• Sunday, April 21, 2024
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Tinubu’s power reforms target six DisCos’ ownership, management

Nigeria’s power sector reforms yielding more cash than electricity

The ownership and management structure of at least six indebted electricity distribution companies (DisCos) would be changed in new reforms planned for the power sector, says Nasir El-Rufai, the ministerial nominee from Kaduna tipped to lead the Energy Ministry.

El-Rufai, the former governor of Kaduna, tapped by President Bola Tinubu to solve Nigeria’s power challenges, had been involved in the sector long enough to know where all the bones are buried.

The former director general of the Bureau of Public Enterprise said he was involved in drafting the rules for the country’s power sector privatisation and an early draft of what became the Petroleum Industry Act.

El-Rufai, in keeping with his reputation for tough reforms, revealed that deep reforms are coming in the power sector. He said a stress test on the DisCos revealed that only three are viable, hence a change in their management was inevitable.

He identified the poor capacity of the DisCos to generate enough cash to keep the system liquid as a fundamental threat facing the sector.

Read also: PHCN Staff and power reforms

“In 2013, we privatised our distribution companies, eleven of them. 60 percent to the private sector and 40 percent to be held by the government. The idea was that the 40 percent is supposed to be listed on the stock exchange so that every Nigerian can be a shareholder in these companies, but that has not happened,” he said.

He added: “Ten years after privatisation, the government is in one way or the other subsidising electricity; the last time I checked, it was about N1.6 trillion, in a privatised environment. This is unsustainable and unacceptable.

“But what do we do with the distribution companies? They have been privatised about five or six of them are under receivership because those that bought the companies borrowed from banks and have not been able to pay the banks; so the banks have taken over five or six of them, and the last time we did a stress test on the DisCos, only about three of them out of eleven are doing well.”

Abuja, Yola, Kano, Ibadan and Jos DisCos are under receivership, with the owners fighting to claw back control through the courts. Kaduna DisCo and Port Harcourt DisCos are fighting to fend off its bankers in court.

The regulator says the key challenge is that DisCos have not made the required investment to improve the quality of their network and expand their reach in their respective franchise areas. Most of them lack the financial and technical experts to run utilities that are spread across three states.

Last year, Nigeria’s apex bank indicated that it was no longer willing to further allow lenders to carry DisCos’ huge non-performing loans collected on their books without making a provision for them. This forced Fidelity Bank and Afreximbank to activate the call on the collateralised shares of Kano, Benin and Kaduna DisCos and took over their boards.

These distressed DisCos account for over 85 percent of the cash shortfall recorded by the industry, and all efforts to help them back to profitability including over N1.6 trillion in intervention funding for the sector have failed.

The appointment of receivership is based on the loan agreement DisCos entered with their bankers before they acquired the assets, which provide for the appointment of a receiver upon default in payment of the loan.

The challenge as highlighted by El-Rufai is that bankers are poor utility managers, lacking both in capacity and temperament to run utilities, and they could organise a firesale if that would help them recover their monies faster.

“Even the ownership of these distribution companies may have to change because right now the banks own about six of them. They control 60 percent of the shares and banks are not good at running companies; they are good at taking out whatever they need to recover their loans,” El-Rufai said.

Some of the reforms he proposed for the power sector include reviewing the liquidity situation in the Nigerian electricity supply industry, reviewing tariffs to make them truly cost-reflective, and developing strategies to inject fresh capital into the system, as well as engage new investors with technical and financial capacity so that the power sector can be expanded.

Read also: El-Rufai’s energy ministry focuses on gas, petrochemicals

Responding to a long-winded question by Abdulaziz Yari, the senator representing Zamfara West, on what he would do about the challenges in the power sector, El-Rufai said the electricity supply situation in Nigeria has defied every government for 60 years, but President Tinubu is committed to ensuring that Nigeria has stable and reliable electricity supply within the next seven years.

However, the nominee’s enthusiasm would be challenged in the coming months when he assumes office and the full scale of the challenges is laid bare. He demonstrated a firm grasp of the issues in his response before the lawmakers hurriedly asked him to take a bow, denying him an opportunity to fully articulate the vision for the sector.

The former governor explained that the vision was to fix power generation challenges that constrain gas to power plants, starting by putting gas and power under one roof.

The former governor explained that Nigeria has about 13,000 megawatts (MW) of installed capacity but hardly produces more than 4,000MW or 5,000MW daily; hence to improve generation, the first order of business is to look at what is constraining the full production of electricity from these 13,000MW.

A key constraint to generation, he noted, is that gas-fired generating plants lack access to gas. “We must ensure that gas and power are together, under one roof for this issue of gas, which has persisted for over 20 years, to be resolved,” he said.

The second major constraint to electricity supply is the transmission infrastructure. “We need to close the loop in our transmission system so that the 13 system collapses we had in 2022 are not repeated. There is money to expand the transmission infrastructure; we just need to organise ourselves, remove politics from transmission procurement and focus on improving our transmission infrastructure,” he said.

He said the government would remove politics from the procurement practice of the Transmission Company of Nigeria.

BusinessDay had earlier reported that El-Rufai would head a new ministry of energy that decouples gas from the ministry of petroleum resources, combining the gas and power sectors. This context provided the senators the basis to question him on his plans for power.

Nigerian presidents have no requirement to attach portfolios to ministers being screened, a development that leaves senators uncertain of what areas to probe them about. This stumbling in the dark while screening is made worse by asking men and women nominated by the president to run the government are asked to take a bow for some supposed achievement in a previous role.

El-Rufai’s turn at the Senate screening stirred intense passions, with a senator representing Kogi State submitting a petition against the former governor. But other senators prevailed, insisting that he must take a bow and go.