Discos suffer yearly capex shortfall of N71.2b

Distribution Companies (Discos) in Nigeria’s power sector suffered capital expenditure (capex) shortfall of $198million (N71.2billion) in the last three years.

The Federal Government, which made this disclosure in the Power Sector Recovery Programme (PSRP), said the DisCos face many challenges and constraints in terms of accessing funding capex.

According to the PSRP, there is lack of confidence in the Nigerian electricity industry by local and international lenders and investors, who see the sector as nascent, lacking in requisite mitigation arrangements required to meet their risk acceptance criteria.

It stated: “The financial performance of the DisCos has been poor. Most of Nigeria’s power companies are technically insolvent, and continue to operate using creative working capital management. In the event that the Market Operator or Nigeria Bulk Electricity Trading (NBET), were to call for full payment of their unpaid invoices, most DisCos would be forced to declare bankruptcy unless significant cash injections are made by their shareholders.”

It explained further: “Reluctance (and in some cases, inability) of local commercial banks to extend further credit to the power sector due to their high exposure to the power acquisition companies during the 2013 privatisation round.

“Most of the debt was provided by local commercial banks with limited experience and understanding of the power sector. This debt sits at the DisCos holding companies level, as it was intended that the operating companies could borrow to fund their capex plans. Some investors further leveraged their investment by also raising debt to fund the 30% equity requirement.

“This further limits the appetite of local commercial banks as some DisCos and GenCos leverage could be in excess of 90%. We note that some of the acquisition lenders also hold rights of first refusal on any additional debt at the operating companies, and, hold liens on the sponsors’ shares in the operating companies.”

The PSRP therefore emphasised the need for the DisCos to be restructured/refinanced, depending on the extent of their financial and operational non-performance.

Speaking on the target for the power sector, President Muhammadu Buhari, said Nigeria’s would increase to 10,000 megawatts (mw) by 2020. “As of September 12, generation of power reached an all-time high of 7,001MW. We hope to reach 10,000MW by 2020.”

He regretted that power is a huge problem in the country but, said government is increasing its investment, clearing up the operational and financial log jam bedevilling the sector.

He noted that for the 20,000MW to be achieved, some key priorities including better energy mix through solar and hydro technologies would be required. “I am glad to say that after many years of limbo, Mamblla Power Project has taken off. Elsewhere in the economy the special window created for manufacturers, investors and exporters, foreign exchange requirements have proved very effective.”