Business
Banks stuck with DisCos amidst worsening investor apathy
…as power supply crisis deepens
Unfavourable government policies are conspiring with harsh business environment to dampen the possibility of successful divestment of Deposit Money Banks (DMBs) from the Distribution Companies of Nigeria (DisCos), Business Hallmark’s analysis of developments in the nation’s power sector has revealed.
After more than one year, the state of the five DisCos, which were taken over by commercial banks over debt, and government order for them to divest, the banks and Asset Management Corporation of Nigeria (AMCON) have been unable to find new investors to the utility firms,
With poor performance and liquidity crisis undermining operations of the distribution firms, with the exception of Eko and Ikeja discos, leaving communities and households to fund wire, transformer oil, poles, meters and others, the Federal Government, AMCON and some banks were forced to take over the Abuja, Kano, Kaduna, Benin, Ibadan and Port Harcourt DisCos.
However, in December 2022, banks holding majority stakes through debts in six DisCos got a marching order from the Federal Government to divest within 12 months. The then Minister of Power, Abubakar Aliyu, who gave the ultimatum, said the banks had been mandated to find serious investors to sell their 60 percent equity in the DisCos.
According to Aliyu at the time, the government was monitoring the operations and divestment process of the six DisCos to ensure compliance with the core objectives of restructuring the power firms for better service.
But there are indications that except Abuja DisCo, the distribution companies, which have never declared profit in the 10 years of their existence are also unable to find new investors despite the directive of the Bureau of Public Enterprise (BPE), which insisted that the share of the power plants must be sold to necessary investors as the banks are not in the best position to run the assets.
In August last year, a consortium led by Transcorp Power Limited acquired a 60 percent stake in Abuja DisCo, a transaction, which saw Christopher Ezeafulukwe, the current MD/CEO of Transcorp Power Limited take on the role of Managing Director/Chief Executive Officer at AEDC.
Latest report of the Nigeria Electricity Regulatory Commission (NERC) for the 2023 Second Quarter showed that the DisCos rejected 114.53 megawatt-hours per hour of electricity during this period as load offtake dropped further to about 3,200MW despite the Partial Activation of Contract regime, which mandated 5,000 megawatts of electricity. Metering challenges, collection efficiency as well as aggregate technical and commercial losses remain worse than the Key Performance Indicators (KPI) of the DisCos.
Our checks showed that these losses affected operators’ collective service to 5.7 million Nigerians within their areas of coverage. According to data obtained from the National Bureau of Statistics (NBS), the breakdown showed that Ibadan DisCo has 2.26million customers; Benin DisCo, 1.21 million; Kaduna DisCo, 823,000, Kano DisCo, 691,401 and Port Harcourt DisCo has 725,372.
According to NERC’s quarterly report, the Aggregate Technical, Commercial and Collection (ATC&C) loss in 2023/Q1 was 46.39 percent composed of 22.03 percent technical and commercial losses, and 31.25 percent in collection loss, which implies that over the course of 2023/Q1, on average, as much as N46.40 in every N100.00 worth of energy received by a DisCo was unrecovered due to a combination of inefficient distribution networks, energy theft, low revenue collection and unwillingness of customers to pay their bills.
Tariff war
The managements of the DisCos and government are currently locked in an intractable war, with payment of subsidies as the bone of contention. In 2024, the subsidies by the Federal Government are projected at N1.67 trillion, an exponential increase of 170 percent on the N618 billion the government shouldered in 2023.
According to reports, from 2015 to 2023, Nigeria poured trillions on electricity subsidies, with no significant gains. While it is understandable that the naira depreciation and inflation account for the jump to N1.67 trillion this year, the Federal Government said that through direct interventions, it had coughed out N7 trillion by 2023 to support the sector.
Considering the partial deregulation of the industry, the DisCos are uncomfortable with subsidies. Rather, they desire cost reflective tariff, which is currently pegged at about N140 per kilowatt-hour by the Minister of Power, Adebayo Adelabu. Consumers are paying about N70 KW/h now, leaving some of the DisCos in huge debt.
But analysts see the deficit of N9.8 trillion in the N28.8 trillion 2024 budget and the fact that government is using 98 percent of revenue for debt servicing questioning the sustainability of the subsidies. They say subsidies reflect the deep-seated trouble in Nigeria’s electricity sector, insisting that the privatisation of the DisCos and generation companies in November 2013 was badly done.
Electricity Analyst, Lanre Elatuyi said most of the DisCos are not able to secure long term funding. He said despite the takeover, the challenges in the DisCos still persist as there is no fresh capital injection, equity and no investments.
“The takeover by AMCON and the banks have not helped matters as it could have been effective if there are fresh capitals and small operational efficiencies introduced, but as these things are still lacking, the problem would still persist,” he said, and added that with over 50 percent ATC&C loss, there is no profit in sight for the DisCos.
Also, Chairman, Power Group, Lagos Chamber of Commerce and Industry (LCCI), Martins Arogie noted that while the DisCos may have their shortcomings, they have also been impacted by unfavourable government policies.
According to him, the current tariff parameters do not align with the actual business realities, making it difficult for them to generate sufficient income, which, in turn, hampers their ability to attract funding, as there’s no clear indication of short-term improvements.
He said, “The larger dilemma revolves around a cost of living crisis, making tariff adjustments less effective without significant supply enhancements, which, in turn, require substantial investments. The key question remains: who bears the cost of this investment in the interim?”
In the same vein, a group of investment research analysts, XGY Limited, in their recent report said investors in the sector look for certain things in a company before they invest in any DisCo. According to them, Eko Electricity Distribution Company (EKEDC) ‘’has a remarkable journey and achievements that have made it a key player in Nigeria’s electricity distribution sector, serving as a shining example of operational efficiency, corporate governance, and customer happiness, setting the pace for others in the business.”
Business Hallmark recalls that in 2022 while the then Minister of Power, Aliyu, was explaining why only six DisCos were affected by the restructuring, he had said:
“One may ask why only six? What about the rest? You know we have 11 of them. Three out of the 11 DisCos are performing well, that is two in Lagos and one in Enugu. They are not doing badly. Jos Disco was re-concessioned in 2022 and Yola was re-concessioned last year. These two DisCos are working very hard to improve. So we have to give them time to settle down.
“In a way, we have restructured the whole of the 11 DisCos in one way or the other. Now, it is to help them since we have made them more responsible. We are trying to help them to get on their feet.”
