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NERC to set recapitalisation guideline for power sector investors

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Discos flay plans to escrow their accounts
The Nigerian Electricity Regulatory Commission (NERC), is set to release a minimum recapitalisation level required to be met by core investors in the power sector.

NERC identified capital adequacy as a major issue in the power sector, pointing out that the successor companies of the Power Holding Company of Nigeria (PHCN) were handed over to the core investors without any liability.
As a result, after three years of operating the successor companies, there have been colossal losses, thus necessitating the need to set minimum capital adequacy requirement by the investors.

The NERC Vice Chairman, Sanusi Garba, gave the indication at the 14th Power Sector Stakeholders’ meeting presided by the Minister of Power, Works and Housing, Babatunde Fashola, at the National Control Centre, Power Line, Oshogbo, Osun State.

The recapitalisation plan comes as the Association of Nigeria Electricity Distributors (ANED), kicked against NERC’s plan to escrow revenue accounts of distribution companies (DisCos).

The decision to escrow the bank and operational accounts of some DisCos in Nigeria became imperative following their refusal to pay generation companies (GenCos) for electricity wheeled to them by the Transmission Company of Nigeria (TCN)

Meanwhile, Garba however did not indicate how much the core investors in the GenCos), and DisCos are expected to beef up their capitalisation, or the timeframe for its actualisation.

He said: “Another issue that I will like to bring to the attention of our sector stakeholders is the issue of capital adequacy. At the time of privatisation, these PHCN successor companies were handed over to core investors without any liability. But operating them over the past three years, there have been colossal losses.

“We have a feeling, looking at the audited accounts we have received so far, that the capital base of these companies had been grossly eroded. Therefore, we have started working and evaluating the minimum capitalisation that will be required to make sure that our licensees have the required resources to do what they need to do.”

Garba said that within the next few weeks, the necessary consultation will begin, and will direct the core investors to meet the new minimum capital so that they will be able to do the required investments, reinforcements and service delivery that consumers need throughout the country.

Furthermore, he said NERC plans to direct the DisCos to connect all the Ministries, Departments and Agencies (MDAs) with prepaid meters as a means of curbing indebtedness to them.

This is against the backdrop of the audit report, which revealed that debts owed by Federal Government MDAs to the DisCos had increased to N51 billion, representing 86 percent of the total debts of N59.3 billion owed by top 100 customers. The bulk of the debts were owed by the Military, Defence and MDAs.

ANED’s Executive Director, Sunday Oduntan, in a statement on Monday, noted that any attempt to go ahead with this plan to escrow the revenue accounts is tantamount to nationalisation or expropriation of the DisCos.

According to Oduntan, government had backslid in the N100 billion subsidy payment and other privatisation requirements.
ANED said: “To date, the government has not met the privatisation transaction foundational requirements of providing N100 billion in subsidy to the sector.

“Indeed, any at escrowing our accounts runs counter to the objectives of the National Electricity Power Policy, 2001 (NEPP) and the Electric Power Sector Reform Act, 2005 (2005), of a private sector-owned and managed electricity sector.

“It would also send very wrong signals to domestic and international investors that Nigeria is not fully open for private sector investment and that we are still partial to the old habits of nationalisation, preventing the injection of the cheap and sorely needed capital that is critical to the rehabilitation and improvement of electricity infrastructure.

“You cannot have a, supposedly, private sector-owned and managed business in which the government now seizes control of its revenues. It is a contradiction in terms and practice. The same principle applies to any consideration of regulations or government action that intrudes into corporate responsibilities of procurement, financial management or personnel management.”

On plans to get DisCos declare their eligible customers, ANED said: “We understand that the idea of Eligible Customer declaration is under serious consideration. Our understanding is that Eligible Customers may only be declared by the Minister when a competitive market exists in the Nigerian Electricity Supply Industry (NESI).

On the N800 billion shortfalls in the sector, which had pushed power operators in financial crisis, ANED said : “These shortfalls undermine intervention objectives of the government.

“Similarly, continued failure to account for the outstanding market shortfalls that are currently in excess of N800 billion will, essentially, mean that the upstream operators remain in financial jeopardy, undermining one of the government’s major objectives for the intervention – increased or improved liquidity.”


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5 Comments
  • infinity2020

    With this blame game can we assume that the government are their own worst enemy if it is true that the government owes 86% of the DisCos debt !!! . Was there no money in the budget for electricity for all these federal agencies ? If the answer is yes where did all the N51 bn goes. The EVIL SERVANTS CABALS swallowed the money. We need the whistle blowers at these agencies !!!!!!!

    • real

      we clearly know that they budgeted for the payment of electricity because you can see it in there budget. if we had a good government, they would be probing where the money went. also the government can use that payment to influence the disco. how about the government saying, we would pay you the money, however it is going to be in the form of meters that would be installed in consumers houses.

    • El_Komo

      The article says that MDAs owe 86% debt (now N51bn) of the top 100 customers of who owed a combined N59.3bn. What this means is that the other 8 million customers owe in excess of 740bn.

      If you read it again, it doesn’t say MDAs owe 86% of total debt to DISCOs

  • real

    All these stupid suggestion and lack of action by NERC is not the solution to the problem of poor electricity. The core problem is lack of metering, which the disco don’t want to do so they can continue to loot Nigerians. metering allows for accurate billing, accurate measure of electricity supplied and better management. we have the capacity to generate a good amount of electricity, but we are not transmitting all of them, and not distributing them. we need to allow any investor or generation or disco to do all aspect of the value chain, this would end the blame game and the dependency on other sector to perform. right now we have blame games and disco holding up the funding because of their actions.

  • Triple_O

    It has taken NERC an age to realise that the Discos are woefully undercapitalised, with them having no appreciation of the long term resources required for their role but a misguided belief that there was fast money to be made by collecting the revenue from customers. The Discos also had the mindset that they could make more money by issuing “estimated bills” instead of making the effort to actually meter all their customers – a mindset no doubt encouraged by the inherited NEPA/PHCN staff who had found “estimated bills” a veritable cash cow.
    Also, and thankfully, it seems that the FG has now seen that the revenues collected by the Discos must be escrowed. These revenues DO NOT BELONG TO THE DISCOS – they belong to the whole National Electricity Supply Industry, NESI. The electricity tariff paid by the end-user is the summation of the various costs of NESI – the Gencos, the Transco, and the Discos, as well as provisions for the System Operator and for the Regulator, NERC. Worldwide, these participants are then paid from the escrowed revenue collections in accordance with the formula used to aggregate the costs of the participants in deriving the end-user tariff. It is baffling as to why in Nigeria’s case this was not done ab initio, giving cause to suspect the competence of the consultants or whoever it was that suggested to FG that the Discos should collect these revenues and essentially hang on to them for their sole benefit. This wrong approach is what has led to the Discos reluctance or indeed refusal, to diligently implement the metering plans they had submitted, and one wonders why the Regulator NERC continues to let the Discos get away with this blatant abuse.