Licence Cancelation: NERC Grants Additional 30-Day Reprieve To Kaduna DisCo

The Nigerian Electricity Regulatory Commission, NERC, has extended for another 30 days notice to Kaduna Electricity Distribution Company, KAED, to provide enough evidence that it has capacity to optimally function as a utility.

The Commission informed the management that the licence cancellation notice issued on 15 May 2023 is has been extended for a final period of 30 days with effect from 20th July 2023 failing which the Commission shall exercise its powers conferred by the Electricity Act where the core investors are unable to provide reasonable and sufficient justification for remaining as a market participant.

The NERC recalled that on 15th May 2023, it issued a notice for the cancellation of the licence issued to the DisCo over poor performance.

The 60-day notice period issued to KAEDC by the Commission expired on 17th July 2023.

The Commission said it had conducted a detailed review of the current performance outlook of the firm for the period covering January – December 2022 and the outcome confirmed that DisCo only achieved a combined average of only 13.85 per cent of its minimum payment obligation to the Nigerian Bulk Electricity Trading Plc NBET,and the Market Operator, MO, and recorded an average monthly market shortfall (underpayment) of NGN 4.33 billion.

The Commission further noted that the evaluated level of underperformance indicates that the utility has been unable to recover the additional liquidity required by KAEDC to optimally function as a utility as provided in its approved revenue requirement.

Based on the Commission’s approved revenue requirement for KAEDC, the utility under-collected its revenues to the tune of NGN 88.75 billion being the sum of its market shortfall, capital investment allowance (NGN 25.33 billion) and allowed operating expense (NGN 11.46 billion).

The NERC, further observed that the KAEDC is currently experiencing severe liquidity challenges and its commercial viability and continuation as a market participant is in doubt and the management team had not been able to develop and present a clear pathway towards capital injection, operational efficiency, and sustainability despite the various regulatory initiatives of the Commission and other financial interventions of the government.

“Over the period of 12 months covering January – December 2022, KAEDC accrued a total liability to the tune of NGN 51.93 billion to NBET and MO. This is exclusive of the sum of NGN 41.49 billion historical outstanding debts for 2015 – 2021 owed to NBET and MO.

The Commission said it has afforded KAEDC’s management team several opportunities to develop and present a clear pathway towards recapitalisation, improvement of operational efficiency, and financial sustainability of the public utility but the company has so far been unable to present a credible plan that would yield the desired results without further fiscal support by the federal government.

The regulator said further, “Following the failure of KAEDC’s management and shareholders to provide a credible plan for the financial sustainability of the utility, a notification of imminent regulatory intervention dated 23 March 2023 to core investors in KAEDC.

It said that the notification of imminent regulatory intervention granted the core investors a 14-day notice period with effect from 27 March 2023, to present a final plan that addresses the financial situation of the utility failing which the Commission would commence licence cancellation procedures in accordance with the provisions of the Repealed Act. However it said that in response, it received a letter dated 2 April 2023 from the Receiver Manager appointed by Africa Export Import Bank (“Afrexim”) and Fidelity Bank Plc (“FBP”) seeking more time to close on the divestment of the 60 per day majority shareholding in KAEDC to a private investor.

Also, the Bureau of Public Enterprises further sent a letter dated 4th April 2023 to the same effect seeking for more time to secure a new core investor but without a commitment to place a bank guarantee to cover the utility’s monthly underpayment to NBET and/or MO, pending the conclusion of the divestment.

The representatives of the core investors attended a meeting held on 14 April 2023 at the Commission to discuss their proposals for the financial sustainability of the public utility and presented proposals on KAEDC’s financial sustainability for Commission’s consideration.