year repayment period for the loan, the CBN has pegged its annual interest charge on the loan at 11 per cent.

Roland Achor, who works in the commission’s Tariff and Rates division, disclosed at a recent meeting in Owerri, Imo State that the interest rate will become active immediately after the one year moratorium.

Achor said in a presentation he made at Owerri that the CBN intervention which is meant to amongst other objectives, address identified financial shortfalls in the electricity market, was arranged in such a way as not to create hardship on residential consumers’ payment for reviewed electricity tariff.

He also said the intervention will aim to stop incidences of rate shock, negative reaction from the society on inefficient electricity services as well as inflation.

According to him, the 10-year loan to the market will be repaid on an annual interest rate of 11 per cent until it is fully exhausted within the repayment window.

Amadi had recently explained that it was expected that the transition of the electricity market in the liberalisation programme will lead to significant shortfalls in the revenue of the market.

He noted that India, Chile and Mexico and other countries had experienced similar challenges in the reform of their electricity markets and that NERC will as an effective regulator seek for ways to redress the revenue shortfall in order to improve investment in the sector and enhance its capacity and reliability.

“This is the idea of the intervention fund. Now, this is a different kind of intervention fund.

“It is the financial market supporting the electricity market to balance even and move faster towards financial viability.
“This is not intervention as subsidy. This N213 billion is not coming from tax payer or from crude oil revenue. This is the Central Bank providing financial support to the electricity market through the deposit management banks with clear guarantee of full repayment,” Amadi had said.

He further said that under the loan arrangement, the incidence of tariff increase will not be felt by consumers.

– This Day

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