N701bn intervention fund threatens power firms’ revenues – ANED

14 March 2017, Lagos – The Association of Nigerian Electricity Distributors has said that the N701bn Power Assurance Guarantee Fund from the Federal Government has the potential of worsening revenue shortfalls in the power sector.

The Executive Director, Research and Advocacy, ANED, the umbrella body of the electricity distribution companies in the country, Mr. Sunday Oduntan, stated this while speaking with journalists in Lagos, according to a statement on Sunday.

The Minister of Power, Works and Housing, Mr. Babatunde Fashola, had earlier in the month announced the Federal Government’s approval of N701bn as power assurance guarantee for the Nigerian Bulk Electricity Trading Plc to make payments to generating companies and gas suppliers for energy supplied and future supplies.

Noting that the fund would solve the N300bn energy supply liabilities, ensure the rehabilitation and replacement of faulty and old turbines, and pay for the supply of gas, Oduntan said, “However, as commendable as this intervention is, we believe that it is a partial solution to the liquidity challenges of the sector.

“More so, it holds the potential of exacerbating the revenue shortfalls that the market is currently suffering from. While an increase in electricity supply is the desired objective of everyone, such an increase without the requisite full recovery of cost via the appropriate pricing of power means a resultant worsening of the market revenue gap.”

According to him, considering that the approved intervention is not expected to be a subsidy to the market, the assumption is that the proposed funding will eventually be recovered from the customers of the electricity distribution companies.

He said for such recovery to occur, the Transmission Company of Nigeria needed to have the required capacity to wheel the additional power being generated.

Oduntan said, “Funding the transmission network is, therefore, imperative for the proposed Federal Government’s intervention to work. Increased generation without commensurate wheeling capacity arising from a stable and robust transmission grid will result in stranded capacity and significant lost revenues.

“From the little details made available to us, the historical shortfall doesn’t seem to have been addressed within this initiative. This is imperative as Discos need to be able to make the necessary investments in network upgrade, improved customer service, billing and collection, metering, etc., all of which have been major issues in the industry.”

He added that such investments would not happen unless the Discos made the projected annual revenue requirements, which would enable them to access to finance for the required capital expenditure.

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