General News
Agusto & Co: The State of the Nigerian Electric Power Industry
As the Electric Power Industry (the Industry) announced yet another review of electric tariffs in January 2021, after much deliberation and delays, a key question that comes to mind is ‘will a rise in tariffs result in better power supply?’ To answer this question it is imperative to examine the state of the Industry post-privatisation.
Since the privatisation exercise that commenced in 2013, the Nigerian Electric Power Industry has remained fraught with many of the same challenges ranging from unreflective tariffs to high loss levels, obsolete infrastructure, weak policy implementation and gas shortages.
All of these have culminated in weak and erratic power supply and a dependence on self-generation by many businesses and households. Furthermore, electricity distribution in Nigeria remains plagued by high technical, operational and commercial inefficiencies.
In 2020, the country’s 11 Distribution companies (DisCos) only billed for 74% of the energy received from the transmission company, below the 81% reported in the prior year. Billing efficiency which has historically been impaired by a low metering rate and energy theft, with only 37% of registered electricity customers metered in 2020, was severely impacted by the Covid-19 pandemic.
Agusto & Co believes the impact of the pandemic was more visible amongst consumer groups with post-paid meters and estimated bills given that the social distancing rules and movement restrictions established to curb the spread of the virus impaired the physical billing process. Collection efficiency also fell marginally to 66% from 68% one year prior.
Consequently, the aggregate technical, commercial and collection (ATC&C) losses for the 11 DisCos rose to 51% in 2020 from 45% in 2019. This high loss level remains one of the many reasons for the kickback from electricity consumers on tariff increases, especially in the absence of a significant and immediate improvement in power supply.
Agusto & Co notes that these challenges have not only weakened the ability of operators to meet electricity demand but also threaten their financial viability, with significant implications for the fiscal health of the country. Despite the series of amendments to the tariff structure, cash flows from MYTO (the Multi Year Tariff Order) have remained insufficient to fully cover the costs of electricity supplied.
The fear of the impact of a ‘rate shock’ on consumers and the accompanying loss of “political capital” has prevented the effective implementation of necessary amendments that will align the MYTO’s assumptions with economic realities. Electricity has thus consistently been sold at a discount, with end-user electricity tariffs much lower than the cost of electricity supplied.
The shortfall from unreflective tariffs has been borne in large parts by the Federal Government of Nigeria (FGN) through multiple intervention funds and payment assurance facilities from the Central Bank of Nigeria (CBN) totaling close to ₦2 trillion (US$4.9 billion ) as at the end of 2020, equivalent to c.6% of CBN’s balance sheet. Despite this level of intervention, the generating companies had estimated receivables of over ₦400 billion in 2020 alone. Whilst the interventions have been central in ensuring the profitability of operators along the Industry’s value chain, they remain insufficient and unsustainable.
More recently, there have been notable efforts by the primary regulator – NERC – to minimise the challenges faced by operators in the Industry. In particular, tariffs have been raised to near cost reflective levels and adjusted to match consumption via an initiative dubbed Service Reflective Tariffs (SRT).
The new tariff model as the name indicates is expected to reflect and match the quality of service received by the ultimate consumers of electricity. Distribution companies will therefore discriminate in the application of tariffs; consumers who enjoy longer daily supply will be expected to pay higher rates and vice versa.
The SRT like other MYTO models has key estimates (and projections) for macroeconomic and industry-specific indicators including inflation, exchange rates and electricity generation. Other company-dependent factors considered in the determination of tariffs include the amount of electricity received and the aggregate technical, commercial and collection (ATC&C) losses.
Ultimately, tariff shortfalls (the difference between end-user tariffs and cost reflective tariffs) are expected to taper off by the end of 2022, with tariffs fully reflective and sufficient to cover the cost of production.
Whilst a number of the assumptions align with market realities, we note that the inflation and electricity generation estimates in the SRT model are much higher than the actual entries reported for the corresponding periods.
In our view, these disparities have the potential to impair the attainment of cost reflectiveness. Agusto & Co believes adopting scenario analysis and modelling will provide a more robust framework to determine an appropriate tariff structure for the Industry in a dynamic macroeconomic environment such as Nigeria’s.
In addition to the SRT, the primary regulator – the National Electricity Commission (NERC) – introduced a minimum remittance threshold for each distribution company which stipulates a mandatory payment that must be made to the bulk trader for electricity received.
Furthermore, in February 2020, NERC introduced guidelines for ‘Merit Order Dispatching’ which involves ranking electricity generation and dispatch by the transmission company of Nigeria (TCN) in ascending order of costs with the cheapest electricity – such as those from Hydro plants with no fuel cost component – ahead of more expensive plants.
The order also provides guidelines on the alignment of invoicing for capacity charge and energy delivered as well as a framework for the settlement of any imbalance between DisCos and TCN.
The Merit Dispatching Order should eliminate the shift of responsibility for load rejection prevalent between DisCos and the TCN and improve the technical and operational efficiencies of these operators.
In August 2020, the Central Bank of Nigeria issued a circular that all deposit money banks are expected to warehouse and manage collection inflows from all distribution companies – DisCos, (including the collection agents of these DisCos) under specific guidelines as contained in the document. The objective of this ‘ring fencing’ is to secure cash collected from the DisCos and ensure that these distribution companies meet their mandatory obligations.
While operators are generally optimistic that the new tariffs and accompanying regulations would enhance efficiency and position the Industry on the trajectory towards achieving financial independence and ultimately improvements in the volume and quality of electricity supply, Agusto & Co remains cautious.
In our view, to truly achieve the objectives of privatisation, reforms need to be accompanied by a strong and enabling regulatory environment. Furthermore, improved access to finance, efficiency in billing and metering as well as consistent and secure gas supply are vital to reap the benefits of privatization in the long run.
While the journey to constant electric power supply remains far and long-winded, Agusto & Co believes the initiatives undertaken by the primary regulator – NERC– if consistently enforced have the potential to move the Industry forward in the right direction.
Independent Corrupt Practices and Other Related Offences Commission (ICPC) indicted the National Information Technology Development Agency (NITDA) and other ministries over administrative lapses that allowed the fictitious Presidential Foreign Investment Promotion Council (PFIPC) to operate.
Musa Aliyu, chairman, ICPC, stated that NITDA, alongside the Office of the Secretary to the Government of the Federation (OSGF), the Budget Office, and other bodies, failed to carry out adequate due diligence and standard operating procedures.
ICPC said however, clarified that the findings pointed to severe internal control weaknesses and administrative negligence rather than active official complicity by NITDA and the other affected agencies.
The briefing followed a 30-day investigation ordered by the president on July 7 into allegations surrounding the purported presidential council.
The commission also cleared the presidency and the Central Bank of Nigeria (CBN) of any wrongdoing but blamed institutional lapses in several ministries, departments and agencies (MDAs).
Aliyu said investigators established that Adeniyi Adeyemi, the director-general, was never appointed by the federal government and that the PFIPC had no legal existence.
“As you may recall, on the 7th of July, Mr. President directed the ICPC to conduct an investigation into the fake Presidential Foreign Investment Promotion Council and submit a report within 30 days,” he said.
“Today, exactly within the stipulated period, we have submitted an interim report based on our interactions with all stakeholders involved.”
According to Aliyu, Tinubu directed the commission to make its findings public in the interest of transparency and accountability.
He said the investigation found that Adeyemi’s purported appointment letter was forged.
“It has been established that Adeniyi Adeyemi Matthew was never appointed by the Federal Government or any authority whatsoever,” he said.
“The Presidential Foreign Investment Promotion Council, which sometimes they called the Presidential Foreign Intervention Promotion Council, was never established by any law, executive order or any valid instrument of government.
“The appointment letter presented by Adeniyi Adeyemi Matthew was completely forged alongside similar documents used to perpetuate the illegal activities of the fake agency.”
Aliyu stated that a purported government gazette used to legitimise the organisation was also fabricated.
“If you recall, there was a gazette which he used to support the fake agency. That gazette is an illegal document that never passed through the processes prescribed by law,” he stated.
“Our investigation found that the office used by the fake agency was the office of the Presidential Economic Advisory Council. The office was broken into and access was gained illegally. That was how he was able to operate from there.”
Aliyu also revealed that investigators uncovered two additional fictitious government agencies allegedly created by the suspect — the FCT Investment Promotion Agency (FIPA) and the Foreign Investment Promotion Agency/Public-Private Partnership (FIPA-PPP).
According to him, fake legislative instruments were used to create the agencies and open bank accounts.
Despite the elaborate scheme, the ICPC chairman said the investigation found no evidence that federal government funds were disbursed to the fake council.
“Our investigation found that no funds of the federal government were approved or disbursed to the fake PFIPC,” he said.
“We also discovered no weaknesses in the systems of the State House or the Central Bank of Nigeria during our investigation. The fake appointment letter did not originate from the presidency.
“Our investigation found that some public officers failed to carry out due diligence and failed to comply with standard operating procedures in their ministries and departments. That gave him the opportunity to carry out these illegal acts.”
Nigeria tax system is build on taxing prosperity not poverty, according to Dr. Zacch Adedeji, executive chairman, Nigeria Revenue Service (NRS).
Dr. Zacch Adedeji, executive chairman, Nigeria Revenue Service
Adedeji, also dismissed the insinuation that the government’s tax reform is aimed at extracting money from Nigerians .
He said the essence of reform is creating an economic environment where individuals and businesses can prosper.
Dr. Adedeji made the clarifications on Sunday night while appearing on Channels Television’s Politics Today, where he defended the administration’s tax reforms and addressed concerns over rising government revenue amid the economic hardship facing Nigerians.
According to him, the government’s objective is to tax the fruits of investment rather than the investment itself.
“For us at Nigeria Tax, we are not there to extract. Our focus is not revenue. I don’t want to tax poverty. I’m to tax the fruit, not the seed, and I’m to tax the return, not investment.”
Adedeji explained that the government would generate more revenue as businesses became more profitable, without necessarily increasing the tax burden on individuals and companies.
He said a company that made N100 in profit could generate N30 in tax revenue for the government, but if its profit increased to N200 or N300, government revenue would rise accordingly.
“So, if I want to make more, I must work for you to make more. And that is why it is in the best interest of us in Nigeria Revenue Service that businesses are doing well, individuals are doing well,” he said.
He said the approach was consistent with President Bola Tinubu’s economic agenda, which seeks to remove barriers to investment and create a more conducive environment for businesses to operate and expand.
Adedeji cited reforms in the electricity sector as part of the government’s efforts to stimulate economic activity.
He noted that the Electricity Act had devolved powers to state governments to generate, transmit and distribute electricity, arguing that improved power supply would boost production and productivity across the economy.
Prof Chidi Oguamanam, Nigerian scholar, has been invited to serve as a member of the United Nations Educational, Scientific and Cultural Organization (UNESCO’s) World Commission on the Ethics of Scientific Knowledge and Technology.
Prof Chidi Oguamanam,
The appointment, which covers four years from 2026 to 2029, recognises Oguamanam’s contributions to the ethics of science and technology and related disciplines.
The invitation was conveyed in a letter from UNESCO on Saturday, which described the commission as an independent advisory body and forum for reflection on major ethical challenges arising from advances in science and technology.
The letter stated, “Recognising your significant contributions to the ethics of science and technology and related disciplines, it is my honour to invite you to become a member of UNESCO’s World Commission on the Ethics of Scientific Knowledge and Technology for a period of four years, from 2026 to 2029.”
Established in 1998, the commission brings together experts from different regions and disciplines to examine ethical issues associated with scientific and technological developments, climate change and the environment.
UNESCO said regional balance was important to the commission’s membership to promote multidisciplinary and transdisciplinary debate on emerging ethical challenges.
According to the organisation, the commission provides guidance and recommendations through its reports to UNESCO, its member states, the scientific community, policymakers, civil society and other stakeholders.
Its previous work has contributed to global normative instruments, including the Declaration of Ethical Principles in Relation to Climate Change adopted in 2017 and the Recommendation on the Ethics of Artificial Intelligence adopted in 2021.
UNESCO noted that the commission had recently published reports examining the ethics of quantum computing and space exploration and utilisation.
The organisation said the commission would now focus on new areas identified for its future work programme, including emerging ethical challenges arising from scientific and technological developments.
In inviting Oguamanam to join the commission, UNESCO expressed confidence in his expertise and active contribution to the development of its forthcoming reports.
The organisation also said it expected members to contribute to “horizon scanning” of emerging ethical challenges and help identify issues that should be addressed in the commission’s next cycle.
Oguamanam’s appointment adds to Nigeria’s representation in international discussions on the ethical implications of science, technology and innovation.
He is expected to serve on the commission alongside experts from different regions and academic disciplines during the 2026–2029 term.
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