• No DisCo declared dividend eight years after privatisation
• Buying electricity assets with loans, misplaced priority, say experts
• Banks may run into regulatory sanctions over non-performing electricity loans
• N202b MDAs debt, insecurity, theft, lax corporate governance pose fresh challenges
• GenCos suffer investment shortfall over DisCos’ load rejection
The postponed fears by most stakeholders in the Nigerian electricity market is nowhere, as the weak structure of electricity companies, especially the 11 distribution firms (DisCos) and government-induced bottlenecks, have pushed the sector to the verge of collapse.
Built on debt, weak corporate governance structure, poor tariff system, weak regulatory enforcement and lack of respect for extant regulations in the payment of electricity bills, especially by states and Federal Government Ministries, Departments and Agencies (MDAs), there are indications that commercial banks and other lenders to the power sector may tighten facility rendering, with the consequence of throwing many into the labour market.
Growing insecurity across the country, especially in the Southeastern region, where sit-at-home orders are being declared weekly and most Northern states faced with insurgency and banditry, as well as the escrowing of electricity market accounts by the Central Bank of Nigeria (CBN) has also compounded the inefficiency of the market.
Just last week, drama emerged following the takeover of the assets of Ibadan Electricity Distribution Company (IBEDC) by the Asset Management Corporation of Nigeria (AMCON) over default in the loan payment.
The company, which had issued a statement confirming the takeover describing it as obedience to a court order, the next day, asked the public and staff to disregard the earlier statement, that the issue had been resolved with the company.
Integrated Energy Distribution and Marketing (IEDM) Limited, the core investor of IBEDC and other investors, own 60 per cent of the utility company, while the government controls 40 per cent share. Recall that the Nigerian Electricity Regulatory Commission (NERC) had previously fined IBEDC N50 million for failure to secure a refund of an interest-free loan the IBEDC board granted to its core investor group.
The development comes just as the Abuja Electricity Distribution Company (AEDC), which has already been taken over by the debt crisis, took another turn with the sacking of most key management staff.
Currently, the debt owed to banks by the power sector stands at about N819.97 billion as of last year. The National Bureau of Statistics (NBS) had, in 2020, put non-performing loans (NPL) in the power sector at N33.22 billion out of N1.23 trillion NPLs recorded by banks.
ALSO, the power generation sub-sector is experiencing investment constraints following the inability of DisCos to take the load as well as transmission inadequacies.
Managing Director of Ibom Power, Meyen Etukudo, told journalists that the firm is consolidating on its existing investment and also targeting construction of a 500 Mega Watts (MW) power plant in addition to its current 190MW.
Ibom Power acquired its licence for 685MW, which has been renewed till 2028. He, however, said the GenCo, like others, is facing enormous challenges following the inability of its host DisCo to take the quantum of power it generates.
“For instance, if I generate 100MW of electricity and the DisCo is only able to take 60MW, I send the remaining 40MW to the grid at the National Control Centre in Osogbo, Osun State. But if the DisCo can take everything I generate, there is no point sending it to the grid,” he said.
He lamented that the inability of the host DisCo and the Transmission Company of Nigeria (TCN) to invest in infrastructure upgrade was a major setback to the state, saying, the Akwa Ibom State government has however taken up the responsibility of TCN by building 132/33KVA and 260MVA at Ikam, which Vice President Yemi Osinbajo commissioned in 2020.
RECALL that the Goodluck Jonathan government had in 2013 privatised the sector for $2.5 billion, which saw the distribution and generation segment divided into 17 companies – six GenCos and 11 DisCos.
Politically exposed personalities were mainly the beneficiaries. Although backed by some globally known foreign partners like Siemens and Manila Electric, the buyers had borrowed money in dollars from commercial banks in Nigeria to complete the transactions.
In 2013, when most of the buyers rushed to the banks for the loans, little did they know that dollar, which then exchanged for an average N200 for $1 would jump to about $500 in no time, even as they are to repay the loans for businesses transacted in naira.
Although banks were equally expected to do due diligence to avoid bad loans, while they were yet to recover from the liquidation of the sector, most stakeholders in the sector did not project that implementation of tariff order would remain a major concern alongside weak infrastructure to dispatch the generated electricity.
For years, most of the DisCos were being spoon-fed, while the Key Performance Indicators (KPIs) agreement they signed with the government were never met, leading most consumers to provide basic infrastructure like wires, transformers and electricity poles that should have been the responsibility of the investors. Also, the metering gap has persisted with high aggregate technical and commercial loss while none of the DisCos, except Eko, has been able to meet their revenue remittance threshold.
Amid theft and estimated billing, end-users such as the Federal Government and the states with their agencies, which should have paid electricity bills promptly, currently owe the sector nothing less than N202 billion, while most DisCos reportedly run on bloated overheads and operate system typical of the public sector where employment, salary scale and promotion favour the powers that be.
The Guardian gathered that payment of salaries has already become a tedious task for some of the companies as hard times are rendering most of the firms into insolvency.
Enugu Electricity Distribution PLC (EEDC) told The Guardian that the insecurity situation within its area of franchise has adversely impacted not just its revenue and collection, but overall performance, pushing down revenue by about 40 per cent.
“We now have situations where we only operate twice in a whole week due to the sit-at-home order by the Indigenous People of Biafra (IPOB). Over time, we have lost our Mondays to this same order,” spokesperson for the company, Emeka Eze, said.
He expressed doubt in the company’s capacity to service debt, meet NERC’s remittance order and perform necessary obligations.
He, however, disclosed that efforts are being made to embark on intensive revenue drive across the franchise area, stressing that “the power sector cannot effectively operate if energy bills are not paid by customers.”
Former Managing Director of Nigerian Bulk Electricity Trading Company (NBET), Rumundaka Wonodi, said the capital structure of the DisCos is not sustainable.
According to him, a situation where investors used debt to purchase the shares of the company and became reluctant to sell down their shares to attract new equity remains a challenge.
“Worse still, many of the DisCos have failed to invest to raise service level and revenues, failed to run prudent operations, the case of Abuja DisCo is a clear case where the management was seriously bloated. We can only hope that these two cases will make others sit up,” he said.
Top management in one of the DisCos, who pleaded not to be mentioned because he has no authority to speak to the press, stated that the financial crisis in the power sector may make fresh investment elusive, adding that most international firms have no interest in investing in the sector other than to look for contracts.
He pointed out that the DisCos are only players in the sector and could not function very well because of other factors like the transmission bottlenecks and prevailing economic issues that are beyond the DisCos.
He told The Guardian that the impact of the account escrowing is being felt in the sector, disclosing that Ibadan DisCo generates about N8.9 billion revenue monthly from an invoice of N14 billion, adding that the accounts of all the companies are open to the CBN, including spending pattern.
According to him, there are only a few profitable states in most of the DisCos across the country, adding that even if government or banks take over the DisCos, running it profitably remains a critical challenge.
“The investors cannot get additional money to put in the power sector because the structure of the transaction as dictated by the Bureau of Public Enterprise (BPE) cannot allow the investors to get capital. The multi-year tariff order has also not been effected to bring the sector to full market status. This government disallowed the multi-year tariff order. We are generating electricity at N30 per kilowatts and selling at N21, not to talk of making a profit.
“Even if we declare force majeure, we may not get our money back. In Yola, when we declared force majeure, it took five years for the government to pay N88 million. Where are they going to get the money from,” he said.
The former President and Chairman of Council of Chartered Institute of Bankers of Nigeria (CIBN), Prof. Segun Ajibola, noted that the loans from the power sector threaten most commercial banks in the country, stressing that borrowing in dollar for a transaction domiciled in another currency remained a bad decision.
Lamenting that DisCos are not properly managed, Ajibola feared that the worsening state of the DisCos would put pressure on Nigerians who may endure poor service and continue to fund electricity infrastructure across their communities to enjoy supply, which is barely available
“Banks were made to lend to the DisCos. It is bad credit practice to borrow in one currency and the project is generating cash flow in another currency. There was a currency mismatch. The movement in currency rate has always been against the Naira,” Ajibola said.
According to him, most borrowers would have to pay back double of what they had borrowed, noting that debt in the power sector not only threaten the banks but the sector.
Ajibola stated that most banks are facing their inability to adhere to prudential guidelines, corporate governance rules, ethical conducts and others, stressing that the shareholder’s fund of most banks is being affected by the power sector loans.
Executive Director, Power Up Nigeria, Adetayo Adegbemle, noted that it was unfortunate for most of the DisCos to have borrowed with an expectation that things would go well, adding that the escrowing of the accounts exposed the weakness of most of the DisCos.
A former Managing Director of one of the DisCos, who pleaded not to be mentioned, said if the prevailing situation is not addressed, it could lead to the collapse of the distribution companies.
“All along, the DisCos were enjoying a subsidy from the government. This subsidy has been removed while the customers are not paying because electricity is still seen as a social service. Apart from a loan taken to acquire the assets there are other associated loans that are now being deducted from the source, this will make many DisCos fall victim to what happened in Abuja and Ibadan DisCos,” he said.