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    FG Borrowed N1.3tn in Four Years to Subsidise Power Consumers, Firms – World Bank

    The federal government has borrowed a total of N1.3 trillion since 2017 to ensure that generation companies and gas providers receive sufficient payments to continue generating electricity, the World Bank said.

    The bank said this in its report ‘Resilience through reforms’.

    According to the report, the energy sector in Nigeria will cost the federal government an additional N3.08tn until 2023, if current performance levels and low tariffs persist.

    The report said: “To ensure that Gencos and gas suppliers receive sufficient payments to continue generating electricity, since 2017 the FGN has borrowed a total of N1.3bn ($ 4.2bn).

    “In 2019, total FGN support reached N524bn ($ 1.7bn), 0.4% of GDP, higher than the N428bn budget for health and only 20% less than the N650bn budgeted for education.”

    Although the six generation companies and the eleven distribution companies have been privatized, the Federal Government through the Nigerian Bulk Electricity Trading Company buys electricity from GENCO and independent power producers before reselling it to Discos, the bank said. .

    The report noted that the government, through the Nigerian Electricity Regulatory Commission, regulates the tariff in the sector rather than allowing market forces to determine it.

    He added that the Transmission Company of Nigeria remained strictly state-owned.

    Nigerians pay less than the cost of producing electricity, according to the report, adding that this resulted in an income shortfall.

    From 2015 to 2019, the FG paid 1.68 trillion naira as a cumulative tariff deficit, he said, adding that due to exchange rate depreciation and rising domestic inflation, tariff deficits had also been increasing.

    The bank said: “Every Nigerian who receives electricity from a Disco pays less for the electricity than the cost of supplying it.

    “However, 80 percent of tariff deficit spending benefits the richest 40 percent of the population; only eight percent benefit the poorest 40 percent, and of this less than two percent benefit the poorest 20 percent.

    “The significant resources spent on financing tariff deficits disproportionately benefit the relatively wealthy who have access to the grid and use more electricity, so that ultimately a large part of government support goes to those who don’t really need help paying the bills. “

    The report says that 43 percent of the population, or 85 million people, do not have access to the electricity grid, making Nigeria the nation with the largest energy access deficit in the world.

    Access to the electricity grid for the country’s poorest (about 40 percent of the total population) is 31 percent, he said.

    According to the report, there are more than 22 million gasoline generators that power approximately 26 percent of all households and 30 percent of the country’s micro, small and medium-sized enterprises.

    The report said that the generator sets generated eight times more electricity than the national grid.

    The World Bank said smoke inhalation from televisions was linked to about 1,500 deaths a year.

    According to the report, in 2018, Nigerians spent around N3.7tn on the purchase and operation of generator sets.

    Every year, Nigeria loses between N7tn and N10tn annually due to unreliable electricity supply, according to the report, adding that this represents between five and seven percent of the nation’s Gross Domestic Product.

    He said Nigeria had around 12,500 MW of installed capacity, dominated by natural gas, 88 percent, and hydropower accounted for the rest.

    In 2020, more than 51 percent of this capacity was unavailable due to maintenance and repair work, it said.

    Of the 6,158 MW that were available, an average of only 4,087 MW were available for generation, due both to insufficient gas supply, transmission and distribution limitations, and the inability of DISCOs to buy power, he added.

    In 2020, the installed capacity worked at 33%. Of the 4,087MW of available generation capacity, only 32,181 gigawatt hours (GWh) of electricity were generated and delivered to the DISCOS.

    The report said that seven percent were lost in transmission, leaving DISCOS with 30,000 GWh, three percent above the benchmark.

    According to the World Bank, the distribution network losses were also quite high: Discos delivered only 75 percent of the electricity they received, losing 7,656 GWh due to poor infrastructure and theft. 32% of the electricity was lost during transmission and distribution.

    In 2020, Discos billed 22,163 GWh of electricity to its customers (60 percent of which did not have a meter). Ideally, this should have generated N816bn in revenue for DISCOs, but they were only able to raise N542bn as revenue, according to the report.

    In July 2020, the FG launched a Nigerian Economic Sustainability Plan N23tn to mitigate the effect of the COVID-19 pandemic on the economy, the report recalled.

    The bank said economic recovery was only possible when there was access to electricity, leading to a sufficient power supply and a financially viable energy sector.

    According to the World Bank, Nigeria needs to connect between 500,000 and 800,000 households each year to achieve universal access to electricity by 2030.

    The global bank said the government has to show a real commitment to start changing the power sector by taking more seriously the critical actions it established in its Power Sector Recovery Program.

    He said: “The FGN has set out to reduce the new tariff deficits from N502bn in 2020 to less than N300bn in 2021 in its PSRP Financing Plan as it moves the electricity sector towards full cost recovery and a fair pricing policy of electricity: the transition to tariff-based services and increased payment.

    “Nigeria is a key member of the West Africa Power Pool, the regional market launched in 2018, which can significantly improve electricity supply not only in Nigeria but throughout West Africa.

    “By the mid-2020s, the 14 WAPP countries are expected to be interconnected; Efforts are already being made to increase the capacity of the network and strengthen it in order to increase domestic supply and accumulate the benefits of regional trade, ”the bank added.

    In response to the report that N1.3tn was borrowed from 2017 to ensure that distribution companies and gas companies supplied electricity, the Federal Ministry of Energy said that the fund was released in two batches for the payment of gas and the solution of collection deficits.

    The special assistant to the Minister of Energy in Media, Aaron Artimas, told one of our correspondents that the interventions were made through the Nigerian company Bulk Electricity Trading.

    He said: “In 2017 there was this government intervention, but they gave the money to NBET because the power generation companies complained that they were not being paid for the energy they produce.

    “And the Discos claimed that they had a deficit in the collection. So the gas suppliers were putting pressure on the government because if they didn’t pay them, they wouldn’t supply the Gencos.

    “This is how the government came up with the first intervention of around N700bn and the second in 2019 was N600bn. This brings the total sum to N1.3tn so that Gencos can defray the cost of the gas."

    Artimas said the government made the decision after public outcry that the sector was performing poorly despite being privatized.

    He noted that recently the government also intervened in the sector by providing financing for meters following consumer complaints that millions of electricity users were not metered.

    The assistant minister said that the few remittances from Discos over the years had justified continued government intervention in the sector, but noted that distributors had begun to make some progress in remittances to the sector.

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