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Divergent Views from Consumers as Discos Demand Budgetary Intervention – Okechukwu Nnodim
Power sector investors want a budgetary intervention from government to address the worsening liquidity squeeze in an industry that currently runs a deficit of about N1.5tn.
Between January 1 and August 8, 2018, Nigeria’s power sector lost N302.26bn as a result of electricity distribution, transmission, gas supply and water management challenges, latest figures obtained from the Transmission Company of Nigeria have shown.
It was also gathered that the N302bn loss was aside from the N1.3tn deficit that currently sits on the books of power distribution companies, a development, which according to the Discos, had severely hampered the delivery of quality services in the sector.
To avert further decline in the finances of the industry, operators said it was high time the Federal Government intervened by making provisions for the sector in the country’s annual budgets.
Investors in power distribution companies noted that the major deficit in the sector was caused by the gap in the tariff that the government mandated the Discos to collect from electricity users across the country.
In a document on the recent happenings in the power sector, which was put together by the Association of Nigerian Electricity Distributors and obtained by our correspondent in Abuja, the power firms stated that they were not advocating for an increase in tariff but stressed that the huge deficit could lead to a collapse of the industry if not addressed.
They said, “We are here in the sector because of a fundamental problem, which is the tariff gap. That is, the gap between what the government has specified as the price of the electricity that we distribute or retail and the true cost of the product. It is this gap that has solely contributed to the excess of N1.3tn that the Discos are carrying on their financial books.”
“This is an impediment to both the sustainability of the electricity market and the ability of the investors to meet the obligations of their performance agreement with the government, which should result in improved metering, customer service and increased customer connections that electricity consumers demand and deserve. This gap remains unaddressed by the government.”
They added, “Of important note is that we are not advocating a tariff increase on electricity consumers, some of whom are already dealing with affordability issues. We are stating that the mandated tariff gap is a responsibility of the government and should be addressed by the government, so that Nigerians can receive the improved electricity delivery service that they deserve.”
The power firms argued that the tariff gap was solely responsible for the debt they owed the Nigerian Bulk Electricity Trading Plc.
“Importantly, no provision was made in the recently passed Federal Government budget to address this problem,” ANED stated.
The investors faulted the funding that was made available to the Rural Electricity Agency to implement projects that, “from our perspective do not make sense.”
They outlined some of the REA projects to include the provision of solar-powered facility in Effurun, Warri, an area replete with cheap gas; and the construction of a gas-powered electricity plant in Ife, an area without access to gas but replete with lots of solar energy.
“Unfortunately, these projects or contracts tend to be comparatively procured at exorbitant prices, raising the questions whether taxpayers are getting value for their money or whether REA has not strayed completely away from its mandate of providing electricity to the 65 per cent of rural-dwelling Nigerians that have no electricity,” the Discos said.
They also argued that despite the fact that the government holds about 40 per cent stake in distribution companies, it did not make any budgetary provision for distribution projects in past budgets.
The power firms said, “Of even more interest is that four years ago, the federal budget did not contain money for distribution projects, yet, the Discos did much better in their service delivery. We believe that taxpayers and our electricity consumers can do better with the use of the funds being used to award contracts to plug the tariff gap.”
Consumers have expressed diverse views on the demand of the power firms for budgetary intervention from the Federal Government.
A former President, Association of National Accountants of Nigeria, Dr. Sam Nzekwe, stated that although it was true that the power sector had been recording huge revenue losses, the fact was that investors in the business were not prepared enough before they ventured into the industry.
He said, “It is true that the industry has huge deficit and so operators may have their reasons for calling for budgetary intervention. However, what I will like to state here is that the investors in the power sector came into the business unprepared. If they were prepared they would have conducted the required due diligence and should be making positive impact by now.
“Rather, all we see and hear is different forms of complain from both the investors and government. Also it is now obvious that the operators of the power business do not have the required financial muscle to take the sector to the next level, which, of course, is another reason why they are calling for budgetary intervention.”
The Director-General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, stated that the power firms were business entities that should be supported by government if need be.
He said, “This thing is getting more complex. But what government should understand is that a Disco is a business concern and if something is a business, then it has a right to recover its cost and make profit. So you cannot say they must not review tariff and it is not wrong to support them.”
“However, the Discos always talk about cost recovery and I ask, what kind of cost are we talking about here? That is the problem. I ask because they have been talking about all sorts of losses. You hear of commercial and technical losses, a high service cost and many problems associated with inefficiencies in the sector.”
Yusuf added, “All these are also contributing to high costs. And so by the time you factor all these costs and you are now trying to get a price that will now give you a margin for profit, what you will eventually get will be very high. Some costs should not be passed to consumers but right now they are already passing it to consumers. So it is quite a complicated issue and that should be given the appropriate attention by all.”
The National Vice President, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, Remi Bello, called for efficiency in the sector.
“What can make a business survive in any clime is efficiency. All the players in the power sector should go back and wear their thinking caps and bring in efficiency to the system. We need electricity; businesses will perform if we have steady power supply. So, operators in the sector must sit up and deliver,” he said.
The investors wondered why the government decided to hand over the management of the N78bn meant for distribution projects to the TCN.
They said, “N78bn has been put in the budget for ‘distribution’ projects to be implemented by the TCN. Why would TCN be implementing contracts for a largely privatised sub-sector, utilising taxpayers’ funds?”
“Our perspective on this issue is that there seems to be more of an interest from the Ministry of Power in awarding contracts than making the Discos whole, which is a resolution that holds greater value for the wider population of Nigeria than the seemingly misguided contracts being awarded by the ministry through its agencies, TCN and REA.”
But the Managing Director, TCN, Usman Mohammed, stated that the government had beamed its light on the Discos and was now ready to solve the distribution challenges in the power sector.
He said the Federal Government was supporting the transmission company, adding that it was wrong for the Discos to blame the government for their inefficiencies.
Mohammed said, “The government is supporting us (TCN). And with the same way they are supporting us, I know that as they have beamed their eyes on the distribution companies, they are going to solve the problems with power distribution.”
He further disclosed that the Federal Government approved for the TCN to anchor the N72bn investment, which the government planned to invest in the 11 Discos in the country.
Mohammed stated that the Minister of Power, Works and Housing, Babatunde Fashola, had got an approval from the government for the TCN to manage the N72bn planned investment in the Discos.
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