Eight Discos Face NERC Sanction for Breaching Power Reform Act

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Eight Discos Face NERC Sanction for Breaching Power Reform Act

Eight Discos Face NERC Sanction for Breaching Power Reform Act
October 09
10:37 2019
  • Ikeja, Benin, Kano, Abuja, Enugu, Port Harcourt, Yola, Kaduna distributors to be affected

The Nigerian Electricity Regulatory Commission (NERC) is to cancel licences issued to eight electricity distribution companies (Disco) for alleged breach of the power reform law.

NERC, in a notice of its intent to cancel the licences of the Discos, which THISDAY obtained yesterday, said the terms of the licences they breached bordered on their execution of the 2016 to 2018 minor review of the Multi Year Tariff Order (MYTO) and the minimum remittance order for 2019.

The regulatory agency listed the affected Discos to include the Abuja Electricity Distribution Company Plc (AEDC); Benin Electricity Distribution Company Plc (BEDC); Enugu Electricity Distribution Company Plc (EEDC); Ikeja Electric Plc (IE); Kaduna Electricity Distribution Company Plc (KAEDCO); Kano Electricity Distribution Company Plc (KEDCO); Port Harcourt Electricity Distribution Company Plc (PHEDC) and Yola Electricity Distribution Company Plc (YEDC).

NERC said it had written to the Discos and was ready to give them up to 60 days to convince it not to revoke their licences.

According to NERC, Section 74 of the Electric Power Sector Reform Act (EPSRA) and the terms and conditions of Discos’ licences indicated they breached the law and failed to remit approved minimum amounts of the sector’s revenue to the market.

NERC said it has, therefore, reasonable cause to believe that the Discos breached the provisions of the EPSRA, terms and conditions of their respective distribution licences, the 2016 to 2018 minor review of the MYTO, and the minimum remittance order for 2019.

“The commission considers the actions of the aforementioned Discos as manifest and flagrant breaches of EPSRA, terms and conditions of their respective distribution licences and the order; and therefore requires each of them to show cause in writing within 60 days from the date of receipt of this notice as to why their licences should not be cancelled in accordance with section 74 of EPSRA,” said the NERC in the notice.

It added that it approved a new tariff for the Discos, which kicked off in July 2019, but with conditions that included minimum remittances which they failed to meet up with, amongst others.

According to it, the Power Sector Reform Programme (PSRP), which the federal government initiated with the World Bank, provided for a gradual transition to cost-reflective tariffs with safeguards for the less privileged in the society and proposed that an intermediate review in end-user tariffs on January 1, 2020 and transition to full cost reflectivity shall be achieved by July 2020. 

It said in the interim, the government under the PSRP, has committed to fund the revenue gap arising from the difference between cost reflective tariffs determined by it and the actual end-user tariffs, but that the waterfall of market revenues during the transitional period shall be such that all Discos are obligated to settle their market invoices in full as adjusted and netted off by applicable tariff shortfall approved by it.

Under this framework, it noted that the minimum market remittance threshold for the Discos was determined after deducting the revenue deficit arising from tariff shortfall from the aggregate invoices of the Nigerian Bulk Electricity Trading Plc (NBET) and Market Operations (MO) department of the Transmission Company of Nigeria (TCN).

NERC said it approved that Discos must settle up to 100 per cent of their MO’s invoice based on the tariffs applied by the MO in determining respective invoices prior to the new order, as well as full settlement of a specified percentage of NBET’s monthly invoices being the minimum remittance threshold prescribed in the order.

“The Discos are liable to relevant penalties/sanctions for failure to meet the minimum remittance requirement in any payment cycle in line with the provisions of its respective contracts with NBET, MO and the provisions of the Market Rules and Supplementary TEM (Transition Electricity Market) Order.

“The Discos shall maintain an adequate and unencumbered letter of credit covering three months based on the minimum payment obligations to NBET and the MO. The Discos shall comply with the minimum remittance thresholds specified in the order. The commencement date of the order was 1 July 2019,” it stated.

NERC said the objective of the order was to place the Discos on a path of meeting their contractual and performance obligations to the power market with the recognition of tariff shortfalls arising from revenue under-recovery and the exclusion of 2017 and 2018 as years of mutual non-performance in the performance agreement.

Putting their remittance failures under context, the NERC stated that Abuja Discos for instance achieved just 30 per cent instead of 45 per cent minimum remittance approved for it; Benin attained 18 per cent instead of 30 per cent; Enugu achieved 10 as against 42 per cent; Ikeja did 40 as against 49 per cent, and Kano did 11 instead of 18 per cent.

Kaduna also did 24 per cent and not 33 per cent approved for it; Port Harcourt did 10 per cent instead of 24 per cent, while Yola remitted just 10 per cent instead of 13 per cent approved as its minimum revenue remittance to the power market.

According to the NERC, within the July 2019 billing cycle, NBET billed Abuja Disco N7,173,686,088.29, but it remitted only N2,152,105,826.49; Benin Disco got a bill of N4,368,336,242.22 but remitted N771,681,330.79 while Enugu Disco had N4,112,552,587.51 as its monthly bill but paid only N400,000,000.

Similarly, Ikeja Disco had a bill of N7,372,945,102.62 but paid to the NBET N2,949,178.041.04; Kano Disco had N3,834,686,472.61 and paid just N407,774,917.81; while Kaduna Disco was billed N3,329,653,653.09 out of which it paid N800,000,000. Port Harcourt Disco also got a bill of N3,647,290,100.67 and remitted N382,965,460.56, while Yola Disco was billed N1,946,338,517.03 but paid N194,633,851.71.

The NERC document showed that the Discos were billed a total invoice of N35,785,488,764.04 but they remitted a total of N8,058,339,428.4, leaving an outstanding remittance of N27,727,149,335.64.

“The commission notes that the failure of the Discos to comply with expected minimum remittance thresholds in the order exposes NESI (Nigerian Electricity Supply Industry) to systemic risk that threatens the sustainability of other parts of the value chain; and the ability to improve service delivery to consumers.

“The commission notes further that the Discos failed to provide the minimum financial securitisation of their payment obligation to NBET i.e. an adequate and unencumbered letter of credit covering three months based on their minimum payment obligations to NBET and MO that would have addressed the compliance failure,” the NERC added.

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