The takeover of some power distribution companies coupled with the precarious performance of the sector lately has raised doubts about the viability of the privatisation of the industry, OKECHUKWU NNODIM writes
The crisis rocking Nigeria’s power sector seems to be expanding annually despite efforts by the Federal Government and the private sector in managing it.
From power generation to transmission down to distribution, there have been diverse concerns, as well as in other arms of the business such as in the regulation of the industry.
These concerns have made stakeholders express doubt over the viability of the privatisation of the distribution and generation arms of the industry over eight years ago, which has yet to impact considerably on Nigerians.
They stated that the recent takeover or re-acquisition of some power distribution companies by a Deposit Money Bank, the Asset Management Corporation of Nigeria and another investor, for instance, showed that all was not well with the Discos.
“The situation is more complex than the ordinary person sees. The entire experiment may not be yielding the desired results; that is the frank truth,” stated Chris Akamnonu, who served as managing director in three Discos in the South-East and South-West for about 13 years.
He added, “Yes the government’s intention to put up the Discos and Gencos for privatisation is a good intention. But whether the intention and expectations have been met is another thing altogether.”
Also, another expert with decades of experience in the power sector, who currently sits as the Chief Executive Officer, Sage Consulting, Bode Fadipe, said the privatisation had not achieved its goals.
“One thing that is very clear to even the blind today is that eight years down the road, privatisation has not achieved any four of the cardinal goals,” he stated.
To buttress his point, Fadipe said, “The government has not stopped funding the power sector. Nigerians have yet to have more electricity compared to what they had in the days of NEPA (National Electric Power Authority) and PHCN (Power Holding Company of Nigeria).
“There is no doubt that they (Nigerians) long for the days of NEPA and the PHCN. The current power sector has not catalysed economic prosperity. I’m not aware that the government has started benefiting from the sector.”
Expectations unmet eight years after privatisation
In November 2013, the Federal Government through the Bureau of Public Enterprises officially privatised the six successor power generation companies and 11 distribution firms that were unbundled from the defunct Power Holding Company of Nigeria.
According to the BPE, a total of $1.26bn was paid by investors as 60 per cent stake in the distribution companies, while the government retained 40 per cent.
For the six generation companies, the BPE garnered $1.27bn for the power plants, which brought the total privatisation proceeds for the Discos and Gencos to $2.53bn.
The value of both transactions at the time was about N404bn based on the exchange rate of the United States dollar then.
The Federal Government still manages the transmission arm of the business through the Transmission Company of Nigeria. However, there have been calls for the unbundling of TCN. Discos and Gencos had often described transmission as a weak link in the value chain.
But for more than eight years after the takeover of the privatised assets by investors, the sector has continued to grapple with daunting challenges that have stunted its growth.
Power generation, for instance, has persistently hovered around an average of 4,000 megawatts for a population of about 200 million, as there have been repeated cases of national electricity grid collapse.
Also, power distribution companies have not been able to meter a sizable portion of their customers.
Their failure in metering made the government initiate both the Meter Asset Provider Scheme and the National Mass Metering Programme. Both initiatives, however, have not been able to close the over eight million metering gap.
“It is high time we carried out a comprehensive review of all the models that were adopted in the 2012/2013 privatisation exercise,” the National Secretary, Network of Electricity Consumers Advocacy of Nigeria, Uket Obonga, stated.
He added “It doesn’t speak well of us that eight years after the unbundling of the PHCN, the nation has not registered significant milestones in the power sector.”
Obonga argued that the current performance of Discos had dropped when compared to their output before the firms were handed over to private investors.
He said, “It is on record and those who have the information know that pre-privatisation distribution capacity was between 7,500 to 8,000MW. The capacity was developed as a strategic plan to position in-coming Discos to deliver power to Nigerians.
“According to those who were involved then, the distribution capacity was ramped up to leverage the installed generation capacity of the Gencos which was above 10,000MW.
“But no one seems to interrogate what really happened, that the Discos are not able to deliver power to Nigerians despite the available distribution capacity.”
He stated that generation companies had been shouting continuously over load rejection by the Discos, as well as stranded energy produced by Gencos.
Although bulk of the concerns in the sector, particularly as regards its liquidity crisis, have centred around the shortcomings of Discos, other segments of the value chain still have their flaws.
Power generation and distribution companies have repeatedly complained about weak transmission infrastructure, while the Transmission Company of Nigeria has often raised concerns about low generation by Gencos and load rejection by Discos.
Struggling Discos face takeover threats
Downstream of the power sector are the 11 distribution companies. The Nigerian Electricity Regulatory Commission captures the 11 Discos to include Abuja, Benin, Eko, Enugu, Ibadan, Ikeja, Jos, Kaduna, Kano, Port Harcourt and Yola.
Although these companies have often complained about the challenges they face, other operators in the midstream and upstream segments of the value chain have repeatedly condemned the failure of the Discos to make the required remittances to the industry.
Industry figures obtained from the Nigerian Electricity Regulatory Commission, for instance, showed that between January and September 2021, the shortfall in remittances by power distributors to the Nigerian Bulk Electricity Trading Company Plc and the Market Operator of the sector rose to N326bn.
Data on remittances to the sector by the distribution companies indicated that the 11 Discos failed to remit N287.8bn to NBET during the period.
Also, the power distributors could not remit N38.31bn to the Market Operator in the same period, bringing their cumulative indebtedness to the sector to precisely N325.9bn during the nine month period.
The NBET is an agency of the Federal Government that buys electricity in bulk from generation companies through power purchase agreements, and sells it through vesting contracts to distribution companies, which the Discos supply to end-users.
The market operator, an arm of the Transmission Company of Nigeria, is also a Federal Government agency and functions as the administrator/operator of the Nigerian electricity market.
Findings showed that an invoice of N612.26bn was issued by the NBET to the 11 Discos as their bill for the nine months review period, but the power firms remitted N324.46bn, leaving a shortfall of N287.8bn.
On their remittances to the MO, the NERC document stated that the total invoice issued by the market operator to the 11 Discos during the review period was N159.79bn.
The Discos, according to the power sector regulator, however, remitted N121.48bn, leaving a shortfall of N38.31bn.
Power generators and other market participants had often complained about the failure of Discos to remit the complete amount issued to them by both NBET and MO.
According to the Gencos and other industry players, the failure of the Discos to make complete remittances had caused financial strain in the country’s power business.
But the Discos, on their part, had been complaining of the failure of some end-users to pay their electricity bills, particularly the ministries, departments and agencies of the Federal Government.
Providing an instance, the Discos stated that the unpaid electricity bills of the ministries, departments and agencies of the Federal Government, including military and para-military organizations, had exceeded N90bn.
The Executive Director, Research and Advocacy, Association of Nigerian Electricity Distributors, Sunday Oduntan, told our correspondent recently that the indebtedness of the MDAs had lingered and that the unpaid bills had been increasing since November 2013.
He said, “All MDAs’ debt is in excess of N90bn and the military is part of that. We came onboard in 2013 and since then, how much has been paid by the MDAs?
“There was a time when a former minister of power said they (government) had concluded an arrangement on how to settle the debt, but as I speak with you, the bills are still there unpaid. Since privatisation, there have been issues around MDAs debt.”
However, aside from the prolonged inability of Discos to meet their obligations in terms of remittances to the sector, some of the them faced takeover threats in 2021, while one of them was actually taken over by a Deposit Money Bank.
In August last year, the Central Bank of Nigeria stated that the loans acquired for the purchase of the Discos was N819.97bn.
Industry analysts said the poor financial performance of Discos as seen in their low remittances/indebtedness to the sector, contributed to their inability to effectively service the loans they took for the purchase of the power firms.
This, they said, had warranted the takeover threat that confronted some Discos recently and might be faced by few others going forward.
In December last year, the United Bank for Africa Plc took over the majority stake in the Abuja Electricity Distribution Company and received the endorsement of the Federal Government, as announced by the Minister of Power, Abubakar Aliyu.
Aliyu had explained that the Deposit Money Bank took over the power firm due to the inability of the AEDC’s major investor (Kann Consortium) to effectively service the loans obtained from UBA when it acquired the Disco in 2013.
UBA had acted as the mandated lead arranger, underwriting $122m (about N20bn then) for Kann Consortium’s acquisition of the AEDC.
Providing explanations on what led to the changes in the ownership structure and management at the AEDC, the power minister said the takeover of the Disco by the bank had to happen.
The minister had said, “The AEDC has, of recent, been facing significant operational challenges arising from a dispute between the core investors (KANN Consortium) as owners of 60 per cent equity in the AEDC and the UBA as lenders for the acquisition for the majority shareholding in the public utility.
“The situation has currently deteriorated due to lack of access to intervention finances leading to a point whereby legitimate entitlements of the staff are being owed thus leading to service disruptions on December 6, 2021 within its franchise area.
“The Federal Ministry of Power has since taken the initiative to engage organised labour and electricity service has since been restored in the Federal Capital Territory and the states served by the AEDC.”
Meanwhile, experts noted that the inability of Discos to service the loans they obtained from banks and meet their obligations to the sector was not because of excessive charges by the market, rather power distributors were not doing well.
“When you talk about making enough money, the market does not charge them (Discos) for more energy than they have taken or consumed. Remember, that’s the way it is done,” Akamnonu stated.
He added, “There are different components of what they have to settle. There is settlement of energy charge for energy that was actually delivered, that is the energy metered at the usual interface points.
“So they are expected to make a settlement for energy consumed at the wholesale price, which is the charge per unit of energy and it is computed in such a way that there will be something left for them per unit.
“And this is by way of profit to service their loans and plough back into the system by way of maintenance, staff salaries, etc. So nobody charges them for more energy than they have consumed.”
The former MD of three Discos, pre-privatisation, further noted that the other function of the distribution companies was to convert energy into money.
“But whether they do this in appropriate volume is a different thing altogether. But if your efficiency in getting this done is low, then there is no way you can meet your obligations,” he stated.
Akamnonu added, “If the losses you incur while selling energy is very high, you will not be able to balance your books. However, different Discos have different reasons for not meeting their obligations. But generally speaking they are not doing well.”
Meanwhile, aside from AEDC, it was announced in January this year that the Ibadan Electricity Distribution Company was being taken over by the Assets Management Corporation of Nigeria.
The takeover of the power firm by AMCON was announced to workers of the Disco by the Chief Operating Officer, IBEDC, John Ayodele.
Ayodele had announced this in a memo dated January 20, 2022, where he explained to workers of the firm that the company was insolvent hence the takeover.
The development was said to have triggered panic among the workers but the Ayodele had assured the staff that their jobs were secured.
The memo had read in part, “Further to the judgment wherein the Federal High Court on September 8, 2021 granted preservative orders in favour of AMCON, (being the Receiver/Manager of Integrated Energy Distribution and Marketing Limited); the court has appointed Mr. Kunle Ogunba Esq. SAN to act as Receiver/ Manager Nominee in the receivership action.
“Based on the foregoing the Receiver/Manager came in today, January 20, 2022 to the IBEDC headquarters to take charge formally and subsequently met with the management team. Therefore, I hereby wish to inform all staff that there is no cause for alarm.
“We are assured of job security which entails our position/duties in the company, being entitlements to our salaries and other benefits, etc. On behalf of the management, I urge us all to kindly go about the efficient discharge of our duties to ensure a speedy and mutually beneficial resolution.”
Also, the uncertainties confronting the power distribution companies played out when a new investor officially took over the Yola Electricity Distribution Company in July 2021.
The Federal Government signed the Share Sale and Purchase Agreement with the new investor in YEDC in July last year.
It explained that the new investor in the firm, Quest Electricity Nigeria Limited, had paid the purchase fee of N19bn and had committed to a performance improvement programme that would involve an investment of $68m (N28bn) over a period of two years.
The Director-General, BPE, Alex Okoh, announced this at the signing ceremony of the SPA in Abuja.
In 2013, Yola Disco and 10 other Discos were officially privatised, but after about two years, the core investor in YEDC at the time, Integrated Energy Distribution and Marketing Company, declared force majeure and returned the Disco to the Federal Ministry of Power.
Integrated Energy had acquired 60 per cent equity in the YEDC after paying $146.8m, but declared a force majeure in 2015, citing insecurity in the North-East region of the country where the company covered.
Following this, the company was repossessed by the Federal Government, but in July 2021 the BPE announced that it had resold the company to a new investor, Quest Electricity Nigeria Limited.
This came as Akamnonu stated that the Discos would have to improve on their performance in order to stay afloat, service their various obligations and prevent being taken over.
He said, “It is not in doubt, for even the blind can feel their poor performance. It is everywhere. Sometimes you hear that they cannot evacuate energy that is generated. And what are the causes?
“Their distribution lines and networks are in a very poor state with high levels of faults making it difficult for them to evacuate to consumers.”
The power expert noted that another concern had to do with metering, stressing that the country’s metering gap was so wide and that because of this, the rate of tariff collection had remained poor.
“The naira they collect per unit of energy sold is much lower than what is required,” Akamnonu stated.
He added, “When you bill people on estimation, you can either charge them more or less. But from our study, most Discos don’t make the required earnings from estimation.
“People cry out that estimation is high. Yes, it is high for some people but not for everyone. If you come to an area where people are not metered, during the day time you will see people leaving their lights on.
“And this is because they are actually not paying appropriately for the energy they are consuming. So they tend to waste energy. Therefore, demand side management is better when a customer is metered.”
He observed that the rate of rollout of meters was very low, adding that if a higher percentage of customers were appropriately metered, the Discos would collect more revenue and the total energy demand would reduce.
“This is because if you know you are strictly paying for each unit of energy consumed, you will be more conscious about energy wastage. So there will be more energy freed for the system.”
The way forward
Experts described the challenges in Nigeria’s power sector as enormous and way beyond just the industry concerns posed by Discos.
They stated that virtually all arms of the power business had one or more issues that required attention, though most stakeholders had focused on the Discos being the major revenue pathway into the market.
To tackle the myriad challenges confronting the sector, analysts stated that various options should be tried and that this must be done effectively.
The move by the National Assembly in March this year through the passage of a bill to allow states to generate, transmit and distribute electricity in areas covered by the national grid, for instance, had been described as a possible solution to the concerns in the sector.
The “Bill for an Act to alter the provision of the Constitution of the Federal Republic of Nigeria, 1999 to allow states generate, transmit and distribute electricity in areas covered by the national grid; and for related matters,” was presented at plenary in the Upper and Lower Chambers of the National Assembly in March.
About 298 members of the House of Representatives voted in support of the proposal, as only two votes were against the move.
At the Senate, it was reported that 90 senators voted in support to pass the bill.
In a power sector platform, industry stakeholders reacted to the bill, in recognition of the fact that the initiative was basically seeking ways to address the challenges confronting the industry.
Commenting on the bill, Fadipe stated that it was a welcome development but noted that it was crucial that the legal framework that would allow states prospect in areas covered by the grid was made available.
“That is the first step. By so doing, they can take their baby steps, falter, fall and stand again. Such move aligns with our professed federalist tendencies,” the Sage Consulting power expert stated.
He noted that apart from security, currency, border controls, army and a few other issues, the federating units should not have any form of restriction in those services that could trigger exponential growth and development within their geography and by extension, the entire country.
Fadipe said, “The benefits of allowing them to prospect and participate in areas that seem to have been covered by the current grid far outweigh the restriction that they currently suffer.
“Come to think of it, who is the federal system protecting or competing with that it is reluctant to allow the entrance of the states in areas covered by the grid? With the privatisation should come the opportunity for any investor – government, group, individuals, to participate.”
The Special Adviser to the President in Infrastructure, Ahmed Zakari, stated that nothing in the country’s laws today was preventing a state from supporting investments to build power plants or distribution lines or transmission infrastructure.
“The solution to low infrastructure is building infrastructure, the solution to low metering is to invest in metering. Changing laws doesn’t build power lines. It takes time to reverse chronic underinvestment,” he stated.
Zakari, however, added, “I always warn that policy somersault is a risk that sets one back surreptitiously. I’m all for legislative change that is geared towards encouraging investment but we complain about over regulation as well.
“Do we think that 37 different regulatory bodies make sense for an installed capacity of 22 gigawatts (in view), eight megawatts daily consumption (including industrial captive). Let’s call a spade a spade.
“Massive investment is needed to turn the tide. The current administration is doing that. Where there are commercial business failures, business continuity steps in (e.g. AEDC).”
Also preferring solutions to the quagmire in the country’s electricity business, Akamnonu stated called for evaluation of the performances of operators in the sector since after privatisation.
He said, “First and foremost, we have to tell ourselves the truth at the highest level of government. If a programme is embarked upon and it is not yielding and there are timelines for evaluation of performance, and those timelines elapse and nobody borders to evaluate, it means you don’t want honest feedback.
“And if you don’t get honest feedback, you cannot make adjustments. And those adjustments are not just important, they are very imperative. There were timelines set at the time of handover for evaluation of performance.
“How far have they kept to faith with those timelines for evaluation of performance? The power sector is the most critical sector of any nation.
Akamnonu, who served as managing director for about 12 years in three different power distribution companies before they were privatised, however, insisted that the power sector could be revived if things were done properly.
“So there are things which we had come across and we struggled to get them right. This sector can survive and the economy can benefit much more from this sector if things are done right,” he stated. (Punch)
