A research conducted by experts in the power sector has revealed why there has been a consistent lapses in electricity generation and distribution chain in Nigeria, despite various intervention programmes.
In the research detailing the challenges still plaguing Nigeria’s electricity distribution companies (DisCos), low system efficiencies or high Aggregate, Technical and Commercial, ATC&C, losses, ageing infrastructure, poor customer relationship management, and a history of less than cost-reflective tariffs were listed as major impediments to the sector.
The research conducted by Nextier, also highlights Nigeria’s electricity supply industry challenges to financing, noting that the capital structure of acquisition debt and expansion financing poses more challenge for infrastructure assets operated in a regulated utility.
Also itemized as hindrance is the challenge of raising the required long-term patient capital aligned to the long-lived infrastructure assets.
“As a result, it has been a challenge for the companies to service debts, meet the necessary rehabilitation and expansion commitments, improve efficiencies, and simultaneously pay their upstream invoices to other market participants and administrative entities.
“In the context of the Nigerian market, the Multi-Year Tariff Order (MYTO), a methodology for regulating prices and rewarding the performance of industry operators, forms the basis of electricity tariffs. The MYTO allows for bi-annual minor reviews to account for changes in the parameters that influence tariffs, such as available power generation, inflation, exchange rates and gas prices.
“These minor reviews provide a 6-month generation forecast. However, factors such as gas availability, water management and transmission infrastructure capabilities also constrain actual generation,”the Nextier paper report asserted.
It noted that due to these interdependencies within the sector, the DisCos lack complete control of all the factors that impact their operational excellence. Insisting that from a DisCo perspective, some of the upstream expenses are not incurred due to the unavailability of energy supply, system constraints still result in lost revenue and profits.
“A holistic approach to solving the issues in the sector is required if the NESI is to achieve its potential. Furthermore, solving the problems faced by the DisCos would help facilitate a more competitive electricity market,”the report stressed.