Stakeholders Laud DisCos Takeover, Knock Regulators For Sector’s Woes - 9japarrot


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Monday 11 July 2022

Stakeholders Laud DisCos Takeover, Knock Regulators For Sector’s Woes

Nigerians are gradually inching towards the moment of anagnorisis as bank-backed reforms in the nation’s electricity distribution companies (DisCos) are revealing the true state and regulatory gaps among the Bureau of Public Enterprise (BPE), Nigerian Electricity Regulatory Commission (NERC) and handlers of the 11 utility companies.

At least, five firms – Abuja DisCo, Benin DisCo, Ibadan DisCo, 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 since they were licensed.

Coming at a time of global energy crisis with diesel now hovering around N850 per litre, as government spend heavily to subside Premium Motor Spirit (PMS), most stakeholders, yesterday, were divided between singing the praises of BPE and NERC, and blaming them for allowing the sector to fail in the first place. 

The prevailing situation, which comes few days after NERC announced a contract-based electricity market, stakeholders said, may signal the worst days ahead for the sector, insisting that there already exists a breach of the national confidence reposed in BPE and NERC.

While the DisCos are jointly owned by individuals and the government, with the Federal Government represented on the board of all the companies, series of alarm being raised by industry players and consumers over the dismal performance of the firms have now come to limelight mainly because banks are moving to forcefully recoup their loans. 

The payback loans notwithstanding, the DisCos are indebted heavily despite huge stimuli from the Federal Government and interventions from the Central Bank of Nigeria (CBN). 

BPE and NERC had in a joint statement announced that the core share of 60 per cent of three DisCos’ were taken over due to default in their acquisition loans. The loans were taken in 2013 and drawn from Fidelity and AFREXIM Bank. New boards were swiftly approved while the Managing Directors of the DisCos were replaced. 

Coming after takeover of Abuja DisCo and embattled challenges at Ibadan DisCo, NERC had tagged Jos, Benin, Kaduna and Kano as being distressed.

The Director-General of BPE, Alex Okoh and Executive Chairman of NERC, Sanusi Garba, had said: “Today, we were informed by Fidelity Bank that they have activated the call on the collateralised shares of Kano, Benin and Kaduna (Fidelity and AFREXIM) DisCos and that they have initiated action to take over the boards of these Discos and exercise the rights on the shares.

“Fidelity Bank’s action is a contractual and commercial intervention and is between the core investors in the DisCos and the lender. BPE is involved because of the 40 per cent shareholding of government in the DisCos.”

But stakeholders are worried that despite utility companies failing under the watch of BPE, which represents the Federal Government as well as NERC, which equally has all regulatory frameworks to make the sector perform, regulatory lapses contributed to the failure of the sector.

While electricity consumers pay for the inefficiencies of the sector under a Service Based Tariff arrangement, stakeholders are miffed that the current takeover by the banks remained pointer to poor corporate governance, technical and commercial losses as well as the dismal technical regulations in the power sector.

Recall that none of the DisCos, except Eko is currently able to meet minimum remittance order set by NERC, none of them has declared profit for eight years, none of them have also met the Key Performance Indicators (KPIs) set by the sector, leaving consumers to pay for minor repairs and maintenance due to the country’s energy situation.

While industries close down daily due to instability in the sector, energy expert at the University of Lagos, Prof. Yemi Oke, said BPE and NERC should share in the blame over poor 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 ground of insolvency? Did the 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 deep and serious energy crisis, adding that 80 per cent of the DisCos are technically insolvent; hence, the problems of the power sector may continue.

An energy lawyer, Madaki Ameh, stated that there was need for the total overhaul of the sector, insisting that the overhaul is long overdue and 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 have not met any of the minimum thresholds set for them by government since privatisation despite the huge investment the government has 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,” Amehsaid.

Consumer rights advocate, Adetayo Adegbemle, noted that while BPE and NERC were only doing what they should do, the move was overdue. 

“However, we must not lose focus of the fact that most of these restructuring is forced by core investors’ debt to third party, which is the banks at this point. This has not said anything about the actual performance of DisCos as an entity,” Adegbemle said.

According to him, NERC and BPE must do their performance appraisals and issue verdicts based on that across the DisCos.

Public-Private Partnership (PPP) consultant, Joseph Tsavsar, who participated in the privatisation process, said the prevailing situation showed the failure of government in its obligations.

To him, the private operators have no incentives to operate as provided in the privatisation agreement, no adequate energy, no cost reflective tariff and no wheeling infrastructure to wheel the power generated to DisCos above 4,000 megawatts, the same as it was before privatisation.

Adding that there is no independent regulatory body to properly regulate the sector, Tsavsar said a combination of all the failures was causing the current challenges.

“If you want to blame the investors as many do today, it will not change anything, government has to change their way of approach first. I said it before, the banks will be affected as most of the loans are considered bad loans. Taking over the DisCos by the banks will not bring any change, they may only be able to service the loans for now.” 

The Nigerian Consumer Protection Network has, however, applauded the takeover of the DisCos, describing it as the right step.

President, Nigeria Consumer Protection Network, Kunle Kola Olubiyo, said with the DisCos’ licences being of 10-year tenure, government failed to conduct a mid-term review, adding that the DisCos failed on all benchmark. 

“In the prevailing circumstances, we are on the same page with relevant stakeholders in the present effort to clean up the mess and free the economy held by its jugular by the non-performing utilities,” he said.

The Guardian

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