A. INDUSTRY HIGHLIGHTS AND GLOBAL Nigeria's power sector loses N13bn in 7 days over
Oil and Gas
Nigeria plans to access $1bn energy fund for US oil and gas sector
FG vows to stop importation of petrol by 2023
Analysts seek speedy reforms in Nigeria's oil sector to raise investments
DisCos begin migration of customers to cashless platform
Nigeria looks to install new solar mini-grids as domestic off-grid surges
Solar improving Nigerians' access to electricity
Nigeria needs to be ready for oil decline
Final passage of PIB expected by mid 2020
DPR warns oil producers against Nigeria's Experts urge government to tackle emission in
NNPC, Partners sign final investment decision for COP25: How Green Bond refocused Nigeria's low-
NLNG Train 7
B. GLOBAL TRENDS
TCN confirms first national grid collapse in 2020
Oil and Gas
Nigeria's record of electricity exports blank for 12 Nigeria's Oranto and Australia's Armour get
licenses back in Uganda
Sound Energy and Morocco's ONEE extend gas $1bn will be invested by 2023 for rural electrification
South Africa proposes 20% carried interest in oil and gas law
Angola plans to end fuel exports by refining 360,000 bpd of oil by 2025
Cameroon forecasts a drop in oil revenues of FCFA 89bn in 2020
AfDB approves $20m investment in Metier Fund to support renewable energy
SA celebrates 100MW renewable energy plant's operation
Germany grants Ivory Coast 60to finance reforms in renewable energy sector
Benin to increase electricity tariff by 5% in 2020 and Environment
10% in 2021
Trump rule would exclude climate change in
Sonelgaz announces establishment of 20,000MW
power plants in Algeria by 2030
As U.N. Climate talks go to overtime, a battle for the
Electricity interconnection between Sudan and
''Spirit'' of the Paris Pact
Egypt to go live from January 2020
B. INDUSTRY RISK/OPPORTUNITIES REVIEW SNAPSHOT
C. INDUSTRY FOCUS ANALYSIS
AN ANALYSIS OF THE DECEMBER 2019 MINOR TARIFF REVIEW ORDER (MYTO) 2015 AND MINIMUM REMITTANCE ORDER FOR THE YEAR 2020 (DISCOS' PERSPECTIVE)
difference between cost-reflective tariffs determined by
The Nigerian Electricity Regulatory Commission NERC and the actual end-user tariffs.
(NERC) recently released theDecember 2019 Minor Impact of Tariff Increase on DisCos (Case Study:
Review of the Multi Year Tariff Order (MYTO) 2015 and Eko Electricity Distribution Plc- EKEDP)
Minimum Remittance Order for the year 2020 (the newOrder) in order to adjust electricity tariffs in line with the macroeconomic variables for 2019 and set minimum market remittance requirements for Electricity Distribution Companies (DisCos) to take effect in from 1st January, 2020.
An analysis of both Orders shows that there is a slight tariff increase for customers in EKEDP's franchise areas for the period between January and April 2020. This is in clear distinction with the tariff rates of some other DisCos which were substantially increased.The tariff increaseis a welcome development as it adjusts tariffs
This Order was released subsequent to the 2016 2018 for each DisCo given the impact of macroeconomic
Minor Review of MYTO 2015 and Minimum Remittance variables on distribution activities across different
Order for the Year 2019 (the previous Order) which was franchise areas.It further makes the DisCos investor
previously released by NERC in August 2019. In this friendly through the existence of a cost reflective tariff,
report, we undertake a recap of the previous Order with in addition to taking away some of the legacy debts
a view to comparing its provisions with the new Order. from the books of the DisCos.
The essence is to highlight the changes made and analyse the impact of such changes on the activities of the DisCos. Furthermore, the impact of recent legislative and judicial interventions on the effectiveness of the Order will be analysed.
Given the April 2020 timeline, an extraordinary tariff review of MYTO 2015 is expected;rather than the usual biannual minor review anticipated to be undertaken on a bi-annual basis.
A further extension for the implementation of a cost
Recap of the previous Order and Comparison with the reflective tariff in August 2020 will mean that the FG will
continue to cushion the revenue gap whichpresents an
unsustainable policy direction for the sector. Adequate
In the previous Order, NERCproposed that an intermediate review in end-user tariffswould occur in January 2020 with a view to transition to full cost reflectivity in July 2020. However, the new Order makes changes to this timeline by stating that an immediate increase in end-user tariffs is not expected until 1st April 2020 and the transition to full cost reflectivity by end of
funding for the sector, which is not available in-country, is required to reset the NESI and an unclear path for recovery of investment is unattractive to investors. It is however, anticipated that the coming into effect of the Order in April 2020 will implement the reviewed tariffs and set the NESI on the progressive path to financial liquidity.
2021. This is premised on the updated Power Sector MDA Debts
Recovery Plan ("PSRP") of the Federal Government The previous Order mandated all DisCos to meter all
MDAs with appropriate meters within 60 days from the
The general effect of this is that the journey to effective date of the Order and empowered the DisCos
implementing cost reflective tariffs and achieving to disconnect any MDA defaulting in the payment for
market liquidity in the NESI has been extended yet electricity in line with the Regulation on Connection and
again to accommodate government policies. This Disconnection Procedures for Electricity Services.
invariably pushes the goal post of closing the market remittance gap and placing the NESI on its way to regulatory and financial stability. In the interim, the FG will continue to fund the revenue gap arising from the
However, the new Order states that NERC would consider verified MDA receivables for the period and historical MDA collection efficiency when considering
compliance with DisCo remittance for 2020. The implication of this is that while NERC agrees with the apparent difficulty DisCos face in the collection of MDA debts which has an impact on their remittance compliance, NERC appears to be willing to consider each DisCo's attempt at bridging this difficulty in its analysis of their minimum remittances in 2020. The new Order seems to provide a soft landing for the DisCos since their clamour for the inclusion of MDA in collection losses has lost its rights to argument and the status quo remains, i.e. the removal of MDA debts from the collection loss component of ATC&C losses.However, it is still dependent on each DisCo's level of compliance with the minimum market remittances and NERC may revoke the licenses of defaulting DisCos.
Remittance Waterfall by DisCos(EKEDP as a Case Study)
requirement, NBET and MO remittance obligations and distribution costs incurred by the DisCo including the varying ATC&C loss levels for each DisCo. As was noted in December 2019, non-compliance of DisCos with the remittance order may lead to enforcement actions for the withdrawal of distribution licenses by NERC.
The new Order provides that NBET is required to invoice EKEDP for capacity based on its load allocation from the total generation (11%) and energy based on its metered energy.
The new Order also provides that where TCN is unable to deliver load allocation to EKEDP, TCN will be liableto pay for associated capacity. Also, if EKEDP is unable to take load allocation as a result of network constraints, EKEDP will be liable to pay forassociated capacity.
The Orders provide that the minimum market remittances for DisCos were arrived at bythededuction of the revenue shortfall from the combined NBET and MO invoices. For EKEDP, the remittance percentage for NBET invoices was revised downward from 45% to 43% while MO settlements remained at 100%. This entails that EKEDP's threshold for compliance with its remittance obligations have been decreased to suit prevailing circumstances.
As stated earlier, NERC's consideration of verified MDA receivables for the period and the historical MDA collection efficiency of EKEDP will directly determine their compliance with the remittance obligations.
In addition, the new Order requires an irrevocable and unconditional letter of credit to be provided by EKEDP and the DisCos in general, in addition to the requirement of adequacy and non-encumbrance. The letter of credit is for a coverage period of three (3) months invoice based on the minimum payment obligations to the MO and NBET.
The impact of the minimum remittance order differs acrossDisCos based on the likely effect of the remittance thresholds on each DisCo's cash flow. The remittance order is critical for ensuring revenue flow across the value chain and takes into consideration specific assumptions which are applicable to each DisCo including the CBN-NEMSF loan repayment
Legislative and Judicial Intervention: A Step in the Right Direction?
The release of the new Order proposing tariff increase has received backlash from the public particularly because electricity is still viewed by majority of Nigerians as a public good which is largely regulated by the government. This view is erroneous and is a contributing factor to the low level of revenue collection by the DisCos, because some consumers still have expectations of free electricity or low electricity tariffs.
Consequently, there have been legislative and judicial interventions which have stalled the planned implementation of the new Order in April 2020. A Federal High Court sitting in Lagos has ordered the DisCos to maintain status quo pending the determination of a motion challenging the hike in electricity tariffs. This is based ona suit filed by the Incorporated Trustees of Human Rights Foundation (ITHRF) where it contends that "the implementation of the purported minor review of the Multi-Year Tariff Order would create "unquantifiable hardship and damages" on end-users.
In addition, the Speaker of the House of Representatives called for the suspension of the proposed hike in electricity tariff, stating that the increment should not be allowed until estimated billing is criminalised. The Vice-Chairman, Senate Committee on Power also stated that the implementation of the
new Order should be postponed stating that the Committee was not consulted by NERC regarding the proposed tariff increase.
It is preposterous that legislative and judicial interventions can be permitted to prevent an independent regulatory body from performing its statutory functions. This situation arises from the overinvolvement of the FG in the sector which is privatelyled. It should be noted that Sections 76 of the Electric Power Sector Reform Act (EPSRA) empowers NERC to regulate electricity prices using tariff methodologies which strike a balance between fair prices to consumers and sufficiency of prices in allowing efficiency in DisCo operationsto recoup the cost of their activities. Section 17 of MYTO 2015 Order also provides for the biannual Minor Review of tariffs by NERC.
As mentioned earlier, the need for cost-reflective tariffs cannot be overemphasised as the lack thereof negatively impacts the whole electricity value chain. The creation of a stable and enabling environment for regulatory developments to be implemented is pertinent for the continuous improvement of the abysmal power supply situation in Nigeria.
Recommendations and Conclusion
The Order follows a steady path in creating a favourable space for stakeholder investors in Nigeria's power sector as it stays true to the provisions of EPSRA to transitioning to a level where investors can recoup their costs and make decent returns on their investment.
enableDisCos to procure additional generation to augment their energy requirements. Consideration should be given to ensuring that the tariff incorporates the cost of such additional energy.Pricing of such energy in the tariff could be based on a pro-rata recovery across all customer classes or for a selection of customers.
Going forward, NERC should endeavour to conduct and implement the biannual minor reviews in accordance with the statutory timeline. Given the constantly changing economic variables that apply to NESI, it is important that the tariff rates are continuously reviewedand implemented to reflect the true financial position of the sector.
Ivie Ehanmo Partner firstname.lastname@example.org
Akinola Ogunsakin Associate email@example.com
DianaAbasi Okop Associate firstname.lastname@example.org
Fola Famuyiwa Associate email@example.com
Additionally, NERC should look towards fast-tracking the passage of the franchising regulation as it would