Transmission company Nigeria’s (TCN’s) sole source of
revenue is from the tariffs it charges for transmitting power from the
generation facilities to distribution companies. This Tariff is also called its
Transmission Use of System (TUOS). TCN’s TUOS is set by the Nigerian Electric
Regulatory Commission (NERC) and is the same rate everywhere in Nigeria. For 2013, the TUOS rate is currently set at
$7.4/MWhr (N1200/MWhr). It is very clear that TCN’s revenue is directly
proportional to how much MWhr power is measured from transmission operations.
Nigeria reached a record generation peak of 4.5GW in
December 2012 (Nigerian System Operator report). However, on average this year,
GW transmission is much less than the 4.5GW achieved in 2012. However, let’s
assume that an average of 4.5GW is transmitted through Nigeria’s transmission
network this year. Transmitting 4.5GW
for 365days would correspond to earned revenues of $291 million based on a TUOS
rate of $7.4/MWhr. From popular news sources, TCN requires revenue
estimated at $1 billion (N162 billion) to stay afloat. This revenue is used to
cover its operational and maintenance activities, salary payments, repayment of
interest and debt from financed projects. Given that TCN will make only approx.
$291 million (N47 billion) from its TUOS charges, it will incur a projected
loss of over $709 million (N115 billion) for this year based on transmitting
only 4.5GW of power through its network. From the TUOS method that TCN uses to
generates its revenue, it is clear from the above that the company would have
to transmit significantly more GWs through its network to increase its
revenues. To do this, it will need to spend billions of dollars to expand its
transmission facilities. Also, its revenue creation is also linked to how much
power is generated by the generation companies and transmitted through its
network.
The ministry of power has forecasted that Nigeria will
generate and transmit 10GW of power by 2014. This would mean growing from
supplying a peak of 4.5GW to steady supply of about 10GW of power. This corresponds to an annual growth of
over 100% in the Nigerian Power Sector. This is a very optimistic goal and if
achieved, an annual growth of this magnitude would be the first for a
developing country in international history. Nevertheless, even if the 10GW is achieved by
2014 and transmitted through TCN’s network, this would only equate to revenues
of approx. $648 million (N105 billion) but still a loss of about $352 million
(N57 billion) and hence does not solve the problem. As was reported in the news, TCN also owes
about $1billion in unpaid taxes and debt. The company’s liabilities will only
continue to increase until its revenue can grow to a point where it can cover
its operations as well as service its large outstanding liabilities and debts.
At a certain point, it would be almost impossible to attract reasonable
investments to continue to grow TCN if liabilities keep growing and the company
continues for face challenges with generating enough revenue to manage its
operations and servicing its debts. If TCN is unattractive to private investors
and banks, it will make it close to impossible to successfully raise the
planned budget of over $3 billion annually until the country reaches its year
2020 target of 40GW without adequate funding from the government.
“..So for many years,
TCH has been living a sort or hand to mouth situation, if you like, with
minimal operating cost, with only enough money to pay the salaries, but not
enough money to pay for the costs. In
effect, if now TCN, by strict definition of the word, is insolvent what
that means is that we are not getting enough revenue to cover all of our costs.”
[Nigerian Guardian]
An option to solve this insolvent state of TCN could be for
NERC to revisit TCN’s $7.4/MWhr TUOS rate. However, this would mean an increase
of the TUOS rate by about 3 times the current rate to allow the company
generate the required revenue to cover all its cost. However, this cost would
have to be passed down to electricity consumers. A rate increase of this
magnitude will not be welcomed by Nigerians.
In other words, TCN still requires funding from FGN until generation companies
starts to supply enough power in GWs and the expansion of transmission
facilities are funded to a capacity where TCN can generate sufficient revenue
from its TUOS tariff to cover all its cost. These costs also include its
repayment of interest and debt from financing the expansion of the transmission
system.
Note: The writer is not affiliated with either MHI or TCN. The contents of this post and blog are just comments based on news and trends in the Nigerian Power Sector.
No comments:
Post a Comment