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DisCos: Investor-banks’ woes worsen

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BREAKING: FG hikes price of prepaid meters to N143,836.10k from N109,684.36k

Adebayo Obajemu

The state of electricity supply in the country is not showing any sign of improvement as recent report put the Distribution Companies, Discos, which are the third leg of the value chain in deeper crisis than earlier envisaged. Similarly, generating capacity was said to have dropped again to about 3000MW in the past couple of weeks and plunging the country in darker situation.

Consequently, the fate of banks, which had taken over the discos as new investor-owners may be further imperiled by the threat to suspend the discos from the national grid due to outstanding debt to the Market Operator, contrary to the market regulations. The banks were given eight months to find suitable core investors to enable them exit from the discos, but they had preferred to operate them directly without any move to transit, which is worsening the power supply problem in the country.

The Market Operator (MO), coordinator of the Nigerian Electricity Market (NEM), in a recent statement, revealed plans to embark on nationwide disconnection of some Generation Companies (GenCos) and Distribution Companies (DisCos) over failed remittances of bills for ancillary services.

Business Hallmark gathered that the Distribution Companies (DisCos) failed in remittances of bills for ancillary services.

The defaulters as of March 2023 comprise nine DisCos, Ajaokuta Steel Company (ASC), a special electricity customer; nine DisCos – AEDC, BEDC, EEDC, IBEDC, Ikeja Electric, JEDC, Kaduna Electric, KEDC, PHEDC, APL Electric Company Aba. The GenCos include Niger Delta Power Holding Company (NDPHC) plants and Paras Energy.

The nine DisCos supply electricity to over 70 percent of the over 12 million registered electricity consumers while the GenCos generate significant power on the grid with NDPHC having at least seven active GenCos. While some of the defaulting DisCos have been given a notice of intention to suspend them, however, they are given the opportunity to respond.

The MO has suspended and disconnected Kano and Kaduna DisCos with plan to disconnect more DisCos from the grid system in order to recover outstanding payments.

Apparently, all is not well with the DisCos and this has thus brought to the fore the viability of the electricity privatisation policy of the Nigerian Government.
AMCON had recently advertised the IBEDC’s asset for sale, even when the case over the complete takeover of the distribution firm is before the Court.

Integrated Energy Distribution and Marketing Company Limited, the majority shareholder and key investor in IBEDC, had in an application before the court prayed for an order of interlocutory injunction restraining the AMCON (Plaintiff/Respondent) from disposing of IBEDC to a new owner.

Deolu Ijose,  Managing Director/Chief Executive Officer, Benin Electricity Distribution Company Plc, (BEDC), in a recent statement lament over its N11 billion monthly invoice to customers.

The issues involved in the power sector are enormous, and unless the incoming government undertake a radical review we may be moving towards a collapse of the sector with attendant cost to the economy.

Following the restructuring and takeover of six electricity distribution companies (DisCos) due to the failure of core investors to fulfill their obligations to the market under the terms and conditions of licence, the status quo has remained including market dysfunctionality, poor power supply, weakened infrastructure and the underlying problem of liquidity and other associated legacy crisis in the sector, apart from top leadership change.

The six DisCos have failed to meet obligations while three others including Eko Electricity(EKEDC), Ikeja Electric, and Enugu Electricity Distribution Company(EEDC) have shown some resilience by meeting market conditions, although with mild issues.

The other two, Yola DisCo and  Jos Electricity  Distribution Company (JED) were re-concessioned in 2021 and 2022 respectively. These two Discos have been given time to settle down.

In December 2021, United Bank for Africa Plc took over the majority stake due to the inability of the AEDC’s major investor (Kann Consortium) to effectively service the loans obtained from UBA when it acquired the Disco in 2013.

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Business Hallmark gathered that the UBA had acted as the mandated lead arranger, underwriting $122m (about N20bn then) for Kann Consortium’s acquisition of the AEDC, leading to changes in the management and Board of the AEDC.

In another development, the federal government through a statement jointly signed by the Executive Chairman of the Nigerian Electricity Regulatory Commission (NERC), Sanusi Garba, and the Director-General of the Bureau of Public Enterprises (BPE), Alex Okoh, on Tuesday, July 5, 2022, commenced the restructuring process due to their inability to meet up with the repayment of debt obligations to the commercial banks.

Fidelity Bank after collateralizing the 60 percent shares by exercising the rights on the shares of Kano, Benin and Kaduna DisCos, while the BPE and NERC that are in charge of the Federal Government’s 40% interest in the DisCos also initiated take-over actions on their boards.

Business Hallmark gathered that the combined invoices from the Nigerian Bulk Electricity Trading Company and Market Operator to Discos were N412bn in the first quarter 2022.  This figure has grown in subsequent quarters, thereby impeding commercial flow of NESI.

The DisCos are reportedly owing N230 billion and shortchanging the power sector to the tune of N164 billion. This was revealed by the National Economic Council (NEC), through a report submitted by the NEC Committee on Ownership Review and Analysis of Discos and Electricity Sector Reform.

According to the council, the  DisCos’ actions were in breach of their Performance Agreement Target, for owing N230 bn, translating to 67 percent debt owed to the market operators between 2015 and 2018.

BH gathered that between 2015-2018, the DisCos under-invested relative to their Performance Agreement Target by N164 billion (67 percent) and benefitted from investments by NDPHC/REA in their networks to the tune of N147 billion.

The bulk of Discos’ N230 billion indebtedness to the electricity market was attributed to their collection shortfall and low remittance

Asset Management Corporation of Nigeria (AMCON) on the other hand,  took over the Ibadan DisCo, with the appointment of Kingsley Achife as interim Managing Director.

The BPE also restructured the management and board of Port Harcourt DisCo with the appointment of Iboroma Akpana, as the Chairman of the Board and Benson Uwheru as the Managing Director of PHEDC to forestall the imminent solvency of the entity and meet its market obligations.

Due to the takeover from the core investors, the government agencies through the authorisation of the Ministry of Power and the Central Bank of Nigeria (CBN) sacked the entire Board members of the five DisCos and reconstituted new management boards.

A review of the Nigerian Electricity Supply Industry(NESI) by experts and analysts, between July 2022 when the five DisCos were restructured, and now, and December 2021 when Abuja DisCo was collateralised, showed that widely acclaimed electricity market privatisation has failed to completely address the prevailing power crisis, particularly on the DisCos end of the market.

The lenders provided the chairmanship of the Discos. The BPE provided part of the management, including the managing directors and then the CBN provided the chief financial officer (CFO) and the auditor.

Further findings have thus shown that customers under the 6 DisCos have carried on with the attitude of unwillingness to clear electricity consumption bills due to a lack of transparency in the billing system and power supply as well as unjustifiable estimated billings.

Professor Samuel Adesanmi of the department of electrical/electronic Federal University Lokoja told this medium that the DISCos “are owing huge sum, and has been trying to eat their cake and have it back.

“They have together been short-changing the power sector to the tune of over N164 billion. They have not used the money they have been collecting for a revamp of the equipment, everything they are using are inheritance from the old NEPA. This is unacceptable, and that’s why some of us are calling for a revisit of the whole issue. Government should use legal instrument to perform surgical operation on the DISCos.”

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This view was shared by Dr. Laitan Adeniyi, an energy expert, who told Business Hallmark that “for three years starting from when Buhari came to power, the DISCOs underinvested in equipment and infrastructure, which went against their Performance Agreement Target by N164 billion, this is aside the N230 billion indebtedness to the electricity market.

“And the reasons range from lack of creativity, insincerity, corruption to collection shortfall and low remittance. People are not willing to pay for light they cannot see. Everywhere you see bye pass”‘, he said.
He blamed DISCOs for failing to remit funds to the energy market for ancillary services.

CRISIS AFTER TAKE OVER

While the tension over the takeover of the management and Board of the affected DisCos was yet to settle, the market under the new leadership appointed by the relevant authorities and the Fidelity bank encountered another phase of the crisis.

Recall that the Central Bank of Nigeria (CBN) in a statement signed by Bello Hassan, CBN’s Director of Banking Supervision, in August 2022 approved that Fidelity Bank, AMCON, and other institutions involved in the takeover of the five DisCos should also take charge of electricity bill payments collection with the intention of improving payment discipline in the industry.

UBA is still very much operating as a market operator, even after 16 months of taking over Abuja DisCo.

However, Fidelity Bank after eight months of fully participating in NESI with its control of the majority interest (60 percent shares) in the Kano, Benin, and Kaduna DisCos, has continued to hold the entities in perpetuity without making any efforts to re-capitalize the share and sell to new investors.

Engr. Abubakar Aliyu, Minister of Power, having noticed that nothing much has been done over the last eight months to transfer the DisCos over to new investors, however gave a matching order to the banks  gave the ultimatum to divest within 12 months of being in charge. The ultimatum is expected to end in August, 2023.

The Minister said 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.

The instruction of the government was for the banks to find serious investors for the entities by selling their 60% equity in the Abuja, Kano, Kaduna, Benin, Ibadan, and Port Harcourt DisCos.

In spite of the restructuring of the DisCos and handover to the Deposit Money Banks and other lenders, the Nigerian Government has retained the $500 million that it obtained as intervention funds provided by the World Bank to strengthen the electricity distribution sector.

The facility called Nigeria Distribution Sector Recovery Programme (DISREP), according to the Power Minister, was withheld because the government doesn’t trust the way things have been handled by the DisCos.

BH gathered that the 12 month ultimatum for divestment issued to the DisCo is one of the reasons why the intervention fund was delayed.

According to Aliyu, “The loan has been there with the World Bank since 2021, but we did not take it until when we were able to restructure.

CRISIS Continues

The inability of these DisCos to raise capital has been described as their inability to meet operational costs as a direct consequence of their performance. December 31, 2019. the five-year performance agreement between BPE and the core investors in the Discos, became effective with a target to end it by 2024.

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While the struggle to provide sustainable electricity for Nigerians is still ongoing, frequent power crisis has been identified as being responsible for annual economic losses of about $26.2 billion (₦10.1 trillion) translating to about 2% of the country’s GDP.

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