Nigeria’s Agelong Power Sector Conundrum

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Yesterday, the Minister of Power, Sale Mamman stated that the Federal government spends over N5 0.0bn monthly on subsidizing electricity supply across the country. The subsidies help to cover the shortfall in receipt collections by the Distribution Companies (DisCos) who continue to struggle with meeting up with obligations with NBET.

However, according to the Minister, the subsidy payments continue to weigh on government finances despite recent tariff adjustments.

% Payment by Discos to NBET

Nigeria's Agelong Power Sector Conundrum Brandspurng

The sector remains riddled with agelong challenges such as decrepit infrastructure. The Transmission Company of Nigeria (TCN), a government monopoly responsible for transferring electricity from GenCos to DisCos suffers from high transmission losses, recording Aggregate, Technical and Commercial and Collection Losses (ATC&C), as high as 4 6% at some periods.

This results in the under-collection of electricity tariffs. Low metering levels are another constraint hampering liquidity flows in the sector (only 45% of consumers are metered). Low metering has led to a reliance on estimated billing by Discos, which leads to a higher consumers default.

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In recent times, efforts have been made by the current administration to resolve the conundrum in the sector.

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For example, in 2019, the much-celebrated Siemens AG Power Agreement deal was announced by the Federal government. Other efforts such as improving meter production were implemented.

From June 2021, the MYTO indicates the adoption of full removal of the subsidy regime, after a partial removal in 2020. In our opinion, efforts must be made to improve the infrastructure for a more efficient market.

Increased metering rate and reduction in transmission losses will support the adoption of a full cost-reflective tariff regime, which will improve the sector’s attractiveness regarding investments.

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