…Creates more hurdles for households, businesses
…NERC orders Fidelity Bank to divest
…Power sector outlook gloomy – CPPE
…Power Consumer Assistance Fund is key — PowerUp Nigeria
The poor financial capacities of Electricity Distribution Companies, DisCos, their huge indebtedness, and takeover by financial institutions, are currently militating against the performance of Nigeria’s power sector.
This is even as generation stands at 4,609.14 megawatts, MW, while transmission and distribution falls below 4000MW, according to data obtained from the Nigeria Electricity System Operator.
However, the core investors in the DisCos took loans amounting to billions of naira to procure power assets during the 2013 privatization and could not pay pack.
To protect their funds, the banks took some steps, with government approval, to takle over management of the DisCos.
For instance, the federal government, in conjunction with Fidelity Bank and the Asset Management Corporation of Nigeria, AMCON, took over five DisCos.
They include Kano Electricity Distribution Company, KEDCO; Ibadan Electricity Distribution Company, IBEDC; Benin Electricity Distribution Company, BEDC; Kaduna Electric, KEDCO; and Port Harcourt Electricity Distribution Company, PHED.
Similarly, the United Bank for Africa, UBA also took over the Abuja Electricity Distribution Company, AEDC to recover a $122 million debt. which the core investor, Kann Consortium, owed it.
However, apart from IBEDC, which is still managed by AMCON; and BEDC and PHED, controlled by Fidelity Bank, other DisCos have been resold to new buyers.
Checks by Vanguard indicated that the Nigerian Electricity Regulatory Commission, NERC has renewed its insistence that BEDC and PHED, should be resold to new buyers with financial capacity and technical competence invest in them.
NERC orders Fidelity Bank to divest
The commission noted that since their takeover, the DisCos have not record significant improvement in service delivery to consumers, and urged them to divest stakes to new investors in order to enhance operations in the sector.
In a letter addressed to Fidelity Bank, a copy of which was sighted by Vanguard, the chairman of NERC, Sanusi Garba, threatened to invoke relevant provisions of the nation’s Electricity Act to deal with the situation.
The letter noted that the DisCos were regulated public utilities and that the lenders prolonged control over the collateralized shares of the core investors pose a systemic risk, not just for service continuity to customers, but also to the sustainability of the DisCos as going concerns and the Nigerian Electricity Supply Industry as a whole.
“The commission further noted that the changes in the management by the lenders have not resulted in any noteworthy improvements or credible plans to turn around the fortunes.
“A review of the average performance of the DisCos for the last quarter of 2022 indicates that it recorded an average monthly market shortfall of N2.46 billion. In 2023, the company recorded an underpayment of its market invoices to the tune of N6.2 billion, thus creating a significant fiscal burden on the federal government.
“There has been no evidence of expediency by the lenders to proactively divest the shares held to a reputable investor and exit from its majority stake in the DisCos, more so as the forbearances by the federal government to ensure the fulfillment of company’s market obligations in accordance with the market rules for the electricity sector and its operating license, is no longer sustainable.”
He, therefore, directed the bank “to divest its equities to reputable investors with the requisite financial capacity and technical competence to operate the utility, by a final deadline of March 31, 2024.”
Garba added that “no extension will be granted for the divestment and the commission shall, without further recourse to you, proceed to invoke the necessary provisions of the Electricity Act.”
Vanguard gathered, yesterday, that the former managements were still holding fortes in the two DisCos.
However, the financial institution did not respond to Vanguard’s inquiries.
Power sector outlook remains gloomy – CPPE, others
The Centre for the Promotion of Private Enterprise, CPPE, said the nation’s power sector has a gloomy outlook in 2025, based on many challenges staring it in the face.
In its latest Outlook obtained by Vanguard, Director/CEO, Dr. Muda Yusuf, said: “The quality of the transmission infrastructures and the consequent frequent collapse of the transmission grid require significant investment which the government would have to struggle to provide.
“The outlook for the sector remains a major cause for worry in 2025. There are also the transition challenges of the states taking up regulatory responsibilities for electricity market. Not many states have the capacity to manage this transition. This is therefore a major source of risk for the electricity sector in 2025.”
FG sets ambitious targets
Meanwhile, the Minister of Power, Adebayo Adelabu, said the Federal Government is working with investors and others to supply of 30 gigawatts, GW, (30,000MW) by 2030, achieve 350 GW capacity by 2043 as well as 20-hour daily power supply by 2027.
According to him, the government also plans to increase the share of renewable energy to 36 per cent by 2030 under the government’s Renewable Energy Master Plan while investing in hydrostatic power plants with a total capacity of over 6,024 MW.
Power Consumer Assistance Fund is key — PowerUP Nigeria, others
Meanwhile, the convener of PowerUpNigeria, an Electric Power Consumer Right Advocacy Group, Adetayo Adegbemle, noted that “the major problem is directly from the financial situation of the power sector”, saying the creation of a Power Consumer Assistance Fund, PCAF, would enhance liquidity in the sector.
In his latest policy piece – Revitalizing NESI: The Role of the Power Consumer Assistance Fund in Sustaining Nigeria’s Electricity Supply Industry – obtained by Vanguard, weekend, he said: “As the sector teeters on the brink of liquidity crises, the PCAF emerges as a critical solution, offering a structured alternative to subsidies while addressing the needs of diverse customer segments.
“Before April 2024, NESI was under immense strain due to a frozen end-user tariff policy, which had been in effect since December 2022. This policy created a wide gap between cost-reflective tariffs and the rates charged to consumers, resulting in a massive monthly subsidy burden of approximately N262 billion. Only 9.5% of GenCos’ invoices were settled from the market, leading to cash flow shortages that caused gas suppliers to curtail supplies.
“The PCAF, established under the Electricity Act of 2023, offers a transformative approach to resolving NESI’s liquidity challenges. Unlike traditional subsidies, which blanket the entire sector, PCAF is designed to provide targeted financial support to electricity consumers while allowing Distribution Companies (DisCos) to charge cost-reflective tariffs.
“By enabling DisCos to charge cost-reflective tariffs, PCAF ensures they can cover operational costs and meet their financial obligations to GenCos. This eliminates the persistent cash flow issues that have plagued NESI, fostering a more resilient supply chain. NERC plans to activate PCAF by the first quarter of 2025. The transition period will be critical, requiring a robust Stakeholder Engagement.”
Recently, the Chief Executive Officer, Financial Derivatives Company, Bismark Rewane, who called on the government to write off huge indebtedness to banks by DisCos, said: “You cannot deal with the power problem without writing off those debts the Discos owe the banks. If you do that and then you get the metering system in place.”
Peoplesmind
