DisCos andN1.6trn funding

A recent report indicated that the 11 Power Distribution Companies (DisCos) in the country require recapitalisation as well as the injection of $4.3 billion (about N1.556 trillion) into their networks to enable them function efficiently. This implies that the DisCos, in their current form and status, are hamstrung to distribute the 8,100 megawatts (MW) of electricity being generated by the Generation Companies (GenCos), thus rendering their performance agreement signed in 2013 a frustrated contract.

A memo addressed to the former Minister of Power, Works and Housing, Mr Babatunde Fashola, on May 22, 2019, which constituted part of his handover note shortly before he left office, also called for increased government representatives sitting on the DisCos’ boards.

The Transmission Company of Nigeria (TCN) said the DisCos lack revenue collection capacity and that TCN solely relies on them for payment to finance transmission services. The DisCos because of their general weak capacity are collectively remitting about 30 per cent of the Market Operator (MO) invoices and have accumulated over N231 billion outstanding due to be paid to TCN as at March 2019.

 It also complained of rising voltage during the rainy season where it alleged that the distribution networks are weak and with the massive loss of energy load due to the tripping off of several 33 kilovolts (KVs) at the slightest weather turbulence or rainfall.

A similar memo addressed to the minister in January 2019 said DisCos’ network is currently in a very weak state and requires significant investment to fix it, noting that this can only be achieved by recapitalising the DisCos.

TCN at a recent briefing had said it simulated the investment requirement of DisCos which shows they need $4.3 billion (about N3 trillion). With over eight million registered electricity customers in Nigeria, the company said that figure will help the DisCos to match transmission network expansion that targets 20,000 MW wheeling capacity by 2021. At present, transmission wheeling capacity is at 8,100MW, generation capacity is over 7,500MW while distribution capability is around 5,500MW.

The memo said the $4.3 billion investment should be used to rehabilitate and upgrade the existing poor distribution network, build new injection substation to cover the 316 unprotected interface the 11 DisCos share with the transmission network.

Out of the 737 total interface where transmission facilities deliver power to distribution facilities, 421 of them have adequate protection but the 316 others do not have. It said the DisCos should build new feeders and injection substations to take more supply from existing and new transmission substations.

The memo, which was also sent to the presidency, advocated a tariff from the Nigerian Electricity Regulatory Commission (NERC) to support the capitalisation. It is expected that with long term loan with five years moratorium and 10-year repayment period, the tariff will be reasonable because the capital will be used to reduce the Aggregate Technical Commercial and Collection (ATC&C) losses during the moratorium before interest kicks in, it noted.

The federal government should compel NERC to do regular minor reviews and in line with eligible customer regulation, all agencies that can pay for power should be removed from the Nigerian Bulk Electricity Trading Plc (NBET). Other 132kvs customers and foreign customers (Niger, Benin and Togo) which were not part of DisCos performance contracts should also be removed.

Referring to the 2013 privatisation, the memo said it was marred with technical flaws and financial incapacitation of the investors. To address these mistakes, the federal government, which still holds 40 per cent shares in the DisCos, must divest and use the $1 billion Power Sector Recovery Programme (PSRP) and World Bank loan, and $500 million loan from the French Development Agency (AFD) for its 40 per cent fund. The private investors should bring their equity of 60 per cent recapitalisation fund.

Shareholders agreement of the DisCos should be amended to have proportionate representative of government and the private owners at the boards, the memo suggested. Instead of the one director from the Bureau of Public Enterprises (BPE) representing government, there should be four from government to match the six from the private sector owners.

The Ministry of Finance Incorporated (MOFI) should also be empowered to represent the government on the boards of the companies. This will remove the current conflict of interest in which BPE that is managing the performance contract with DisCos is also representing government on their board, it said.

Although the recapitalisation of the DisCos has become inevitable in order to improve electricity in the country, putting pressure on government for incessant funding of what should be a private concern is unreasonable and a misstep. 

This is more so bearing the fact that there are many other competing demands like education, roads, agriculture, among others, that require government’s urgent funding.

Consequently, we advise the federal government to seek to compel the DisCos to honour the performance agreement they freely entered into to provide Nigerian households and businesses with electricity.

 The DisCos,  which must have done a pre-valuation of the then Power Holding Company of Nigeria (PHCN) before accepting its assets, cannot turn round to complain that these assets are obsolete. This is tantamount to having your cake and eating and therefore untenable.

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