The Senate has described the Share Purchase Agreement (SPA) between the Federal Government and Azura Power Plant as a drain on the nation’s resources.
The lawmakers called for a review of the SPA on Wednesday after the committee on power made the recommendation, according to News Agency of Nigeria.
The recommendations were presented by Chairman of the Committee, Sen. Gabriel Suswam during plenary.
Suswam, who said that the agreement between the Federal Government and Azura power plant was signed between 2016 and 2017, explained that government ordinarily shouldn’t have signed those agreements.
What it means: The agreement, according to the lawmaker, means that the nation must pay for any amount the plant claim to generate and it does not matter if they are consumed or not.
He said, “What we signed is that we signed that even if we are unable to take that 450 megawatts we still pay full price for 450MW. You call those agreements take or pay.”
Other recommendations Suswam said include the need to revisit tariffs that had been set in the 2016 to 2018 Minor Review of the Multi Year Tarrif order (MYTO) 2015 and Minimum Remittance Order for the year 2019.
This, he said was to clearly determine if N600 billion Payment Assurance Guarantee (PAG) being processed for disbursement would be sufficient to cover the tariff shortfalls that would arise if retail tariffs did not rise as envisaged.
“The gap between reality of Distribution Companies (Discos) and National Electricity Regulatory Commission (NERC) projections needed to be streamlined.
” This is on account of the fact that Ministries, Departments and Agencies (MDAs) including Federal, State and Local governments had not paid their legacy debts (2015-2018) or the current bills going forward in 2019.
“There should be an immediate removal of the increased custom duties of 35% to allow Metre Asset Provider (MAP) clear meters stuck at the port,” he added.
In his remarks, President of the Senate, Ahmad Lawan said that the report by the committee was so important.
“The power sector is the way for Nigeria to industrialise; in fact even to reduce the level of insecurity in the country by providing opportunities for wealth creation and jobs.
”We will continue to insist that the power sector performs better than what it is and this privatisation definitely has not been working for Nigeria and we need to look into it again.”
NERC issues order to DisCos on replacement of faulty, obsolete meters
NERC has issued a directive to DisCos on the structured replacement of faulty and obsolete meters for their customers.
The Nigerian Electricity Regulatory Commission (NERC) has issued a directive to the electricity distribution companies (DisCos) on the structured replacement of faulty and obsolete meters for their customers with effect from March 4, 2021.
This is to remove the bottlenecks that had previously impeded the rapid deployment of meters to unmetered customers and the receipt of complaints from metered customers in fourth-quarter 2020, that they had been served meter replacement notices by DisCos when all stakeholders were preparing for the National Mass Metering Programme (NMMP).
The directive from NERC is contained in Order No. NERC/246/2021, Titled, “In the matter of the order on structured replacement of faulty and obsolete end-user customer meter in Nigerian Electricity Supply Industry (NESI),” issued on March 4, 2021.
The commission noted that over 7 million customers are currently unmetered as indicated by the customer enumeration data. It also estimates that an additional 3 million meters are currently obsolete and due for replacement.
NERC pointed out that the existence of unmetered customers contributes to the threat affecting the financial viability of the NESI as unmetered customers expressed their displeasure with the estimated billing methodology.
The statement from NERC partly reads, “The Commission notes that over 7 million customers are currently unmetered as indicated by customer enumeration data. It is also estimated that an additional 3 million meters are currently obsolete and due for replacement.
“The existence of a large population of unmetered customers contributed to threats affecting the financial viability of NESI as unmetered end-use customers expressed deep dissatisfaction with the estimated billing methodology.
“The revenue assurance objectives of DisCos have also been challenged by being unable to properly account for the utilisation of electricity by end-use customers”.
Following the review from both the metered and unmetered customers, NERC issued the following order;
- DisCos shall grant priority to the metering of unmetered customers under the National Mass Metering Program.
- DisCos may replace faulty/obsolete meters under the National Mass Metering Program but these replacements must be done in strict compliance with the Metering Code and other regulatory instruments of the Commission.
- DisCos shall inspect meters of metered end-use customers and the replacement notice shall contain the following –
- The date of the inspection
- Name, designation and signature of the officer that inspected the meter.
- The fault identified in the meter.
- The date for the installation of the replacement meter
- The Commission shall be copied on all replacement notices issued to end-use customers for the purpose of conducting random reviews of the replacement
- New meters must be installed upon the removal of the faulty/obsolete meter and under no circumstances shall the customer be placed on estimated billing on account of the DisCo’s failure to install a replacement meter after the removal of the faulty/obsolete meter.
- The customer and DisCo representative shall jointly note the units on the meter being replaced and the customer must be credited with these units within 48 hours after the installation of the meter.
- Customers shall only be billed for loss of revenue where the DisCo establishes meter tampering, by-pass or unauthorised access as contained in NERC Order/REG/ 41/2017 on Unauthorised Access, Meter Tampering and Bypass.
- Activation tokens shall be issued to customers immediately after replacement of the faulty/obsolete meter.
- DisCos shall file monthly returns with the Commission on the replacement of faulty/obsolete meters along with their proposal for the decommissioned meters.
This Order may be cited as the Order on the Structured Replacement of Faulty/Obsolete Meters of End-Use Customers.”
What you should know
- NERC was mandated in the Electricity Power Sector Reform Act to maximize access to electricity services, by promoting and facilitating customer connections to distribution systems in both rural and urban areas and establish appropriate consumer rights and obligations regarding the provision and use of electricity services.
- Meters serve as a revenue assurance tool for NESI service providers and a resource management tool for consumers that receive services with the Meter Asset Provider (MAP) Regulations coming into force on April 3, 2018.
Why NNPC should be commercialised
A commercialized NNPC with more committed employees would mean better accountability and transparency in its operations.
The Nigerian government is seeking efficient ways of positioning the country on its path to recovery and the petroleum industry which contributes about 90% of its exchange earnings would undoubtedly be critical on this journey.
The long-awaited Petroleum Industry Bill (PIB) which seeks to regulate the entire Nigerian Petroleum Industry and repeal a host of existing legislation is paramount in transforming the industry and introducing more efficiency particularly in its government-owned parastatals. The PIB has gained more traction in the current administration and is now awaiting deliberations by legislators.
A key highlight of the PIB is commercializing the State-run behemoth, Nigerian National Petroleum Corporation (NNPC). This move would see the NNPC incorporated as a Limited Liability Company and be known as NNPC Limited. This company would conduct its affairs on a commercial basis without resorting to using government funds.
While this might seem like a bold move by the government, it still should not come off as a surprise…
Owing to the fall in crude oil prices from over $100/barrel to below $50/barrel levels in 2020, Nigeria’s exciting story with crude oil slowed down but has picked up in recent months. The country’s heavy dependence on the volatile crude oil market and its ineptitude in diversifying during its “oil-rich” days have now thrown its growth story in jeopardy. The once 3rd-fastest growing economy with foreign reserves in excess of $40bn now wallows in rising inflation complemented and a weakened currency.
Why do we need to commercialize NNPC?
A core theme with a number of government-owned parastatals is the plague of inefficiency and obscurity in the way they are run. To give an idea of the NNPC’s lack of transparency, the corporation only published the group’s audited financial statements for the first time in its 43 years of operation in 2020. It’ll be right to commend this administration is pushing for transparency but you can go on to imagine what went on during those opaque years of operation.
As expected, the results were not impressive. The corporation reported a recurring loss, albeit 70% lower in 2019. The significant reduction in losses may prove the government’s will in improving the operations of the NNPC, however, comments on the report noted that “material uncertainty exists that may cast significant doubt on the Group and Corporation’s ability to continue as a going concern.”
Moving down to the State-owned refineries with a combined capacity of 445,000 bpd, capacity utilization well below 20%, and recurring annual losses in excess of ₦150bn, we can agree that the condition of these refineries is utterly worrisome. Despite the government’s annual budget for Turn Around Maintenance of these refineries, they have now been shut down with plans to undergo a Build, Operate, and Transfer (BOT) model.
Chief among the NNPC’s problems is corruption. A number of investigative reports have explained how subsidy payments, domestic crude allocation, revenue retention practices, and oil-for-product swap agreements are smeared with corruption. The Senate has initiated countless probes and new management seeking transparency has been introduced by the President, however, it just seems like the rot has eaten too deep into the system.
What does commercializing NNPC mean for the country?
The government-managed NNPC has proved to be inefficient and riddled with corruption. A commercialized NNPC with more committed employees would mean better accountability and transparency in its operations. The possible introduction of more shareholders would strengthen the amount of funding available to the NNPC and further shift the burden of being the sole-financier away from the government.
Exploring an NNPC IPO
An Initial Public Offering (IPO) would see the NNPC’s shares traded on Stock Exchanges and position the corporation to raise much more funding, build trust and endear to the international community. While this might seem like a daunting task, Nigeria can perhaps take a cue from Saudi Arabia whose National Oil corporation; Saudi Aramco began raising capital for its IPO in December 2019.
The Saudi Crown Prince; Muhammad bin Salman (MBS) announced a valuation of $2trn enticing the world’s largest investment banks, appointed a new set of leaders on the board of the corporation, and executed a highly engaging local marketing strategy. Although the valuation figure was brought down to $1.5 – $1.7 trillion by financial advisors, Saudi Aramco successfully achieved its IPO raising nearly $26 billion for 1.5% of Aramco’s value.
NNPC’s fundamentals might not support an IPO currently as investors might be wary of the high level of risks involved but we can’t deny the immense opportunities an IPO would present not just for NNPC’s transparency and performance but Nigeria’s economic reform.
The recurring performance of the corporation with several corruption allegations, inefficiency, and unclarity is indeed worrisome. It is time to have the NNPC turn over a new leaf and operate on a commercial basis. This would afford the government the ability to deploy funds into other segments of the economy and have the NNPC focus on being a commercially viable entity.
Nairametrics | Company Earnings
- Abbey Mortgage Bank projects N51.08 million profit in Q2 2020.
Abbey Mortgage Bank has released its […]
- Dangote Sugar increases post tax profit by 33%, as earnings per share prints at N2.45
Dangote Sugar released its full-year […]
- FY 2020: Ardova Plc posts N1.86 billion Profit After Tax
Ardova Plc (formerly Forte Oil Plc) […]
- FY 2020: Africa Prudential posts N1.45 billion Profit After Tax.
Africa Prudential Plc released its […]
- Custodian Investment Plc posts N12.69 billion profit in FY 2020.