Nigerian Electricity Regulatory Commission Threatens License Revocation for Kaduna Electric Due to Poor Performance

On May 16, 2023, the Nigerian Electricity Regulatory Commission (NERC) announced its intention to revoke the license of Kaduna Electric (KE), one of the distribution companies (DisCos) operating in Nigeria. NERC cited an alleged breach of the Electric Power Sector Reform Act (EPSRA) and the terms and conditions of KE's distribution license as the reason for this drastic action. The DisCo's poor performance, including substantial outstanding debts and high aggregate technical, commercial, and collection losses, has raised concerns about its commercial viability.

Outstanding Debts and Performance Assessment:

According to NERC, their performance assessment of KE for the period of January to December 2022 revealed that the DisCo owes a total of N93.42 billion to the market operator and the Nigerian Bulk Electricity Trading Plc. This includes a debt of N51.93 billion from that specific year and historical debts from 2015 to 2021 amounting to N41.49 billion. The accumulation of such significant debt has hindered KE's ability to remit funds to the market operator and meet its financial obligations.

Aggregate Technical, Commercial, and Collection Losses:

NERC highlighted that KE's poor remittance to the market is a direct consequence of high aggregate technical, commercial, and collection losses. According to NERC, these losses were alarmingly high, reaching 74% in the first half of 2022. Such inefficiencies have resulted in financial burdens for KE and cast doubts on the DisCo's commercial viability.

License Revocation and Potential Business Transfer:

NERC issued a notice to KE, granting them a 60-day period to provide reasons why their license should not be revoked. This action echoes a similar move made in 2019 when NERC threatened to revoke the licenses of eight DisCos for failing to meet their minimum remittance obligations to the market. All eight DisCos submitted their responses within the stipulated timeframe and fulfilled their remittance obligations.

While the license revocation process may result in the transfer of KE's business to another entity, NERC has a duty under EPSRA to consider the needs of consumers. This suggests that the revocation would likely be followed by a business transfer or the issuance of guidelines to ensure the continuity of service. Therefore, the threat of license revocation is unlikely to directly impact the power supply for consumers in KE's franchise area.

Conclusion:

The Nigerian Electricity Regulatory Commission's intention to revoke the license of Kaduna Electric underscores the severe consequences of poor performance and outstanding debts in the electricity distribution sector. KE's failure to meet its financial obligations and high aggregate technical, commercial, and collection losses have raised concerns about its commercial viability. However, NERC's duty to prioritize consumer needs suggests that any license revocation would likely be accompanied by measures to ensure the continued supply of electricity in KE's franchise area.

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