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BusinessDay

How DisCos incurred N485bn energy debt in 16 months

Following the recent takeover of Kano, Benin and Kaduna distribution companies (DisCos) by Fidelity Bank Plc, a look at industry data show the 11 DisCos owe the Nigerian Bulk Electricity Trader (NBET) a combined debt of N485.7 billion in 16 months for the electricity sold to them.

The government-owned NBET buys electricity in bulk from generation companies through power purchase agreements, and sells through vesting contracts to the DisCos, which then supply it to the consumers.

BusinessDay reported on Wednesday that Fidelity Bank and Afreximbank had activated the call on the collateralised shares of Kano, Benin and Kaduna DisCos in a bid to take over their boards.

Available data showed that the 11 Discos failed to meet a Minimum Remittance Order (MRO) set out by the Nigerian Electricity Regulatory Commission (NERC) in 2021 and the first four months of 2022.

Analysis of the market payment reports by NBET indicates that the DisCos got over N1 trillion energy invoice in the period and NERC expected them to pay N810 billion as 81 percent MRO but the DisCos could only raise N591 billion, which is 59 percent of the total sum.

Ibadan DisCo led the debtor’s list with N72.3 billion debt, followed by Kaduna DisCo (N68.9 billion) and Benin DisCo (N50.3 billion), while the least debtor was Eko DisCo (N31.8 billion).

“Eight years after privatisation, many of the DisCos have failed to pay for the power they get on account of poor collections and outright mismanagement,” Niyi Awodeyi, CEO at Subterra Energy Resources Limited, said.

Other debtors are Enugu (N44.87 billion), Kano (N37.82 billion), Jos (N37.1 billion), Ikeja (N37.08 billion), Port Harcourt (N36.61 billion), Abuja (N36.6 billion) and Yola (N31.59 billion).

Read also: Uncertainty over financial health of DisCos as CBN forbearance runs out

“Several banks made loans to the power sector during the power sector privatisation in 2013. If power sector loans become impaired, this leads to an increase in the cost of risk for these banks. These loans include significant sums lent to purchase power generation and distribution assets.” analysts at CSL Stockbrokers Limited said in a note.

In 2021, the DisCos got N810 billion energy invoice and were expected to pay N563 billion as 69 percent MRO but they only remitted N445.2 billion.

Ola Alokolaro, partner, energy and infrastructure at Advocaat Law Practice, said although there is a general consensus that the challenges in the nation’s power sector run across the entire value chain, the industry believes the DisCos are the most troubled.

“Most investors in the sector did not project that the implementation of tariff order would remain a major concern alongside weak infrastructure to dispatch the generated electricity,” Alokolaro told BusinessDay.

In the first four months of this year, the DisCos also got an energy invoice of N266.9 billion and were expected to pay N247.3 billion as 92 percent MRO but only paid N146 billion.

Experts say most of the DisCos were being spoon-fed, while the performance agreements they signed with the government were never met, leading to inefficient distribution of power supply.

“The metering gap has persisted with high aggregate technical and commercial loss while none of the DisCos, except Eko, has been able to meet their revenue remittance threshold,” Luqman Agboola, head of energy and Infrastructure at Sofidam Capital, said.

Data obtained from the Central Bank of Nigeria showed the debt owed to Nigerian banks by operators in the power sector stood at N835.73 billion as of May this year.

BusinessDay reported exclusively that the erstwhile management of Kano, Kaduna, Port Harcourt Ibadan, and Benin DisCos are under the radar of security agencies and the assets of the organisations are under close observation.

In 2021, the Asset Management Corporation of Nigeria (AMCON) took over the operations of Ibadan DisCo but in January, the DisCo said it had reached an agreement with AMCON for it to continue to run the firm.

Read also: Security operatives move to secure assets of distressed DisCos

It is not clear how long this arrangement will last as the Bureau of Public Enterprises has obtained approval from NERC to appoint Kingsley Achife as the interim managing director of Ibadan DisCo.

Last November, United Bank for Africa took over Abuja Disco from KANN Utility Company towards recovering its loan.

According to a report by the National Bureau of Statistics in 2020, the non-performing loans (NPL) in the power sector was N33.22 billion out of N1.23 trillion NPLs banks recorded.