More DisCos risk takeover over liquidity crisis

More electricity distribution companies (DisCos) are at risk of being taken over by regulators due to a worsening liquidity crisis.

BusinessDay findings showed that DisCos are teetering on the brink of insolvency, unable to meet their financial obligations amid rising operational costs, mounting debt and declining revenue collections.

The core of the problem lies in their inability to accurately measure and col]lect revenues. Millions of customers remain on estimated billing, leading to widespread dissatisfaction and reluctance to pay bills.

The Nigerian Electricity Regulatory Commission (NERC)’s factsheet reveals that while DisCos billed customers a total of N238.21 billion for electricity consumed in December 2024, they only managed to collect N177.96 billion. This translated to a collection efficiency of just 74.71 percent, leaving a substantial gap of N60.25 billion uncollected.

The data further highlights the varying performance of individual DisCos. Notably, several DisCos recorded collection efficiencies below the national average, indicating significant challenges in revenue collection.

“This level of revenue loss is unsustainable,” stated Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies. “The DisCos need to significantly improve their collection efficiency to ensure the financial viability of the power sector.”

The inability to collect billed revenue impacts the entire electricity value chain. It limits the DisCos’ ability to invest in infrastructure upgrades, maintain their networks and pay for the electricity they purchase from generation companies (GenCos). This ultimately affects the quality and reliability of electricity supply to consumers.

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According to the NERC, the significant under-recovery of the invoices issued to customers by DisCos is driven by a lack of willingness of customers to pay bills when due, unsatisfactory DisCos’ services and inadequate customer metering, among other challenges.

Speaking to BusinessDay on the lack of investment in the sector, especially regarding the electricity distribution value chain, Lanre Elatuyi, an Abuja-based power sector analyst, said that DisCos lack access to long-term finance because they have remained unbankable over the years.

According to Elatuyi, the power distribution companies have continued to perform below expectations in their revenue base, which is a major disincentive to attracting capital.

“Many of them are indebted to banks and some are being taken over by the banks. The issue is that many of the private owners do not have enough personal equity to invest even from the beginning.

“So, they do not have enough money to spend on capital expenditure. And if a businessman does not have equity, it is often difficult to attract capital from investors,” he said.

Elatuyi decried that the current state of the market makes it difficult for investors to get returns on their investments conformably.

For him, the market is not well designed to attract investments.

Also speaking with BusinessDay, Adetayo Adegbemle, executive director, PowerUp Nigeria, said there is a need for the government to revamp the sector, citing regulatory flaws, policy inconsistency and poor equity from DisCos as major issues that must be addressed.

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According to him, many of the initial investors of the distribution companies have sold out, leaving the companies to new owners.

“We have heard stories of people, who are not financially fit, invest in this business from the beginning because they thought it was a channel for quick cash, but it is obvious that many of them are out of the business now.

“Unless we address the issues of regulatory flaws and policy inconsistency, we may continue facing these issues in the sector. We need to approach the power sector as the bedrock of the economy,” he said.

Speaking on attracting investments to close the nation’s metering gap, Adegbemle decried the absence of policies with a clear path to cost recovery. For him, no investor will invest in a project without a clear path to cost recovery.

He noted that the government has continued to pay subsidies on consumption rather than production.

“If the subsidy was on manufacturing and production, these companies would be able to pay back as they were making profit. So it would be easier to get back the money, but with a subsidy on consumption, the customers may decide not to pay for the electricity consumed.

“Today, manufacturers pay high amounts on alternative sources of power. We need policies that place these manufacturers as the anchor tenants of the power sector because they can pay for the power they consume.”

Adebayo Adelabu, minister of power, recently disclosed the federal government’s plan to restructure the DisCos, citing unwillingness of companies to invest in the sector. The lack of investment, he said, is affecting their capacity to deliver quality service, hindering adequate power supply to electricity customers across the country.

“This is why we are going to focus on the DisCos this year and carry out a lot of restructuring, a lot of reforms in the DisCos. They are not ready to make more investments. And the balance sheet is not healthy to even attract debts from the finance sector,” he said.