SALE OF DISCOS…Experts, Labour Want Debt-ridden Firms Unbundled

Ahead of the federal government’s plan to sell the electricity distribution companies (DisCos) under the management of banks and the Asset Management Company of Nigeria (AMCON), stakeholders have str essed the need to prioritise unbundling the DisCos along state lines.
Also, the federal government must prioritise the injection of foreign direct investment (FDI) in the sale of DisCos currently run by AMCON and the banks.

The minister of power, Adebayo Adelabu, had announced on Monday that the DisCos in the hands of banks and AMCON should be sold within the next three months to investors with the technical and financial capacity to manage them and make them function effectively and efficiently.
He explained that energy distribution assets are technical and require sound technical know-how to manage, which banks and AMCON lack.

The debt-ridden DisCos have continued to struggle for survival due to the chronic liquidity crisis in the Nigerian Electricity Supply Industry (NESI), which has become worse post-privatisation.
Currently, four DisCos are under the management of banks and one under AMCON.

Abuja Electricity Distribution Company (Abuja DisCo) is under the management of the United Bank of Africa (UBA), while Fidelity Bank manages Benin Electricity Distribution Company (Benin DisCo), Kaduna Electricity Distribution Company (Kaduna DisCo), and Kano Electricity Distribution Company (Kano DisCo).
The Ibadan Electricity Distribution Company is under AMCON management.

The DisCos were taken over by banks and AMCON due to their inability to repay loans, however, the federal government believes that the DisCos should be managed by professionals to ensure efficiency and effectiveness
This decision was made due to the poor performance of the DisCos, which has been a significant setback to the NESI.

The government is also planning to unbundle the DisCos along state lines and restructure them for better management and efficiency.

The electricity distribution companies (DisCos) under banks and AMCON owe significant amounts in debt, with figures varying across different sources. The Kaduna Electricity Distribution Company (Kaduna Electric) alone owes $130 million while, collectively, the 11 distribution companies owe the Nigerian government N1.4 trillion.

These debts have contributed to the financial challenges faced by these DisCos, leading to interventions and plans for their sale to reputable technical operators to address their financial insolvency and operational inefficiencies.

DisCos’ illiquidity is caused by a combination of factors, including a non-cost-reflective consumer tariff, under-collection of electricity bills, and high aggregate technical, commercial, and collection (ATC&C) losses.

The distribution sector is considered the weakest link in the value chain, with high technical and commercial losses, low collection from consumers, and political interference affecting tariff hikes and cash backing subsidy.

Findings show that the Multi-Year Tariff Order (MYTO) target for Abuja DisCo is 19.27 per cent but the DisCo reported an ATC&C loss of 40.42 per cent, while Ibadan DisCo had a target of 15.47 per cent but recorded 44.98 per cent. Kaduna Electric had a target of 6.60 per cent but recorded 66.09 per cent while Benin DisCo’s 17.37 per cent target was well below the actual ATC&C loss of 42.02 per cent. Kano DisCo had a target of 15.85 per cent but recorded 52.48 per cent as of the third quarter of 2023.

“The failure of the DisCos to meet their allowed loss targets means they are unable to meet revenue requirements, thereby compromising their long-term financial position,” NERC said in its quarterly report.
Stakeholders have lauded the planned sale of the DisCos, describing it as another opportunity for the federal government to remedy the faulty process that handed the power assets to the initial set of core investors who lacked the capacity to manage them or inject the capital needed to improve most of the decayed infrastructure, which continues to hinder the performance of the DisCos, considered very critical in the overall success of the value chain.

Stakeholders believe that the banks who took over those DisCos are only interested in buying megawatts from generation companies, distributing them, and collecting receivables to repay loans and interest owed them by the utilities and, therefore, not investing in expansion or customer obligations.

Commenting on the development, a member of the Senate Committee on Power, Senator Isah Jibrin alleged that some of the operators had stripped the assets of the DisCos they took over in 2013.
He insisted that the operators of any revoked DisCo must be compelled to fix the assets as they were before handover.
In his contribution to the topic, a professor of energy economics and the current president of the Nigerian Economic Society, Adeola Adenikinju, said all the existing DisCos should be mandated to recapitalise before being unbundled along state lines or auctioned to investors.

“The capital base of the existing DisCos can no longer meet the needs of the sector,” Adenikinju said.
On his part, the chief executive officer of Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, applauded the decision to sell them off to new owners and noted that the whole idea is to ensure that the affected electricity firms are revitalised. “In order to do that, we need to put them in the hands of those who are technically and financially capable to revitalise them.

“In that process, we get better efficiency, we get better value, and we get better electricity supply from them.

“From the on-set, I think the privatisation process itself was faulty. We are dealing with a faulty foundation, which is part of the problems we are grappling with today.

“The banks are not cut out to be managing power sector institutions; that is not their business. I think the decision that the government has taken is a good decision,” he said, adding that the firms were only put in the banks’ hands as a result of their inability to repay bank loans.

The president, Nigeria Consumer Protection Network and Power Sector Perspectives Coordinator, Kunle Olubiyo, said the decision is perfectly in order as the electricity sector is lacking expected competition envisaged during the conception of privatisation.

According to him, the government is simply trying to restructure the sector and bring in investors that will ensure consumers enjoy efficient service delivery.
With the Electricity Act in place, Olubiyo said the government is gradually decoupling the industry and devolving power to state governments.

He remarked that the government is enhancing electricity market reliability to ensure that investors with technical knowledge and financial strength are offered opportunities to help in addressing the challenges of the sector.

On his part, the immediate past president of National Union of Electricity Employees (NUEE), Dr Martin Ikechukwu Uzoegwu commended the decision by President Bola Tinubu’s administration on the proposed sale.

“Right now, some of these discos are overwhelmed by their large franchise areas and this has created a lot of vacuum in their delivery of services,” he said.

While criticising the previous privatisation exercise that brought the current DisCos into existence, he noted that the processes were marred with controversy as the owners were politicians who knew little about electricity management.

“NUEE leadership saw it coming 10 years ago when they privatised the power sector at gunpoint. NUEE resisted it since the country was not yet ripe for privatisation and the process was marred with corruption and deception, without due process.

“They sold it to politicians and businessmen that don’t have the requirements to manage such a sector. They don’t have the technical ability, No managerial competency, no Foreign Direct investment (FDI) coming into the sector,” he stated.

Stating the implications of the new move by government, Uzoegwu said: “It will help to strengthen the entire sector, bring in FDI for infrastructure development and funding the entire value chain.

“It will bring in technical experts who have the ability and have been tested overtime in their respective fields of engineering, allowing those who have the right managerial skills and competency to manage the industry professionally.”

In a chat with LEADERSHIP, another anonymous stakeholder, who wants to identify himself as Mr Dayo, said this would be the best thing to happen to Nigeria’s power sector.

“Look at Ibadan Electric. Its franchise covers Niger State from Ibadan. That’s too large for a DisCo to manage,” he stated.