Uncertainty Over Financial Health Of DisCos As CBN Forbearance Runs Out

There was uncertainty last night over whether the Central Bank of Nigeria will continue to allow Nigerian banks carry their huge non-performing loans associated with the funding of the privatisation of the power sector without having to provide for them.

BusinessDay learnt that the apex bank, which has supported the beleaguered electricity sector with both cash injection as well as forbearance, is now contemplating a change in the rules in the light of the poor performance of at least five of the distribution companies (DisCos).

They are failing to meet their obligations in respect of the loans taken for the acquisition of the DisCos in 2013 when the state power assets were privatised.

These same five DisCos are also accountable for about 85 percent of the cash shortfall recorded by the industry. Typically, the generating companies have to pay for gas and other input to generate power and the shortfall arises when the DisCos fail to pay for the power delivered to them via the national grid.

Owners of the DisCos paid $131m for Ikeja Disco; $129m for Benin DisCo, $164m for Abuja DisCo, $102m for Kano DisCo, $124m for Port Harcourt DisCo, $167.75m for Ibadan DisCo, $107.4m for Enugu DisCo, $135m for Eko DisCo and $82m for Jos DisCo.

For many of those who own the DisCos, the loan they took for the purchase eight years ago has remained largely unpaid ever since and most cases the debt they owe has grown substantially.

Months ago, Nigeria’s beleaguered electricity sector passed the milestone of eight years under private ownership this month, but the dream of constant power supply to customers still remains just – a dream.

The sector was privatised in November 2013 in a blaze of celebration and raised expectation, but power generated and made available on the national grid, which clocked between 3,500MW and 3,834MW then, has remained stuck at an average of 4,089MW eight years after.

Data from the Nigeria Electricity System Operator put generation sent on the grid on November 1 at 3,844.3MW.

Eight years after privatisation, generation is yet to match the installed capacity of 13,014.14MW. Thermal plants with four turbines can only turn one on due to gas shortages. Gas producers prioritise selling to industries because their invoices stand a better chance of being settled.

Eight years after privatisation many of the DisCos still struggle to pay for the power they get on account of poor collections and outright mismanagement.

By next year, the 15-year multi-year tariff order (MYTO) will be due for review, providing a perfect opportunity for an overhaul of the sector that has continued to under-perform but the shadow of labour-induced strike action hangs over any discussion to charge tariffs that guarantee commercial returns.

According to energy economist, Ifie Okafor, “Nigeria’s electricity sector remains bedevilled by under capitalisation and the failure to ramp up the amount of power put on the national grid.

“The DisCos are failing in putting in the required capital to cover working capital and the badly needed capex for the nation’s power distribution network. Take out the CBN and its innovative intervention; the power sector would have long collapsed completely.

“And we still have to rely on private generators producing as much as 20,000MW of power and about 8,000MW of that is from high capacity industrial generators polluting the environment massively in a country where only 25 percent of its power generation comes from hydro-related sources. That is totally unacceptable.”

Besides changing ownership, not much has changed in the sector since its privatisation, experts say.

“The power sector in Nigeria may have been liberated from state bureaucracy. However, the power sector still has to contend with a number of legacy challenges. These include but are not limited to gas supply, liquidity issues, need for adequate metering, unpaid electricity bills, and an ailing transmission network that limits the power sector players,” Olufola Wusu, partner/head of Oil and Gas Desk at Megathos Law Practice, states.

Owners of the DisCos are holding onto the assets that have continued to decay. There has been one transaction involving Jos Electric and the long awaited transaction involving Abuja Electric has yet to happen.

“Today, after the DisCos manage to pay the monthly salaries of staff, there is usually no other money to invest in improvement of network,” notes Kunle Kola Olubiyo, president, Nigeria Consumer Protection Network.

Olubiyo says after eight years, Nigeria does not have accurate customer data and is conservatively put at between 8 million and 12 million, which could have moderated tariff rates if all customers were captured.

Half of electricity customers are yet to get prepaid meters despite several metering programmes by the sector regulator, the NERC, and millions of naira support from the government.

Since 2013, the Nigerian government through the Central Bank has provided intervention funding for the power sector up to the tune of N1.6 trillion, and the lack of adequate returns has compelled the Central Bank to demand a line of sight to bills paid by customers.

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