By AYOOLA OLAOLUWA
After about five years of inaction, largely borne out of the fear of starting a protracted legal battle in international courts of arbitration for breach of contract, the Federal Government has finally moved to repossess the 11 electricity distribution companies (Discos) operating in the country, Business Hallmark can reveal.
The 11 dicos and five gencos, it would be recalled, were carved out of the defunct Power Holding Company of Nigeria (PHCN) and were handed over to private investors on November 1, 2013 by the administration of former President Goodluck Jonathan.
While Kann Consortium emerged as the new owner of Abuja Distribution Company (AEDC); Interstate Electrics got Enugu Disco; West Power and Gas got Eko Disco; Integrated Energy Distribution and Marketing Limited secured Yola Disco and EDC/KEPCO Consortium emerged the new owner of Ikeja Disco.
Other are Integrated Energy Distribution and Marketing Limited, Ibadan Disco; Vigeo Power Consortium, Benin Disco; Sahelian Power Limited, Kano Disco; Aura Energy Limited; Jos Disco; 4Power Consortium; Port Harcourt Disco and the Northwest Power Limited (NPL), Kaduna Electricity Distribution Company.
A total revenue of $2.32 billion was realised from the sales, with $1.26 billion coming from the sales of the 11 distribution companies and $1.06 billion from the five generation companies.
Under the arrangement, the new owners became the majority shareholders with 60 percent stake-holding, while the government retained the remaining 40 percent.
The third leg of the power chain, the Transmission Company of Nigeria (TCN), was retained under its control by the Federal Government.
However, nine years after the privatisation exercise, the objective of the exercise has largely been defeated, with most homes, offices and industries often in darkness and discos taking the major blame as the weakest link in the chain.
Based on BH’s analysis of a daily power report compiled by the Transmission Company of Nigeria, the average electricity generated and distributed daily between July 1 and 15 stood at 3,800MW and 3,050MW respectively, when compared to an average of 3,183MW and 3,016MW when the power utilities were privatised in 2013.
A five-year performance review on the discos done in December 2019 described the discos as ‘technically insolvent’. The report recommended that in order to rescue the nation’s beleaguered electricity industry, the ailing discos should be recapitalised, and in the worst case scenario, be repossessed by the Federal Government.
However, fearing the negative backlash, the Federal Government decided to ignore the recommendations, but opted instead to thread the seemingly easier route by injecting more funds into the discos.
One of the responsibilities the government ran away from, a document obtained by our correspondent indicated, is the requirement that the Federal Government must pay at least $2.4billion (about N1.12trillion at the official exchange rate) to repossess the privatised distribution assets from the core investors.
While some stakeholders in the government like the former Minister of Power, Babatunde Fashola and others advised the government to damn the consequences and revisit the privatisation exercise, others advised against taking the route.
One of the government officials who advised against the takeover of the ailing discos, the immediate past Managing Director of TCN, Mr Usman Mohammed, warned that cancelling the sale of the discos was not in the best interest of the nation.
“If you implemented right things wrongly, you should right the wrong instead of cancelling it. Because when you cancel it, you get it wrong completely. What we need is to correct it, and recapitalisation can correct it.
“If we cancel the privatisation, we are going to have a contingent liability and we will send a signal to the whole world that Nigeria is not private sector-friendly.
“Secondly, does government have sustainable money to invest in the power sector? No. When you cancel, you will return the money of the investors and you are going to pay them 20 per cent for five years,” the ex-TCN boss had advised the government in 2017.
At the end of the day, the doves won the argument. Listening to their advice the government decided to revive the discos by providing more money from public coffers.
As of December 2021, the government had pumped over N1.3 trillion intervention fund into the power sector, with the distribution sub-sector receiving the largest share.
However, the Minister of Finance, Budget and Planning, Mrs. Zainab Ahmed, while giving a report on the power sector in April 2022, said that the over N1.5 trillion intervention fund the federal government provided for the power sector had failed to yield significant result.
According to available data, majority of the nation’s 27 power generating stations had been forced to shut down some of their units on the back of low demand by discos. Also, none of the discos, except the Eko Electricity Distribution Company is currently able to meet minimum remittance order set by NERC.
Further checks show that none of them (including Eko Disco) has declared profit for eight years, none has met the Key Performance Indicators (KPIs) set by regulators.
The report described the inability of the discos to improve customer service and meet operational costs as a direct consequence of their inability to raise capital.
It concluded by saying that the discos’ accumulated huge debts to the Nigeria Bulk Electricity Trading Plc (NBET) and the Market Operator had made them technically insolvent.
Confronted by the reality that all its efforts to revive the discos did not bring about the much needed change, the Federal Government, BH learnt, had begun a surreptitious move to take over the ailing firms, while avoiding the legal and contractual fireworks inherent in the power privatisation contracts.
The core of the plan, a source in the know informed our correspondent, is the employment of banks which loaned the firms the funds they used in acquiring controlling shares as proxies to take over the discos.
“The move by government to take over the discos is no longer a secret among power stakeholders. As I speak, the plan by government to repossess the 11 discos from the incompetent investors who bought them in 2013 has reached advanced state.
“Though the discos are aware of the plan, there is nothing they can do about it as they are currently entrapped. The banks are in the business of making profits and are accountable to their shareholders and depositors.
“For over nine years, they have been looking for ways to recover the money plus interests they loaned the discos which are not performing.
“The mistake the discos made was to take short-term loans for long term projects. They almost got away with the rape of the nation, especially the windfall from service charges and estimated bills they used to charge their customers.
“But with the stoppage of energy service charge and the enforcement of the provision of prepaid metres to customers by the present administration, the discos met their waterloo.
“What made the matter worse for the owners was their recklessness and living ostentatious lifestyle from the proceeds of the inefficiency.
“Rather than paying back the loans like their peers in generating business, they were busy buying private jets, luxurious yatches and mansions abroad, not knowing that a Pharaoh who will not know Joseph will soon come.
“But their day of reckoning had come. It is either they return the money they got from banks or they forfeit their companies.
“But where will they get the money to pay back? I think they missed the opportunity when the going was good and money was running like taps”, the source noted.
The repossession of the discos, BH reliably gathered, actually began in August 2021, when AMCON approached a Federal High Court in Ibadan, the Oyo State capital, to seek the powers to take over IEDC.
The corporation’s prayers were granted on September 8, 2021 when the court gave preservative orders in its favour (being the receiver/manager of Integrated Energy Distribution and Marketing Limited).
Armed with the court order, AMCON on January 20, 2022, seized the IEDC. It went ahead to appoint Osayaba Giwa-Osagie to take over the entire assets of the disco, its shares and interests in related companies and entities, in addition to the funds kept in the 25 commercial banks.
In a statement to the media, the corporation claimed it executed the takeover of IEDM following a default in a loan servicing agreement executed with the defunct Skye Bank (now Polaris Bank).
‘‘AMCON has pursuant to Section 48 and 61 of AMCON Act 2010 been appointed Receiver/Manager over all the Assets of Integrated Energy Distribution and Marketing Limited as stipulated in the instruments executed in favour of AMCON by virtue of the Loan Purchase and Limited Servicing Agreement executed with Polaris Bank Limited dated 30th November 2018 and a Notice of Appointment of the Receiver/Manager dated August 6th, 2021, which was duly stamped by the Commissioner for Stamp Duties,” the statement stated.
Barely two months after the Ibadan Disco takeover, the vultures struck yet again at another disco, this time the Abuja Electricity Distribution Company (AEDC). On December 9, 2021, the United Bank for Africa Plc (UBA) took over the majority stake in the AEDC after receiving the blessing of the Federal Government.
In a curious and surprising manner, the Minister of Power, Abubakar Aliyu, had personally announced the takeover of AEDC by the Tier-1 bank, explaining that the bank had to take over the power firm due to the inability of Kann Consortium, AEDC’s major investor, to service the loans it obtained from UBA.
“The AEDC has, of recent, been facing significant operational challenges arising from a dispute between the core investors (KANN Consortium) as owners of 60 per cent equity in the AEDC and UBA as lenders for the acquisition for the majority shareholding in the public utility.
“The UBA, as a lender, and in exercising its rights over the shares of KANN Consortium in the AEDC, has taken over the shares of the obligor in the AEDC. This takeover of the majority stake in the AEDC by UBA has consequently led to the reported changes in the management of the AEDC”, the minister explained.
He further stated that changes in shareholding in the AEDC and the appointment of an interim management for the disco by the shareholders had been endorsed by the Nigerian Electricity Regulatory Commission and the Bureau of Public Enterprises (as co-shareholders in the AEDC).
Though, none of the parties in the dispute disclose the total indebtedness of the disco to the bank, a source in UBA informed BH that the bank, acting as the mandated lead arranger, had underwrite the sum of $122m, about N20 billion in 2013, but currently worth N655.7billion at the official foreign exchange rate, for Kann Consortium’s acquisition of the AEDC.
The source further disclosed that owing to several factors, including the weakening naira; non-servicing of the debt and mounting interest, the non performing loan had ballooned to about N1 trillion from just $122m (N20 billion) in 2013.
Hardly had the dust that trailed the Abuja Disco’s takeover settled when the hangman struck again on July 6. 2022.
Again, the Federal Government was the harbinger of bad news when it announced the takeover of Kano, Benin and Kaduna electricity distribution companies by Fidelity Bank Plc on that fateful Tuesday night.
The government didn’t stop there. In a notice signed by the Director-General of the BPE, Alex Okoh and Executive Chairman, NERC, Sanusi Garba, the government also announced that it was restructuring the management and board of Port Harcourt Disco to forestall the imminent insolvency of the utility.
“Today we were informed by Fidelity Bank that they have activated the call on the collateralised shares of Kano, Benin and Kaduna (Fidelity and AFREXIM) Discos and that they have initiated action to take over the boards of these Discos and exercise the rights on the shares.
“Fidelity Bank’s action is a contractual and commercial intervention and is between the core investors in the discos and the lender. BPE is involved because of the 40 per cent shareholding of government in the Discos.”
The bank hinted that it is working with the CBN to initiate the transfer of the bad debt to AMCON.
“We are engaging with the Central Bank of Nigeria (as the banking sector regulator) to ensure an orderly transition and to ensure that Fidelity Bank does not hold the discos’ shares in perpetuity.
“It is envisaged that the majority interest in the entities would be sold to capable private sector investors willing and able to re-capitalise and manage the entities efficiently.”
A director in the federal ministry of power who spoke on the development said the government is bent on instilling sanity in the power sector and will not hesitate to take over the remaining underperforming discos.
“With the takeovers, the government had fully taken over five discos, and is on the verge of acquiring the sixth, Port Harcourt Disco, for which it appointed a new management.
“Out of the 11 discos, only Eko and Ikeja have relatively done well for the obvious reason of being situated in the economic capital of the nation. Despite that, their performances are still below par.
“The others, particularly those in the north are still operating like public institutions. It will surprise you that it is the host governments of these discos that pay the electricity bills of most of their communities and they settle the bill at their whims and pleasure.
“What happens is that the Kano Disco, for instance, will give Birnin Kebbi a bill of N1.2billion for the whole town in a month. The bills are normally passed to the state or local government which most times make paltry payments of less than half of the bill.
“The situation the discos found themselves is that pathetic in the North and some rural areas in the South. Only those in Lagos are relatively doing well.
“Apart from the bank loans, the CBN has also injected over N1.5 trillion in intervention funding in the sector. This cannot continue”, the director, who did not want his identity revealed, noted.
Meanwhile, Federal Government has disclosed its readiness to sell the majority interest in the ailing discos to competent investors.
The DG, BPE, Alex Okoh, disclosed this in a statement he personally signed while reacting to the take over and restructuring of the six poor-performing discos.
“It is envisaged that the majority interest in these discos would be sold to competent private sector investors with the requisite technical and financial capacity to re-capitalise and manage these entities efficiently.
“As an interim measure, NERC and BPE met on an emergency basis and activated the business continuity process and appointed interim Managing Directors in the affected discos,” the BPE boss stated.
Speaking on the development, an energy expert at the University of Lagos, Prof. Yemi Oke, said the nation is in a serious energy crisis and that the problems of the power sector may continue despite the takeovers.
The university don while revealing that 80 per cent of the discos are technically insolvent, insisted the BPE and NERC should also be blamed for the poor performance of the discos.
“Who allowed those discos to fail? Who allowed the failed discos to do all the dirty things that brought them to their knees only to come out and scream that they are inefficient?
“Why is it only the discos that the banks are taking over on ground of insolvency? Did the gencos not acquire assets with loan from banks?
“I’m told Mainstream, for instance, got a facility of about $120 million and they have since paid back everything and now making profit from their business. But what about others,” Oke demanded.
In its own reaction, the Nigerian Consumer Protection Network (NCPN) applauded the takeover of the discos, describing it as the right step.
“In the prevailing circumstances, we are on the same page with relevant stakeholders in the present effort to clean up the mess and free the economy held on its jugular by the non-performing utilities,” said Kunle Kola Olubiyo, the president of NCPN.