Eight months after the privatisation of the now defunct state-owned Power Holding Company of Nigeria (PHCN), the Nigerian electricity market remains largely in a state of limbo as it continues to operate under a set of government interim rules, four months after the planned launch of the transitional electricity market (TEM) was put on hold.
The declaration of the TEM is expected to kick-start a fully contracted and rules-governed electricity market wherein the sanctity of contracts shall be full to protect market liquidity and incentivise increased investment.
The TEM, which was originally scheduled to be declared on March 1, 2014, was put off to ensure that all the conditions precedent before it comes on stream are satisfied.
The interim rules were developed and issued by the Nigerian Electricity Regulatory Commission (NERC) in December 2013 to conduct the market in the pre-TEM phase until the declaration of TEM. The interim rules order was later modified with the revision taking place with effect from May 1, 2014.
“Investors and financiers are already reluctant to release funds because there is no TEM,” says Bismarck Rewane, chief executive officer of research firm, Financial Derivatives Company Limited, noting that the delayed privatisation process of the National Integrated Power Project (NIPP) may dent investor confidence in the power sector.
The NIPP generation portfolio comprises 10 gas-fired power plants with a combined capacity to generate 4,774 megawatts (MW) of electricity. The sale process was expected to be completed by the end of the second quarter of this year.
“Distribution companies continue to record losses in excess of 50 percent because tariffs being set by NERC are not cost-reflective,” says Rewane. “Supply is low and the number of customers also low. The numbers were highly overstated.”
As part of acquiring the assets, the private owners committed to reduction of aggregate technical, commercial and collection losses (ATC&C), but little to nothing has been achieved by the investors.
The interim rules order prescribes minimum payments that each Disco must produce and that each generation company must receive. These amounts are meant to represent targets that are achievable and which when performed should be able to keep the market in a well-defined shape on its progress to TEM.