• The underperforming electricity sector is heavily indebted
• New strike looms as workers clash with investors
The takeover of distribution companies (DisCos) and their N5 trillion debt to banks and government is causing anxiety in the industry.
Moreover, the confrontation between the federal government and the power companies may be far from over, as stakeholders yesterday expressed serious concerns about the outlook for the power sector.
Some industry players are also expressing concern over the power sector’s heavy indebtedness to commercial banks, despite its dismal performance.
Currently, the power sector owes banks around N1 trillion, while government interventions in the sector hover around N2.9 trillion. The World Bank and African Development Bank (AfDB) loan to the sector amounts to about $3 billion, even as the federal government spends about $5 billion on some power generation and transmission projects. electricity, including the Siemens agreement, which remained a mirage. by initial promises.
As the DisCos fire back in earnest, accusing the government of renationalizing energy assets, stakeholders are concerned about several issues, including whether investors would buy the shares seized from the former owners of the DisCos and whether the banks’ balance would then improve. that the existing challenges still beset the country’s electricity sector.
At least Abuja, Benin, Ibadan, Kaduna and Kano DisCos have fallen into the hands of the banks from which they obtained credit, after failing to break even eight years after obtaining their license.
At a time of global energy crisis, with diesel now hovering around 850 naira per liter and significant government spending to subsidize Premium Motor Spirit (PMS), most stakeholders were split between singing the praises of the Bureau of Public Enterprises (BPE), Nigerian Electricity Regulatory Commission (NERC) and managers of the 11 utility companies.
While the DisCos claim to have done a lot since privatization by creating more than 32,000 jobs, installing more than 2.4 prepaid meters and 129,352 distribution transformers as of 2020, they push back against the federal government, which they accuse of not respecting the 100 billion naira. subsidies and other privatization promises made since 2013.
According to a report by the World Bank, the sluggishness of the sector has cost the country an estimated $232 billion (96.4 trillion naira) over the past eight years. That’s about $29 billion a year.
Even as banks were still struggling to understand how the sector worked, with some accusing their former aides of sabotaging the planned reform, the BPE and the Central Bank of Nigeria (CBN) gave DMBs six months to sell the abandoned asset. to new investors, a process that can remain a daunting challenge, according to stakeholders.
To make matters worse for the banks, which in just days after employees of the Transmission Company of Nigeria (TCN) plunged the country into darkness, workers at Abuja DisCo, which is among the recently taken over companies , threaten to down tools in the coming weeks.
A letter from employees, acknowledged August 19, 2022, gave DisCo seven days to act or plunge the Federal Capability Territory (FCT) and four other states into darkness.
Some of the union’s concerns include “inadequate funding and zero allocation to some regional offices, lack of operational vehicles/work equipment, massive demotion of staff under the guise of restructuring (tax organizational chart) and the increased death rate of members due to insufficient medical care under the cover of the HMO.
An energy expert from the University of Lagos, Professor Yemi Oke, had said that BPE and NERC should share the blame for the poor performance of DisCos.
“Who allowed these DisCos to fail? Who allowed failed DisCos to do all the dirty things that brought them to their knees, only to come out and scream that they’re ineffective? Why is it only DisCos that banks take over due to insolvency? Didn’t the electricity production companies (GenCos) acquire assets thanks to a bank loan? I’m told that Mainstream, for example, got a facility of around $120 million and they’ve since paid it all back and are now profiting from their business,” Oke said.
According to him, Nigeria is going through a serious energy crisis, with 80% of DisCos being technically insolvent; therefore, power sector problems may persist.
“There is no doubt that the current privatization is not working as expected. The government, in my view, should not interfere directly with the takeover of DisCos, if the takeover is strictly commercial. DisCos and banks must negotiate settlement directly, and if settlement fails, the agreed terms must be enforced,” he said.
Renowned economist and energy expert from the University of Ibadan, Adeola Adenikinju, noted that the back and forth prevailing in the sector may not scare off investors as it is based on the rule of law. and trade agreements.
“However, the government should also ensure that privatization agreements, including tariff setting, are adhered to to give DisCos and other agents in the value chain the opportunity to conduct profitable businesses,” he said. -he declares.
Civil society activist Adetayo Adegbemle insists the DisCos takeover is in order.
Adegbemle said: “As already established, the CBN has given the green light to banks bearing the debt profile of these DisCos to recall their loans. CBN does its job of protecting the industry.
“However, the same cannot be said for the BPE and NERC that allowed these DisCos to wallow in their inefficiencies for so long.”
According to him, the directive to sell the shares in six months by BPE also remains in force, because banks are not allowed to manage DisCos.
Adegbemle said the six months may not be enough time to meet the target, however, adding that there were already confidence issues in the sector as there are concerns about regulatory stability and the independence of the sector.
“That call should have come from NERC or BPE, in the first place. Since then, we have been calling for the mid-term review that the Electric Power Sector Reform (EPSR) Act also required, and possibly that NERC would have been able to steer the sector ship properly, if they had the right things.
“For potential investors, I’m sure they will also ask for guarantees, unless we have bold investors like those who bought YolaDisCo, and even at that, those are also struggling,” Adegbemle said.
He noted that the objectives of the privatization of the electricity sector are far from being achieved; hence the need for the government to continue funding, especially the transmission sub-sector.
An energy lawyer, Madaki Ameh, stressed the need for a complete overhaul of the sector, insisting that the overhaul was long overdue and that 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 DisCos had not reached any of the minimum thresholds set for them by the government since privatization, despite the huge investment the government continued to make in the sector.
“If you compare the events in the electricity sector with the telecom sector, you will clearly see that there were structural flaws with the implementation of the privatization policy in the electricity sector and that nothing less than a full takeover of DisCos and some of the non-performing GenCos would deliver the kind of efficiency needed to transform the sector in Nigeria,” Ameh said.