Nigeria’s DisCos, GenCos in talks over direct power purchase

In a bid to reform the power sector in Nigeria, eleven Electricity Distribution Companies (DisCos) are currently engaging in discussions with Generation Companies (GenCos) for direct procurement and sale of power to customers. Chukwueloka Umeh, the CEO of Century Power Generation, shed light on this development and other key aspects of the power value chain in a recent interview on CNBC Africa. The shift from the Nigerian Bulk Electricity Trading (NBET) model, where power was purchased in bulk from Independent Power Producers (IPPs) and GenCos and resold to DisCos, to a direct procurement system signifies a significant change in the industry. Umeh emphasized that this new approach places the responsibility directly on DisCos to ensure accountability throughout the value chain. DisCos will now need to collect payments from end-users to compensate GenCos, who in turn must pay gas producers for the fuel supply. With this direct interaction between companies, accountability and financial transparency are expected to improve significantly, reducing the need for central entities like NBET to intervene in case of payment defaults. Regarding potential tariff adjustments, Umeh highlighted the importance of ensuring that DisCos charge reasonable tariffs approved by the Nigerian Electricity Regulatory Commission (NERC). He noted that Nigerians are willing to pay for reliable electricity services, as long as the pricing is fair and justifiable. The government's plan to introduce an electricity subsidy raises concerns about its impact on the budget deficit, but Umeh believes that if DisCos operate efficiently and NERC regulates tariffs effectively, the sector can achieve sustainability. The viability of DisCos has been a subject of debate, with some companies facing financial challenges and debt burdens. Umeh acknowledged the need for a restructuring of underperforming DisCos and the possibility of new investors acquiring these assets. He urged the government to prioritize business efficiency over sentimentality and political interests in the sector's restructuring process. While some DisCos are making strides towards stability, others may need to exit the market to pave the way for more competent players. Looking ahead to 2024, Umeh expressed optimism about the opportunities arising from the implementation of the Nigerian Electricity Act and ongoing industry reforms. He highlighted the potential for increased efficiency and private sector involvement in driving the sector's growth. With the government considering divesting its stake in key entities like NBET and Transmission Company of Nigeria (TCN), the power sector may see a transformation that could benefit consumers and investors alike. Umeh believes that this year will be crucial in determining the trajectory of the power sector and emphasized the importance of private sector participation in maximizing efficiency and service delivery. As the power sector in Nigeria undergoes significant changes and transitions, stakeholders are hopeful that these developments will lead to a more sustainable and reliable electricity supply for all Nigerians. With a focus on accountability, efficiency, and regulatory oversight, the sector aims to address longstanding challenges and create a conducive environment for investment and growth.