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Poor Power Supply: DisCos And Forensic Audit



When the federal government rolled out plans for the privatisation of the power sector to ensure improved electricity supply, it listed clearly, the conditions upon which the exercise will be implemented. Years after the exercise, the nation is yet to get stable power supply owing, largely, to lack of strict adherence to such conditionalities. In the face of an unending power supply conundrum, the federal government, through the National Economic Council (NEC), ordered a forensic audit of the electricity distribution companies (DisCos).
The country’s power sector is riddled with enormous challenges. Worst still, customers believe that the operators are shortchanging them, under-delivering, under performing and over charging the consumers. Indeed, there is also the concern that the DisCos are holding back remittances that should go up the value chain, on the back of sharp practices of estimated billing, resulting in the current market liquidity challenges. But NEC believes the time is ripe to carry out forensic audit of all bank accounts of DisCos and for state governments to provide details of their investments on DisCos. Understandably, the forensic audit has been identified as part of the process of determining the valuation of the DisCos.
On its own, the World Bank indicated that the forensic audit is a pre-condition to the $500 million loan that it is seeking to lend to the DisCos for capital investment. The Bank insists that the audit is but an assessment to determine the DisCos’ areas of deficiencies, a precursor to identifying the areas of need and investment. As a matter of fact, audits are a necessary regulatory tool and will help to wad-off the misconception of DisCos trying to hide their malpractices. More than anything, the value of au- dits as a tool to maintain the balance in a monopolistic commercial environment and to establish a foundation for the correction of the liquidity challenges of the Nigerian Electricity Sup- ply Industry-NESI-, cannot be overemphasized.
But is the NEC right in narrowing in on DisCos alone for the forensic audit when it is crystal clear that the challenges of liquidity is a problem that involves all the stakeholders in the our stand sector? Where is the place of the auditing being carried out by the Nigerian Electricity Regulatory Commission on the DisCos’ book since the last six years? Some industry players believe that the proposed forensic audit is being utilized out of context for purposes that are not consistent with its utility and as a distraction from the root causes of NESI’s liquidity challenges. It is our considered opinion that attempts directed at correcting the challenges of NESI must be holistic and address all stakeholders along the value chain. Consequently, DisCos, the Transmission Company of Nigeria (TCN), GenCos, gas-to-power and the Nigerian Bulk Electricity Trader (NBET) should all be subjected to forensic audits. Curiously, the government has not say if there are plans to also subject these other stakeholders to the forensic audit giving credence to the allegation that its focus on DisCos is a selective persecution.
Like most Nigerians, we believe that for the forensic and technical audits to carry the sort of value it so deserves, it must be holistic and involve the entire NESI value chain. Already, there are concerns that NEC’s requests for the forensic audit of DisCos is driven basically by the desire to expand state government ownership into private investor interests, in violation of the privatisation transaction terms. Indeed, such acts have negative implications on the sanctity of contracts with a potential for negative outcomes, as witnessed with the recent cases of P&ID and Sunrise Power. Much as we believe there is the need for the audit, we are opposed to a distraction from the core issues that have resulted in the illiquid situation of NESI.
It is sad to note that the federal government’s failure to the meet the critical commitments of cost reflective tariff, injection of N100billion subsidy to defer the effects of any tariff increases on electricity customers, payment of MDAs electricity debt among others, has been largely responsible for the epileptic power supply the nation continues to witness. Indeed, the DisCos need a cost reflective tariff that will enable them make the capital investments required to reposition the sector.
Regrettably, the DisCos’ financial books were encumbered with Nigerian Electricity Markets Stabilization Facility (NEMSF) loan of N213 billion, of which only twenty-six (26) percent was associated with the DisCos, as money owed to the DisCos by the market and the balance with the rest being power and gas debts of the Power Holding Company of Nigeria (PHCN). Available records indicate that MDAs electricity debt, currently estimated in excess of N80 billion, constitutes a major leakage of DisCos revenues.
Can the forensic audit provide a cure for a NESI that has not been well-served by an obviously dependent, weak and politicized regulator that cannot absolve itself of blames for multitude of regulatory misadventures and gaffes? Will a forensic audit correct regulatory misadventures of politically determined tariff design and rates; three years of lack of minor reviews; poorly designed customer estimated billing methodology imposed on the DisCos; a virtually non-functional Meter Asset Provider (MAP) programme; a tariff that precludes the DisCos from comprehensively metering customers and making the investment that is fundamental to improving power supply to customers? The crisis in the country’s electricity sector is one that deserves holistic efforts at tackling it and to find a lasting solution, critical stakeholders must be ready to take some difficult decisions and the time to do that is now.
Of course such decisions include implementing a true cost-reflective tariff to encourage more efficient service delivery and enable cost recovery for the investors in the sector. Other strategies, in our considered opinion, include selling some govern- ment shares to raise capital and take steps to attract new investors, and strengthen the distribution network by expanding metering. There is also the need to clear outstanding debts to suppliers and reinforce risk mitigation requirements.