COLLAPSE OF ELECTRICITY COMPANIES IMMINENT
BY RASHEED KOMOLAFE
A power expert,who pleaded anonymity,expressed fears that collapse of distribution companies is imminent on account of the current situation in the business environment.
A power expert,who pleaded anonymity,expressed fears that collapse of distribution companies is *imminent on account of the current situation* in the business environment
He said:“All along, the DisCos were enjoying a subsidy from the government. This subsidy has been removed while the customers are not paying .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
A recent World Bank report that says Nigeria’s economy was losing between N7 trillion and N10 trillion annually to epileptic power supply shows the country has continued to wallow in regrets and lamentations almost 9years after the privatization of the successor companies of the defunct of the Power Holding Companies of Nigeria.
The development is already taking tolls on the nation’s Gross Domestic Product (GDP) and Nigeria’s battered economy.
The report said businesses and wealthy homes depend mostly on generating sets on unreliable and insufficient electricity supply.
According to the report,over 22 million gasoline generators in Nigeria power about 26 per cent of all households and 30 per cent of Micro, Small, and Medium Enterprises (MSMEs) while their net capacity is eight times more than the national grid.
Though the report and other stakeholders blamed the failure of the sector on collapse infrastructure and organic issues,the electricity distribution companies seem to carry the heavy burden of the sector’s underperformance.
The reason for this ill-fate is not far fetched as the distribution companies are the the weakest link in the nation’s electricity value chain,and maintain interface between the customer or end-user and the power value chain.
Besides, there are concerns that most of the new investors of the distribution companies got the licences on account of their affiliation with the government,which explains why they couldn’t perform optimally since they took over the asset.
Some also wondered why the government had continually spoonfeed the DisCos with intervention fund amidst their failure to give customers improved service delivery,including adequate metering in the country.
The Key Performance Indicators (KPIs) agreement government signed with the DisCos government were never complied with causing consumers to provide basic infrastructure like wires, transformers and electricity poles that should have been the responsibility of the investors.
Penultimate week,the DisCos justified the rationale why consumers should provide the tools on their own.
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.
The DisCos had also lamented their failure to conduct due diligence on the assets purchased as well as wrong pricing of electricity.
Perhaps,the shaky foundation and chronic ills of the DisCos in the electricity value chain came to the fore few months ago following the take over of the two of the 11 privatized companies by the Assets Management Company of Nigeria,AMCON on account of loan default and the change of ownership of another on account of anachronistic business environment.
GREATRIBUNETVNEWS report that two other distribution companies would soon join the league of those insolvent ones in need of AMCON’s intervention.
Loan Palaver
The federal government had last month announced that that the lending bank (UBA), had exercised its rights over the shares of KANN consortium, part owners of Abuja Electricity Distribution Company
In a joint release,NERC and Bureau of Public Enterprises, BPE, stated that there had been a dispute amongst competing factions of AEDC’s majority shareholder/core investor, stressing that the disagreement eventually translated to a dispute with the lender that provided the acquisition loan to KANN.
According to NERC and BPE, the matter later deteriorated over KANN ‘s inability to service its debt to the bank.
The statement said that the AEDC not only struggled to meet its obligations to the market under the terms and conditions of its licence but was also unable to meet its obligations to key stakeholders in the organisation, including staff.
The agencies explained that this culminated in the industrial action by members of the Nigerian Union of Electricity Employees (NUEE).
“The general public should note that arising from KANN’s inability to service its acquisition loan and the ensuing dispute over the servicing of the loan from UBA Plc., the lender exercised its rights by appointing a receiver/manager over KANN,” it noted.
According to the statement, it then became apparent that decisive steps were required to address the matter wherein the BPE agreed with the lender’s request to exercise its powers as receiver/manager.
It explained that this development included exercising its powers over the 60 per cent equity in AEDC as a means to recovering the acquisition loan it granted. AEDC oversees Kogi, Nasarawa, Niger and the Federal Capital Territory (FCT).
Last week,the Asset Management Corporation of Nigeria (AMCON),had also announced that it had taken over the assets of the core investor in the Ibadan Electricity Distribution Company (IBEDC).
AMCON,in a public notice,stated that it had appointed Mr Osayaba Giwa-Osagie (SAN) to take over the entire undertakings, assets of the company, including shares and interests in related companies and entities, and also monies kept in of the 25 banks in Nigeria.
The agency executed the takeover of IEDM, the core investor, following a default in a Loan Servicing Agreement (LSA) executed with Polaris Bank.
”AMCON has pursuant to Section 48 and 61 of AMCON Act 2010 been appointed Receiver/Manager over all the Assets of Integrated Energy Distribution and Marketing Limited as stipulated in the instruments executed in favour of AMCON.
“This is by by virtue of the Loan Purchase and Limited Servicing Agreement executed with Polaris Bank Limited dated 30th November 2018 and a notice of appointment of the receiver/manager dated August 6th, 2021, which was duly stamped by the commissioner for stamp duties” the statement read.
NERC had earlier sanctioned the power firm N50 million for its failure to secure a refund of an interest free loan the board of IBEDC granted to its core investor group.
Owner of the company,Mr. Tunde Ayeni, who owns the company had taken back the control of the IBEDC from AMCON.
Chief Operating Officer of IBEDC, Engr. John Ayodele, confirmed that after the negotiations, status quo was maintained.
“Further to the communication earlier sent on 20th January 2022, in respect of the above, kindly note that the investors have resolved on way forward with AMCON and status quo ante maintained,” he stated.
Besides, Quest Electricity Nigeria Limited had acquired Yola Electricity Distribution Company with a bid price of N19 billion.
The development was sequel to the company’s inability to break even on account of anachronistic business environment.
Specifically,the company said it couldn’t operate on six occasions between end of 2013 and mid 2015 on account of insecurity in its franchise areas.
The federal government later took back Yola DisCo following the declaration of force majeure by Integrated Energy Distribution and Marketing Company, the core investor in the firm.
More Headache,Imminent Job Losses
Stakeholders fear that job losses may be imminent in the sector,particularly among distribution companies, on account of 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).
This may be aggravated by commercial banks and other lenders possible freeze of loans to these companies.
Amid theft and estimated billing, end-users such as the
Besides,Federal Government and the states and other agencies failure to pay electricity bills promptly have increased debt profile in the sector to nothing less than N202 billion
Buhari’s Concern
President Muhammadu Buhari,had recently deplored the performance of the power sector which has thrown the country in darkness.
He punctured his predecessors of bastardizing the sector by selling off the country’s power assets to their cronies who neither had the financial muscles nor the technical know-how to revamp the sector.
Nigerians ,he said,are facing epileptic power supply because those who bought the various electricity distribution companies got them based on political favouritism and geopolitical consideration rather than on merit.
According to him,those who bought the Discos were not electrical engineers neither did they have the financial muscle, and thus, could not understand the intricacies of the power system in the country.
He added:“The owners of Discos bought them based on geopolitical zones rather than merit. The people that own them, who are they? They are not electrical engineers, they don’t have money, it is just a political favour”.
Stakeholders Speak
Wale Okunrinboye, Head Investment Research at Sigma Pensions and regular guest on Nairametrics’ “On the Money” show on Clubhouse said that during the power privatization, most of the companies were thinly capitalised entities who used leverage to fund these purchases.
According to him, issues related to naira devaluation and slow implementation of tariffs has heavily affected the financial operations of the DisCos.
He said:“In 2014, when we privatized the power sector, many of the winners were thinly capitalised entities who used leverage to fund these purchases”.
He also said that in many cases the entities were no more than financial SPVs put together to win the bid in the hope of selling on to strategic players in the medium term.
He added that the financing arrangements modelled fairly stable exchange rates on the USD debt, cost-reflective electricity tariffs and relatively conservative collection losses (in hindsight).
He said subsequent events exposed the folly of these assumptions as Naira devaluation, greater than expected collection losses and delays in adjusting tariffs resulted in many of these players being saddled with large losses, adding that many of these players failed to meet metering targets and collections were large.
“Interestingly despite the prospect of bankruptcy from missed bank loan payments, many chose to hold on rather than selling equity to stronger players. These larger and more capitalised entities could have assumed these obligations staving bankruptcies,” he said.
He spoke on the government policy side, saying that the delay in ensuring cost-reflective tariffs and limited pressure on DisCos to take steps to reduce collection losses such as mandating prepaid metering, ensuring government agencies cleared their electricity bills and improving alternative revenues streams, contributed to the issues.
He said that even the BPE, which was a minority investor in all the DisCos could have used this position to drive greater improvements in the DisCos.
According to the Executive Director, Power Up Nigeria, Adetayo Adegbemle, it was unfortunate for most of the DisCos to have borrowed with an expectation that things would go well.
He maintained that the escrowing of the accounts also exposed the weakness of most of the power distribution companies in Nigeria.
