Four knotty issues around MOFI’s takeover of FG’s stakes in DisCo

The acquisition of the Federal Government’s (FG) 40 shareholding in electricity distribution companies (DisCos) by the Ministry of Finance Incorporated (MOFI) has sent shockwaves through the Nigerian power sector.

Wale Edun, minister of finance and coordinating minister of the economy, in an Order, dated January 10, directed the board of directors of the MOFI to assume ownership, control, and management of all equity holding of the Federal Government of Nigeria in Nigeria’s 11 DisCos.

Edun also directed MOFI to “Assume ownership, control, and management of all equity holding of the Federal Government. of Nigeria, as contemplated and provided for by law and/or any contract; and issue all appropriate notices, instruments, and documents which are required to give effect to this directive”.

While some see it as a long-awaited step towards privatization and improved efficiency, others are raising concerns about several knotty issues surrounding the deal.

Here are four knotty issues surrounding this:

Contravention of National Economic Council and NCP decisions

In 2011, the National Economic Council (NEC) and the National Council on Privatisation (NCP) reached specific decisions regarding State and Federal Government shareholdings in the DisCos. These decisions, ratified in 2012, addressed issues like state valuation, individual State equity caps, and the non-interference of Government in DisCo management.

A document seen by BusinessDay which expressed the views of some legal experts said MOFI’s actions appear to directly contradict these established agreements, particularly regarding the withdrawal of BPE directors and the re-issuance of share certificates.

State Government stake disregard

States were allocated specific equity rights in DisCos based on 2018 NERC valuations.

Experts said MOFI’s takeover attempt appears to ignore these allotments and disenfranchise state governments. Additionally, in some DisCos like Port Harcourt, the federal government reportedly has no shares and owes states money for past equity sales.

Potential violation of shareholders’ agreements

Each DisCo has a Shareholders Agreement signed by the federal government, state governments, and core investors. Legal experts said these agreements likely contain provisions for share transfer and management changes, which must be adhered to.

Experts said MOFI’s unilateral takeover attempt, without consultation or consent from other shareholders, could be considered a violation of these agreements and potentially trigger legal disputes.

Lack of transparency and due process

The document circulated by MOFI lacks clarity and raises questions about the process followed for this decision. Transparency and proper procedures are crucial for any government action, especially involving significant assets and contractual agreements.

Experts said the apparent disregard for established procedures and the lack of communication with other stakeholders raise concerns about MOFI’s intent and the potential implications for DisCo operations and governance.

Unclear motives with the new electricity act

The recent Electricity Act allows for increased state participation in DisCos.

Legal experts said it is unclear why MOFI seeks to maintain FGN control through itself or BPE instead of facilitating state involvement as envisioned by the law.

Stakeholders in Nigeria’s power sector urged MOFI and relevant authorities to address these concerns through open dialogue and adherence to established regulations.

They said a transparent and legally sound approach is crucial for ensuring continued stability and development within the Nigerian electricity sector.

MOFI restructuring as FGN asset manager

In a three-page statement on Monday, January 15, MOFI said it is taking significant steps to ensure that FGN assets deliver full value to the country.

Ministry of Finance Incorporated said it would also develop and implement policies and regulations that ensure the creation and management of assets from debt-related transactions; develop and implement policies and regulations that ensure the creation and management of assets from concession-related transactions; and create a robust pipeline of FG-owned and FG-linked investment opportunities.

“MOFI’s resumption of its rights of management of the FG’s 40 percent shareholding in the eleven electricity distribution companies and the various equity stakes in related energy sector companies is an essential element of this consolidation. It will drive operating efficiency, best corporate governance practices and ultimately maximise the value derived from these electricity assets, in alignment with President Bola Ahmed Tinubu’s economic growth agenda,” MOFI further said.

The Nigerian Electricity Regulatory Commission (NERC) had on January 8 put up for sale the Kaduna DisCo, the sixth largest power distribution utility over a $130 million debt, less than two years after the lenders who took over the company failed to turn it around and make it profitable.

The power distribution company owes N110 billion ($130 million) to companies including the Nigerian Bulk Electricity Trader and power generation firms.

The federal government, AMCON and some banks were forced to take over Kano Electricity Distribution Company, Ibadan Electricity Distribution Company, BEDC Electricity Plc, Kaduna Electric, and Port Harcourt Electricity Distribution Company at different points due to alleged poor performance and liquidity crisis.

In a bid to tame the above development, MOFI said “In the past 24 months, and particularly since the amendment of the MOFI Act by the Finance Act, 2023, MOFI has been reformed and restructured from a Unit in the Office of the Accountant-General to a full-fledged public sector (FGN) asset management corporation.

“This arose from the recognition that FGN assets across practically all economic sectors nominally valued at very significant sums were largely moribund or grossly underutilized and poorly managed. Consequently, it was determined in 2021 by the then Minister of Finance, amongst other relevant decisions, that MOFI would adopt a new, value-driven strategic direction in aggregating and managing FGN assets”, MOFI said in the statement.

“It was further determined that in line with global best practice, MOFI would take on an expanded and more active role, not to directly take over and run the corporate entities created around these FG assets but rather to work with its co-promoters and co-shareholders to develop and implement corporate policies and practices that ensure that these assets are operated for maximum value. This revitalised strategy is underpinned by a three-point agenda of establishing and confirming state ownership, professionalising state ownership and strategic resource mobilisation and investment.

“The process of reform and restructuring leads to the consolidation and assumption of the ownership rights of MOFI’s shareholdings across various asset classes. This strengthens the FG’s shareholder rights and ensures that entities in which MOFI holds equity stakes fulfil their socio-economic responsibilities and generate substantial financial returns for the FGN.

“MOFI’s resumption of its rights of management of the FG’s 40 percent shareholding in the eleven electricity distribution companies and the various equity stakes in related energy sector companies is an essential element of this consolidation. It will drive operating efficiency, best corporate governance practices and ultimately maximise the value derived from these electricity assets, in alignment with President Bola Ahmed Tinubu’s economic growth agenda,” MOFI further said.

“MOFI extends its gratitude to the BPE for its stewardship of these shares. As a reformed and active entity, MOFI is taking significant steps to ensure that these assets deliver full value to the country. We look forward to collaborating with our key stakeholders and, through our concerted efforts, making a tangible impact in contributing to a thriving, resilient and growing Nigeria,” the statement reads.