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DisCos takeover, N5tr loan worry stakeholders

By Kingsley Jeremiah, Abuja
27 August 2022   |   4:09 am
Take-over of Distribution Companies (DisCos) and their N5 trillion debt to banks and the government are causing anxiety in the industry.

• Underperforming Power Sector Incurs Heavy Debt
• Fresh Strike Looms As Workers Lock Horns With Investors 

Take-over of Distribution Companies (DisCos) and their N5 trillion debt to banks and the government are causing anxiety in the industry.

Also, the face-off between the Federal Government and electricity companies may be far from over, as stakeholders raised serious concerns, yesterday, over the outlook of the power sector.

Some industry players are also expressing fear over the heavy indebtedness of the power sector to commercial banks, despite their dismal performance.

Currently, the power sector owes banks around N1 trillion, while government interventions in the sector hovers around N2.9 trillion. The World Bank and African Development Bank (AfDB) loan to the sector stands at about $3 billion, even as the Federal Government spends about $5 billion on some power generation and transmission projects, including the much trumpeted Siemens deal, which has remained a mirage going by initial promises.

While the DisCos are seriously fighting back, accusing the government of re-nationalising power assets, stakeholders are worried sore over several issues, including if investors would buy the shares seized from the old owners of the DisCos and if the balance of the banks would improve as extant challenges still lay siege to the nation’s electricity sector.

At least, Abuja, Benin, Ibadan, Kaduna and Kano DisCos have fallen into the hands of the banks they took credit from, after they were unable to break even eight years after they were licensed.

Coming at a time of global energy crisis, with diesel now hovering around N850 per litre, and government spending heavily to subsidise Premium Motor Spirit (PMS), most stakeholders have been divided between singing the praises of Bureau of Public Enterprises (BPE), Nigerian Electricity Regulatory Commission (NERC) and handlers of the 11 utility companies.

While the DisCos claim they have done a lot since privatisation by creating over 32,000 jobs, installing over 2.4 pre-paid meters and 129,352 distribution transformers as of 2020, they are pushing back against the Federal Government, whom they accuse of not fulfilling the N100 billion subsidy and other privatisation promises made since 2013.

The dilly-dally in the sector, going by a World Bank report, cost the country about $232 billion (N96.4 trillion) in the last eight years. That is about $29 billion yearly.

Just when the banks were still struggling to understand the working of the sector, as some of them have accused their former staff of sabotaging planned reform, the BPE and the Central Bank of Nigeria (CBN) handed the DMBs six months to sell the relinquished asset to new investors, a process that may remain a tall order, according to stakeholders.

To make matters worse for the banks, which too over barely few days after employees at the Transmission Company of Nigeria (TCN) threw the country into darkness, workers at the Abuja DisCo, part of the companies that were recently taken over, are threatening to down tools in the coming weeks.

A letter from the employees, acknowledged on August 19, 2022, gave the DisCo seven days to act or have the Federal Capacity Territory (FCT) and other four states thrown into darkness.

Some of the union’s concerns include “inadequate funding and zero allocation to some area offices, lack of operational vehicles/work materials, massive demotion of staff under the guise of restructuring (impost organogram), and increased death rate of members as a result of inadequate medical attention under the cover of HMO.”

An energy expert at the University of Lagos, Prof. Yemi Oke, had said BPE and NERC should share in the blame for poor the performance of the DisCos.

“Who allowed those DisCos to fail? Who allowed the failed DisCos to do all the dirty things that brought them to their knees, only to come out and scream that they are inefficient? Why is it only the DisCos that the banks are taking over on grounds of insolvency? Did the Power Generation Companies (GenCos) not acquire assets with loan from banks? I’m told Mainstream, for instance, got a facility of about $120 million and they have since paid back everything and now making profit from their business,” Oke said.

According to him, Nigeria is in serious energy crisis, as 80 per cent of the DisCos are technically insolvent; hence, the problems of the power sector may continue.

“There is no doubt that the current privatisation is not working as planned. The government, in my view, should not interfere directly in the takeover of the DisCos, if the takeover is strictly commercial matter. The DisCos and the banks should negotiate for settlement directly, and if settlement breaks down, then the agreed provisions should be enforced,” he said.

Renowned economist and energy expert at the University of Ibadan, Adeola Adenikinju, noted that the prevailing back and forth in the sector might not scare away investors because it is based on the rule of law and commercial agreements.

“However, the government should also ensure that the privatisation agreements, including setting of tariffs, be respected to give DisCos and other agents on the value chain opportunity to conduct profitable business,” he stated.

A civil society activist, Adetayo Adegbemle, insists that the takeover of the DisCos is in order.

Adegbemle said: “As established already, CBN gave the go ahead for the banks carrying the debt profile of these DisCos to recall their loans. CBN is doing its job of protecting the industry.

“However, same cannot be said of BPE and NERC that allowed these DisCos to wallow so long in their inefficiencies.”

According to him, the directive to relinquish the shares in six months by BPE also remain in order, as the banks are not licensed to run DisCos.

Adegbemle stated that the six months might, however, not be enough to achieve the goal, adding that there were issues of trust already in the sector, as regulatory stability and independence of the sector are something to worry about.

“This call should have been from NERC or BPE, in the first instance. We have been calling for the midterm review that the Electric Power Sector Reform (EPSR) Act also demanded since, and maybe the NERC would have been able to navigate the ship of the sector right, if they had the right things.

“For potential investors, I am sure they will also be asking for guarantees, unless we have bold investors like those who bought into YolaDisCo, and even at that, those ones are also struggling,” Adegbemle said.

He noted that the aims of power sector privatisation is far from being achieved; hence the need for government to continue funding, especially the transmission subsector.

An energy lawyer, Madaki Ameh, stressed the need for the total overhaul of the sector, insisting that the overhaul is long overdue and that the takeover of the DisCos remained legally justified under the terms of the agreement, which brought them into the Nigerian Electricity Supply Industry (NESI).

He said the DisCos had not met any of the minimum thresholds set for them by government since privatisation, despite the huge investment the government continued to make in the sector.

“If you compare happenings in the power sector with the telecoms sector, you will see clearly that there were structural defects with the implementation of the privatisation policy in the power sector and that nothing short of a total take over of the DisCos and some of the non-performing GenCos would deliver the sort of efficiency required to transform the sector in Nigeria,” Ameh said.

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