FG incurs N194.98bn electricity subsidy in six months

The Federal Government spent N194.98bn on electricity subsidy in the first half of this year; data collated from the Nigerian Electricity Regulatory Commission’s quarterly reports have shown.

The NERC data also revealed that electricity distribution companies failed to remit a total of N59.76bn to the Nigerian Bulk Electricity Trading Plc and the Market Operator in the six month period despite tariff shortfall adjustment.

The government-owned NBET buys electricity in bulk from generation companies through power purchase agreements and sells, through vesting contracts, to the Discos, which then supply it to the consumers.

The Federal Government incurred N111.13bn subsidy cost in the second quarter of the year as the 11 Discos in the country were expected to remit 57.21 per cent (N148.57bn) of the total invoice of N259.70bn issued to them for energy received from NBET and for service charge by MO.

But the Discos remitted N130.11bn (50.11 per cent) in the period under review, according to the regulator.

The government spent N83.85bn on electricity subsidy in the first three months of this year as the Discos were expected to make a market remittance of 67.76 per cent (N176.22bn) out of the total invoice of N260.07bn issued to them for energy received from NBET and for service charge by MO.

But the power distributors remitted a total of N134.92bn (51.88 per cent) as none of them met the expected minimum remittance thresholds to NBET, according to NERC.

The regulator noted in its Q1 2021 report that it had through the applicable orders set a minimum remittance threshold for each Disco having adjusted for their tariff shortfall.

It said, “It is noteworthy that tariff shortfall (represented by the difference between the cost-reflective rates approved by NERC and actual end-user tariffs payable by consumers) has a causal relationship to market shortfall (the difference between the total amount of NBET and MO invoices to the Discos and what Discos are able to settle.

“While the wholesale cost of power has increased, the tariffs charged by Discos to end-users have remained unchanged, due to government policy directive on subsidy during the quarter. That means the gap between industry revenue requirement and what Discos are allowed to collect based on tariff continue to increase as well as the subsidy burden to cover the gap.”

NERC said tariff shortfall had partly contributed to liquidity challenges experienced in the Nigerian electricity supply industry.

It however said, “It is obvious from that Discos need to improve on their performance. Necessary mechanism must be used to nudge the Disco into compliance with the MRT order to avoid a relapse to days of zero remittance from some Discos.

“All Discos are being steered continually to rapidly improve on their services being rendered and on their revenue collection from customers in order to fulfil their market obligations and mitigate financial distress in NESI,” he added.

The commission said to enforce market discipline and compliance with the MRTs, it had ordered NBET to exercise its contractual right on the payment security cover provided by Discos in accordance with the terms of its vesting contract with them.

Last month, the International Monetary Fund said the Nigerian government should remove fuel and electricity subsidies completely early next year.

It said the implementation of cost-reflective electricity tariffs as of January 2022 should not be delayed.

(The PUNCH)