Can Nigeria's electricity DISCOs sustain revenue growth?

The Nigerian Electricity Regulatory Commission has reported a substantial increase in electricity distribution companies' earnings by 61.4 percent to 162.1 billion naira following the introduction of a new tariff regime in the second quarter of this year. This surge in revenue has sparked discussions about the sustainability and viability of Nigeria's Electricity Distribution Companies (DISCOs), as well as the country's journey towards sustainable tariff and off-grid solar power solutions. Oti Ikomi, CEO of Proton Energy, shed light on the recent developments during an interview with CNBC Africa. According to Ikomi, the surge in earnings is indicative of the DISCOs becoming increasingly viable, with a noticeable 60 percent rise in revenue figures from March-April to July. This increase is directly linked to the rise in the Band A tariff, designed for consumers who receive 20 hours or more of electricity per day. While the revenue boost is a positive sign for the Nigerian electricity services industry (NESI), Ikomi highlighted that the translation of increased revenue into gross and net profit for DISCOs is not straightforward. Margins remain around 10 percent due to factors like generation costs indexed to gas prices and foreign exchange rates. He emphasized the importance of DISCOs investing in Capital Expenditure (CAPEX) and approved Performance Improvement Projects (PIPs) to ensure that service improvements align with revenue enhancements. The conversation then shifted to the minister of power's optimism regarding tariff reductions amidst improved power generation. However, Ikomi stressed the need for more focus on CAPEX, productivity enhancements, and addressing transmission infrastructure challenges. Despite Nigeria being close to its target of 6,000 megawatts of power generation by year-end, concerns persist about the country's power sector's capacity and efficiency. Ikomi expressed dissatisfaction with the progress of key initiatives, such as the Siemens project focused on improving transmission infrastructure. He underlined the need for a significant emphasis on upgrading transmission and distribution infrastructure, urging DISCOs to ramp up investments to meet service improvement goals. The discussion also touched on the growing importance of off-grid solar solutions in Nigeria's energy landscape. Ikomi highlighted the need for Nigeria to align with global energy transition plans, leverage decreasing solar panel costs, and incentivize the adoption of off-grid solar solutions. He emphasized the environmental benefits of incorporating more renewables into Nigeria's energy mix. As Nigeria positions itself to achieve its renewable energy targets and tackle greenhouse gas emissions, the conversation concluded with a call for renewed focus on solar investments and environmental sustainability. In conclusion, while Nigeria's DISCOs are experiencing revenue growth post-tariff adjustments, sustained viability will hinge on strategic investments, improved infrastructure, and embracing renewable energy solutions to drive long-term sustainability in the country's power sector.