An analysis of key macroeconomic variables and underlying basic assumptions contained in loan capital commitments on the financial sustainability of electric power distribution companies (DisCos) in the Nigerian electricity supply industry (NESI) under the Multi-year (MYT) framework

Abstract

The revenue shortfall phenomenon in the Nigerian Electricity Market (NEM) has spiralled into a liquidity crisis under the established pricing methodology, the Multi-Year Tariff (MYT) framework. The financial liquidity crisis experienced is allegedly exacerbated by the inability of the Electricity Power Distribution Companies (DisCos) in the Nigerian Electricity Supply Industry (NESI) to meet their respective financial obligations, especially around the offtake of the wholesale electric power energy delivered. Given the reliance of the electricity generation and transmission companies on the 11 distribution companies (DisCos), which represent the strategic business interfaces of delivery, metering, billing, and dealing with all aspects of customer care and welfare, the privatisation of the 11 DisCos in 2013 resulted in them being awarded investment loans by the Federal Government of Nigeria (FGN) under the Power Sector Recovery Program (PSPR). The loan capital commitments were based on the likelihood of future losses being sustained in line with historical losses toward instating the financial sustainability of the DisCos under the MYT framework. However, the balancing act in setting a tariff that is fair to all customers and gives the NESI’s DisCos the trajectory for the recovery of costs and a return on investment under the MYT modelling has clearly not worked, given the persistence of the financial crisis, this is despite the repayment terms of the loan capital commitments been based on expert predictions of future losses. Consequently, this study undertook an analysis of the effect of the key macroeconomic variables and underlying assumptions contained in the loan capital commitments on the financial sustainability of the NESI’s DisCos under the Multi-year (MYT) Framework. The thesis addresses perhaps the greatest issue affecting the economic well-being of Nigeria and how the desperate plight of a dysfunctional electricity supply industry can be fixed. In its analytical approach, this study engaged the loan repayment data and data from macroeconomic variables (consisting of the foreign exchange rates and gas prices) as well as other basic assumptions in the MYT financial modelling through the Auto Regression Distribution Lag (ARDL) approach to regression analysis. The analysis reveals statistically significant connections between the variables and may pinpoint the way forward. This may deal with potential unrest with customers and help support the evolution of a successful team of DisCos, as advocated in the Nigerian 2023 Electricity Act.

Date of Award	4 Nov 2024
Original language	English
Awarding Institution	Abertay University
Supervisor	Gonzalo Forgues-Puccio (Supervisor), Gayathri Gunatilake (Supervisor), Reza Kouhy (Supervisor) & Sunday Samuel (Supervisor)