One year after takeover of DisCos, darkness, liquidity crisis persist
15 November 2023 |
4:35 am
All is not well with electricity distribution companies across the country as the state of the five utility firms, which were taken over by the Federal Government, commercial banks and Asset Management Corporation of Nigeria (AMCON) have little to show off one year after.
• Stakeholders highlight cash flow, government policies as key challenges for DisCos under AMCON’s control
• Kaduna, Benin, two others record highest decrease in energy off take in Q1/2023
• No profit in sight as operators exceed ATC&C loss target
All is not well with electricity distribution companies across the country as the state of the five utility firms, which were taken over by the Federal Government, commercial banks and Asset Management Corporation of Nigeria (AMCON) have little to show off one year after.
Coming at a time that President Bola Tinubu had said that the DisCos require as much as N2 trillion capitalisation, revenue collection, investment, aggregate technical and commercial losses across the companies remain way below as consumers bear burdens of the inefficiencies.
With poor performance and liquidity crisis undermining operations of some distribution firms, leaving communities and households to fund wire, transformer oil, poles, meters and others, the Federal Government, AMCON and some banks were forced to take over Kano Electricity Distribution Company (KEDCO), Ibadan Electricity Distribution Company (IBEDC), Benin Electricity Distribution Company (BEDC), Kaduna Electric, and Port Harcourt Electricity Distribution Company (PHED).
There are indications that the distribution companies, which have never declared profit in the 10 years of their existence are also unable to find new investors despite the directive of the Bureau of Public Enterprise (BPE) which insisted that the share of the five companies must be sold to necessary investors as the banks are not in the best position to run the assets.
Going by NERC’s latest report for the 2023 Second Quarter, the DisCos rejected 114.53 megawatt-hours per hour of electricity during this period as load offtake drop further to about 3,200MW despite the Partial Activation of Contract regime which mandated 5,000 megawatts of electricity. Metering challenges, collection efficiency as well as aggregate technical and commercial losses remain worse than the Key Performance Indicators (KPI) of the DisCos.
Checks by The Guardian showed that these losses affected operators’ collective service to 5.7 million Nigerians within their areas of coverage.
According to data obtained from the National Bureau of Statistics (NBS), the breakdown showed that Ibadan DisCo has 2.26million customers (2,266,168); Benin DisCo, 1.21 million (1,214,377); Kaduna DisCo, 823,000 (823,414), Kano DisCo, 691,000 (691,401) and Port Harcourt DisCo has 725,000 (725,372).
While the DisCo acquired by Integrated Energy Distribution and Marketing Limited (IEDML) during the 2013 power sector privatisation exercise got 60 per cent stake to become the core investor, the Central Bank of Nigeria (CBN) had in August 2021, put the acquisition loans of N819.97 billion to the distribution and generating companies.
These affected DisCos’ accounts, with 85 per cent of the cash shortfall recorded by the industry as they failed to pay for the power delivered to them via the national grid.
According to the Nigeria Electricity Regulatory Commission’s (NERC’s) quarterly report, the Aggregate Technical, Commercial and Collection (ATC&C) loss in 2023/Q1 was 46.39 per cent composed of 22.03 per cent technical and commercial losses, and 31.25 per cent in collection loss, which implies that over the course of 2023/Q1, on average, as much as N46.40 in every N100.00 worth of energy received by a DisCo was unrecovered due to a combination of inefficient distribution networks, energy theft, low revenue collection and unwillingness of customers to pay their bills.
The Multi Year tariff Order (MYTO) target for KEDCO is 15.85 per cent but reported ATC&C loss of 53.23 per cent, while IBEDC target of 15.47 per cent, recorded 50.04 per cent, Kaduna Electric 6.60 per cent target, recorded 75.91 per cent, BEDC 17.37 per cent target recorded 45.27 per cent and PHED 21.45 per cent target recorded 47.68 per cent Q1 2023.
According to the Commission, any Disco that under-performs by recording higher ATC&C loss than the target will be unable to earn the expected returns on its set tariffs and could risk long-term financial challenges.
The Commission in its report highlighted the need for DisCos to address the losses and improve the overall efficiency of the electricity distribution system.
The DisCos with the highest decrease in energy offtake in Q1/2023 NERC report are Kaduna with -9.22 per cent, Benin -7.60per cent, Kano -6.02 per cent and Ibadan -5.56 per cent as the total energy offtake by all DisCos was 7,495.49GWh in 2023/Q1 compared to 7,661.97GWh in 2022/Q4. According to the report, eight Discos recorded a decline in energy offtake between 2022/Q4 and 2023/Q1.
NERC had on May 15th, 2023, announced the revocation of Kaduna DisCo’s operational licence based on its indebtedness of N93.42 billion unaccounted energy supplied to its area of operation.
With over 90 days after the expiration of the 60-day ultimatum by NERC, the DisCo still holds an Electricity Distribution Licence (EDL), that gives it powers to continue to carry out the electricity business and normal operations in its licence areas of Kaduna, Kebbi, Zamfara and Sokoto states.
Head of Corporate Communications, Kaduna Electric, Abdulaziz Abdulahi, told The Guardian that he can’t give any update on the operations of the DisCo after the takeover coupled with the revocation of license issue. He said the DisCo is still operating, though struggling to get funds from customers.
“Fidelity Bank is in the best position to give an update about it since the takeover, this is not the time for blame game,” he said. Efforts by The Guardian, to get reaction from Fidelity Bank proved abortive as the financial institution refused to comment on the transaction between it and the DisCos.
Recall that the DisCos through the Bureau of Public Enterprises (BPE) after privatisation in 2013 received $1.256 billion as payment for 60 per cent stakes in 10 DisCos in 2013 and Kaduna DisCo in 2014 from investors while the government retained 40 per cent stakes in them as the minority shareholder.
Despite BPE’s intervention, the lack of investment in the sector persisted, as most investors have become skeptical in putting their money into the sector due to the uncertainty surrounding the huge debt burden of the distribution companies.
Electricity Analyst, Lanre Elatuyi said most of the DisCos are not able to secure long term funding. He said despite the takeover, the challenges in the DisCos still persist as there is no fresh capital injection, equity and no investments.
“The takeover by AMCON and the banks have not helped matters as it could have been effective if there are fresh capitals introduced and small operational efficiencies but as these things are still lacking, the problem would still persist,” he said.
He added that with over 50 per cent ATC&C loss, there is no profit in sight for the DisCos.Chairman, Power Group, LCCI, Martins Arogie mentioned that the challenges faced by many DisCos under AMCON’s control in functioning properly stem from a complex issue, primarily related to cash flow. While Discos may have their shortcomings, they’ve also been impacted by unfavorable government policies.
He added that the current tariff parameters don’t align with the actual business realities, making it difficult for them to generate sufficient income, which, in turn, hampers their ability to attract funding, as there’s no clear indication of short-term improvements.
“The larger dilemma revolves around a cost of living crisis, making tariff adjustments less effective without significant supply enhancements, which, in turn, require substantial investments. The key question remains: who bears the cost of this investment in the interim?” he said.
Countering lack of investment flow in the DisCo, the Managing Director of IBEDC, Kingsley Achife, told The Guardian that early this year the company made an investment plan of N14 billion in technical infrastructure to reposition its business operations and provide electricity to underserved communities.
“Electricity tariff has not been cost-reflective to enhance power in the sector, though the government had been providing the shortfall in terms of loans, but a lasting solution would be a cost-reflective tariff for a sustainable economy,” he said.
He added that the company is making efforts in reaching out to companies in order to purchase extra power outside the grid to serve its customers.
Achife, who emphasised that revenue collection and ensuring credible bills given to customers have been a big challenge to the DisCo, urged the government to pass legislation on the right way for utility as obtainable in other developed countries.
National Coordinator, All Electricity Consumers Protection Forum (AECPF), Adeola Samuel-Ilori believes that most Distribution Companies (DisCos) taken over by AMCON and banks fail to perform because they lack financial stability from the beginning, evident in their debts to the banks.
According to him, these banks won’t invest in expansion or customer obligations; instead, they focus on buying megawatts from generation companies, distributing them, and collecting receivables to repay loans and interest.
“It is crucial for the government to initiate the license seizure and re-privatisation process for more dedicated investors, especially now that the initial ten years of operation have ended without any significant progress, but instead, there has been inconsistent and disappointing performance,” he said.
The Executive Director, PowerUp Nigeria, Adetayo Adegbemle, said the takeover by AMCON and the banks have not solved the underlying problems of liquidity, noting that the temporary takeover by the banks won’t solve the structural challenges. He asserted that the DisCos have seen more revenue accrued due to a series of measures like the escrowing of the DisCos collection of accounts.
Adegbemle emphasised that the takeover has not encouraged more investments as the banks are still sourcing for investments and buyers.
“AMCON is still in court, they have not sorted themselves out yet with the old owners, but in terms of operations, it has been normal though they have not been able to invest, they are just there to take back their money, so, all those network improvement that they are supposed to be doing, they are not able to do it, so they are just managing and getting back, that’s why they can’t offtake more from the national grid, they can’t do metering from their own pocket, they have to depend on CBN intervention and all these are liabilities that new buyers are going to take over when they buy them over,” he said.
Meanwhile, efforts by The Guardian to reach AMCON’s spokesperson, Jude Nwauzor, to get the view of the corporation on the matter were not successful as several calls and messages made to his telephone line were not responded to as of press time.
Already, the Minister of Power, Adebayo Adelabu, has called on the Generating companies (GenCos) and the DisCos to improve their performance on electricity supply.
Special Adviser, Strategic Communication and Media Relations to the Minister, Bolaji Tunji, said this in a statement recently. Tunji said that the minister made this call while meeting with the management teams of GenCos and DisCos in Abuja.
He quoted the minister as saying that the meeting was aimed at finding a lasting solution to the challenges in the power sector that had affected the growth and development of the country’s economy.
Adelabu said that meetings with all the stakeholders in the generating, transmitting, and distribution value chain would be adopted as a regular one to constantly review developments in the power sector.
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