June 23, 2020
Prior to the outbreak of the COVID-19 pandemic in Nigeria, the Nigerian power sector had been enmeshed in lingering challenges of inadequate and obsolete power generation, transmission and distribution facilities, that had made it impossible for the Nigerian state to meet the power requirements of resident individuals and businesses operating in the country.
For most operators in the Nigerian power sector, the initial optimism that heralded their entry and subsequent investments in the sector, has given way to consistent cries of capital erosion and operational losses, occasioned by inadequate infrastructure across the electricity value-chain, collection losses, liquidity issues, tariff shortfalls, and an underdeveloped regulatory framework. The challenges faced by these operators have been further heightened by the COVID-19 pandemic in Nigeria, which has severely affected economic activities due to the movement restrictions and lockdown measures imposed by the government. For instance, the proposed adjustment to electricity tariff, which was due to be implemented in April 2020 in a bid to address the tariff shortfalls in the sector, has been delayed till July 2020 due to the pandemic.
In this article, we will examine the impact of the COVID-19 pandemic on operators in the Nigerian power sector and assess the options available for these companies in the short-run to cushion the impact of the pandemic on their finances and operations.
Beyond its impact on the health of Nigerians, COVID-19 has caused severe demand-side disruptions in the power sector in more ways than could have been anticipated. Due to the lockdown measures introduced by the government to curtail the spread of the virus, several businesses have either shut down entirely (especially those business operations that can only be performed within the office premises/non-residential buildings) or reduced operations, thus, significantly reducing the net electricity consumed by these commercial entities.
Given that commercial and industrial customers pay a higher tariff per kilowatt-hour of energy consumed, the shutdown of these businesses has created financial losses for the Electricity Distribution Companies (‘DisCos’) and may worsen their already precarious financial situation. It is expected that the power that should have been used by these businesses would be diverted to residential customers given that their consumption would have increased due to the stay at home order by the government. However, the tariff payable by residential customers is less than that payable by these businesses. Consequently, the expectation is that DisCos would receive less revenue for the same amount of power distributed during the lockdown.