The escrowing of the bank accounts of the 11 electricity distribution companies (DisCos) by Central Bank of Nigeria (CBN) has improved repayment of market operators invoices and the invoices from the Nigerian Bulk Electricity Trading Company by 100 per cent, two years after implementation, stakeholders have noted.
Despite this success, other stakeholders have called for more lasting solutions to address the country’s debt laden power sector, insisting that the escrowing of the DisCos accounts was limiting their investments while priority is given to loan repayment.
By escrowing the accounts, the bank accounts of the DisCos were locked, with cash allowed to come in but withdrawals by DisCos blocked. The fund is thereafter allocated based on priority.
Under the arrangement, the repayment of loans to the federal government was the first priority followed by payment of market operators invoices and the invoices from the Nigerian Bulk Electricity Trading Company before others.
Fuelled by tariff shortfall, receivable collection, technical, commercial and collection losses, financial liquidity in the power sector hovers around N4 trillion, affecting the balance sheet of commercial banks and reducing the attractiveness of the sector to needed investment.
Recall that loans to the power sector from commercial banks currently stands at about N819.97 billion as at third quarter of last year as banks are already warning that the loans from the sector could increase in the cost of risk for these banks.
National Bureau of Statistics had said the non-performing loans in the power sector stood at N33.22 billion at the end of 2020, out of N1.23 trillion NPLs recorded by banks.
While financial crisis, especially unpaid debt had led to rancorous development at the Abuja Electricity Distribution Company, the Central Bank of Nigeria had reported that combined indebtedness of power firms in the country currently stands at about N820 billion.
In October last year, the Presidential Power Sector Working Group said: “Through the collection discipline via CBN there is full visibility to DisCos collections. Collections over the past six months have stabilized at between N57 to N65 billion.”
Stakeholders insisted that there may been a leeway for the power sector through the escrowing of the accounts by the CBN, stressing that the development may have halted misappropriation of fund by the utility companies, introduced transparency, increase revenue, enable government to recover monies loaned to the companies while reducing the financial burden in the sector.
While some stakeholders are demanding for measure that would compel the DisCos to perform, noting that the account escrowing could only be a temporarily solution, the Presidency said the account escrowing led to increase in the sector revenue by over 100 per cent.
Between July to December 2020, industry statistics showed that electricity market revenue grew by 10.55 per cent to N272.47 billion. In the same period in 2019, the revenue was N246.46. The development was then linked to imposition of restriction on revenue collection bank accounts of DisCos.
Special Assistant to the President on Infrastructure, Ahmed Zakari noted that the account escrowing led to a significant increase in the upstream remittance from discos to NBET/TCN.
According to him, these remittances have increased by over 100 per cent which has aided the liquidity flows to enable operations of the generation companies and Transmission Company of Nigeria (TCN).
“The visibility provided by the escrow system has also aided NERC’s regulatory oversight of the DisCos while also providing data which is being used to independently evaluate sector performance and impact of various interventions being embarked on in the sector,” Zakari said.
The Market Operator, Transmission Company of Nigeria, Edward Eje the escrowing of Disco’s monthly revenue collection is a worthwhile intervention at beefing up revenue accountability.
“By the CBN escrow intervention therefore, it will be difficult for any DisCos to misappropriate their monthly revenue collection, as the CBN’s Special Purpose Vehicles (SPVs), Meristem monitors all the DisCos commercial banks through which every DisCos revenue is remitted. This intervention has actually brought about a level of payment disciplinein the Market,” Eje said.
Eje advised that the CBN intervention could be complemented with the Market Operator’s instruments, which includes that every DisCos must have an updated Bank Guarantee with the MO and Meristem and should timely update the MO of the Disco’s performance, stressing that such move would inform when MO’s enforcement procedure kicks in, as per the Market Rules.
Former Chairman of NERC, Sam Amadi insisted that the gains in the revenue may remain elusive if it doesn’t translate to improved operations of the DisCos.
Amadi said: “I don’t think it has significantly improved power supply to homes and businesses,” adding that the purpose of the escrow was to enable the CBN recover its fund so that it is not frittered away or used by the DisCos to finance their investment.
“The CBN intervention is a special funding to deal with liquidity crisis and legacy debt in the sector. It was supposed to be repaid but through a convenient process that will not adversely affect DisCos’ investment plans. The gains are two fold: whether CBN is getting repayment as and when due. I think through the escrow the CBN can guarantee itself repayment.
A stakeholder, who pleaded anonymity that the account escrow accounted for the reasons the DisCos were unable to finance their operations or procure needed infrastructure like transfer or wires.
Former Managing Director of NBET, Rumundaka Wonodi noted that, while it reminded critical to ensure DisCos perform their operations, the account escrowing ensured transparency in the sector.
“So far it had helped in increasing revenue in the sector. So many people have accused the DisCos of poor remittances, the initiative will make everything open. But it needs to be widened.” Wonodi said.
A professor of energy at the University of Lagos, Yemi Oke said the current volatility in foreign exchange with the free fall of the naira weakened the achievement of the scheme.
He noted that although escrowing the accounts should have helped the sector address the shocks from exchange rate volatility, more needed to be done to ensure that projected objectives were achieved.