States’ curious bid to take over DISCOs

A proposal by the National Economic Council (NEC) Ad-hoc Committee for a unilateral takeover of the electricity distribution companies (DISCOs) by the state governments, smacks of another curious ad-hocism that should be properly examined by all stakeholders before it is too late.  

This proposal for the takeover of the 11 Discos has elicited comments from various stakeholders in the energy sector with some stating that the call is unwarranted. Understandably, the proposal was a fallout from the challenges currently being experienced by the Discos and the direct and indirect effects these are having on the various states of the federation. Since the privatisation of these companies by the Jonathan administration in 2013, various challenges have surfaced in their operations. According to the Discos, a large chunk of the promises made by the government at the point of their privatisation have not been fulfilled. These include the putting in place of a debt-free balance sheet for them, settlement of electricity bills owed by government ministries, departments and agencies, absence of a cost-reflective tariff and the concessioning of the Transmission Company of Nigeria (TCN).

To them, most of these promises have not been fulfilled by the government. These, according to them, have adversely affected their performance such that the projected gains expected from the privatisation of the sector have remained a mirage to the extent that many stakeholders have even called for a reversal of the entire privatisation if the original targets set prior to the exercise can no longer be realised. In this regard, the state governments, under the auspices of the National Economic Council (NEC) under the headship of the Vice President, Yemi Osinbajo proposed the takeover of these Discos by the state governments. The state governments have argued that they are the direct hosts of the companies and they have been bearing the brunt of the complaints coming from consumers domiciled within their states.

Fortunately, this proposal did not go down well with the Federal Government. The response by President Muhammadu Buhari to this proposal has cast a death knell to this NEC recommendation. The presidential response which called for more or effective regulations of the Discos as the way forward asserted that the state governments under the umbrella of NEC cannot unilaterally change the ownership of the Discos without the endorsement of the other stakeholders in the sector, namely the Federal Government and the private sector investors. It had thus called for an effective collaboration between the Nigerian Electricity Regulatory Commission (NERC) and these stakeholders in addressing the issues relating to the Discos. 

One major challenge the Discos have is the threat of liquidity and cash flow in their operations. Given that these Discos are heavily indebted to the commercial banks, they all stand the risk of being taken over by these creditors to the extent that the Central Bank of Nigeria (CBN) had to set up a committee to see how this can be averted to provide an immediate, short and long term solution to the problem. One major issue in this regard is the need to carry out a reliable, forensic audit of the finances of the Discos. Though these companies have gone to court to stop the audit, there should be a way to take the issue out of the courts so that the forensic audit can take place. In fact, the Presidential directive is for the Ministry of Finance, Budgeting and National Planning as well as the Ministry of Power alongside the NERC and the International Finance Corporation to ensure the carrying out of this very important forensic audit. It is also welcome that the presidential directive includes the requirement that the NERC reviews and where applicable, develop an implementation plan for the regulatory action, with quarterly updates.

For the complex problems confronting the sector to be resolved, all hands must be on deck to proffer a workable solution. Nigerians cannot afford to wait for too long for the power sector to deliver services to an already traumatised population operating the yoke of continual lack of power supply for the private and business use. The bad experiences in the sector have been compounded however by government’s failure to enhance the functioning of these Discos. These government seeming missteps include the inconsistent implementation of minor reviews expected in the operations of the Discos, removal of their collection losses, removal of fixed charges from electricity tariffs, capping of estimated billings, among others. These actions are ordinarily desirable if government had fulfilled their original promises to the Discos. The challenge of implementation of these measures has however put the Discos in serious financial straits 

These issues would need to be resolved in a more coordinated way instead of resorting to the unilateral takeover of the Discos, as proposed by the El-Rufai Ad-hoc Committee of NEC. The state governors need to know that these Discos have been sold though government still retains some marginal shares in them. In addition, the state governments should know that some form of stimulus or grants have been passed on to these companies in the past and yet no positive results have been obtained. They should also know that under the NERC Act of 2004, the Federal Government is fully in charge. There are windows the state governments can explore, but none is as effective and pragmatic as amendment of the law that can enable the states to pursue an independent power sector package that they can control under a ‘‘power sector federalism’’ arrangement. Nigerians want a solution to the power problem, not more committee reports and unproductive rhetoric.