Nigerian electricity distribution companies still can’t get their heads around getting paid

Revenue collection is critical to the survival of any organisation. In order to ensure its survival and growth, an organisation must employ efficient revenue collection strategies.

It needs revenues to be able to meet its contractual obligations and must therefore ensure that it has effective mean generating and collecting its revenues.

Revenues generated are not only used to meet contractual obligations, they are used in the day to day running of the operations of the organisation.

Nigerian electricity distribution companies, now more commonly referred to as DisCos, are private companies with responsibility of distributing electricity generated by GenCos (power generating companies) and for which they are supposed to be paid by consumers who consume their power.

DisCos are very important and are critical in the Nigerian power value chain as they are the revenue generators in the chain. They are the connection between electricity producers and paying consumers. But like most things that are complicated in Nigeria, the reverse is the case.

Nigeria has one of the lowest rate of revenue collection in the utility in Sub-Saharan Africa, according to a World Bank report on utilities. Revenue collection efficiency in Nigeria has dropped to 25 percent, the report states.

The DisCos had inherited a weak system of accounting for electricity consumed, and a history of rampant electricity theft, amongst other factors. All of these combined to weaken their revenue collection strategies and has continued to undermine their financial performance.

A major hindrance to collecting revenue efficiently by DisCos is billing. Billing by DisCos is done in three ways, and they include prepaid billing, estimated billing and post-paid billing.

Analysts and consumers alike all support pre-paid billing, a scenario where consumers know that they are paying for the amount of power they consumed. This was especially welcomed as smart prepaid meters were introduced and revenue collection was expected to increase, but all the hope placed on this has been dampened because meter penetration has been slow.

Meanwhile, the most controversial method of collecting revenue, the estimated billing system, is still being used by the DisCos in areas where smart meters have not yet reached. It is described as a method of billing consumers above what they consume monthly, because the DisCos have no idea how much power is being consumed by their clients.

The third form is post-paid billing, a method which is still being used and involves a situation where consumers, who don’t have smart meters, use power and pay at a later date, usually at the end of every month. Out of these three forms of billing, the most widely accepted and adopted globally is the pre-paid metering.

Yet, metering in Nigeria is still far from the level it is supposed to be. According to the electricity regulatory body, Nigerian Electricity Regulatory Commission (NERC), over 47 percent of the DisCos’ customers have not been metered.

The public’s perception also remains a crucial reason for the low returns. Electricity is generally perceived to be free of charge with government bearing the entire burden.

People see it as a public good like roads, airports, bridges and so on and they normally don’t want to pay for it. And if they do pay, they want some form of subsidy on it. Poor revenue collection by the DisCos has also been linked to power theft. DisCos’ officials and other general observers of the sector say people are essentially stealing power from the DisCos.

DisCos have been lamenting this problem for years. But many say they should share in the blame for not metering a large number of their customers. In some cases, it is also claimed, some consumers that are metered are not properly monitored.

DisCos’ personnel do not do follow-up visits to places where they installed meters, except when consumers report faulty ones, it is also claimed. The lack of a balanced tariff is also a major hindrance and is adversely affecting revenue collection by DisCos because the tariff set by the government is not taking into account the huge operating costs the DisCos are facing despite the government owning 40 percent. Energy experts like Ishaya Amaza, an associate lawyer with Aelex, a leading law firm in Nigeria, in an email interview with business a.m. shares this view, and blames the tariff regime in place.

He said that the current tariff is not reflecting the cost of producing and providing power; added to that is customers’ resistance to paying the tariffs.

But other experts are of the view that DisCos might not be managing their cost efficiently. This is why industry experts like Dada Thomas, president of Nigerian Gas Association (NGA), said that the tariff should not be thought of as cost reflective, but rather as market-reflective. Another problem hindering revenue collection in Nigeria is the lack of significant investment by the DisCos.

DisCos are not forthcoming with investments, especially in the area of creating necessary distribution infrastructure which would provide electricity to its customers. In creating the much-needed electricity distribution infrastructure, the DisCos would have more access to their customers and be collecting their due would not be a problem, some people familiar with the situation explained.

The revenue collection inefficiency in Nigeria is a problem that both the private investors in the industry and government need to solve together by working as collaborators and not one side sabotaging the efforts of another, said one energy expert.

The government has taken some steps to address these issues by introducing certain initiatives to ease the metering gap and stricter penalties for electricity theft. One of the initiatives to ease the metering gap is the introduction of meter asset providers (MAP).

It is the most recent initiative to close the metering gap introduced by the regulatory commission, NERC. Meter asset providers are to provide, install and maintain meters for customers at a charge, taking the responsibility away from DisCos. Amaya expressed optimism at the introduction of MAP regulations.

“MAP regulations will help in collection efficiency if it is strictly implemented and if the contracts entered into between the DisCos and the MAPs are at arm’s length, as DisCos can now focus on their core function of electricity distribution,” he said. Also, stiffer penalties have been introduced as fines for meter tampering and by-pass were increased by 40 percent by NERC.

DisCos on their part also, have made changes and taken steps to overcome this problem. Most DisCos introduced customer enumeration, to know the number of customers they are serving and what class of tariff they fall under. More, however, needs to be done in order to raise the revenue collection efficiency rate in the electricity industry.

Nigeria modeled the privatization of its electricity industry after India, and it needs to learn certain lessons from the Indians. For instance, in India, energy theft is a crime and can be prosecuted to the full extent of the law. It carries stiff punishments, not just in form of fines.

Another solution suggested by Amaya is the off-grid electricity solutions. He said that it would “insulate consumers and electricity generators from some of the problems faced by the grid, including transmission challenges and inefficiency in revenue collection. The Eligible Customer regime recently introduced is the good development and is already gaining traction.”

“It will mean that such consumers will be able to pay their tariffs directly to the generators and will only pay access fees to the Discos for the use of the distribution systems.

The Discos will not have any revenue collection responsibilities for these classes of consumers,” he noted. The problem of the huge debts owed by government agencies would also need to be addressed, many of those spoken to for this story said. This is because the entire value chain can’t operate optimally unless revenue flows from one end to another.