The performance of Nigeria’s beleaguered electricity Distribution Companies (DisCos) is getting worse, with negative consequences for the sector, and posing systemic risk to the entire economy.
An analysis of the 2017 financial statements of 10 DisCos shows that the combined accumulated losses or retained earnings hit -N713.63 billion in the period under review, from -N288.85 billion as at December 2016.
Retained earnings are a firm’s total profits over time less dividends issued to stockholders. A retained earnings deficit, also called an accumulated deficit, happens when cumulative losses are greater than cumulative profits.
The DisCos are in a dire position as surging operating expenses, huge finance costs and absence of new investments to help expand metering and halt electricity theft have short-circuited profitability.
Data from the financial statements of the 10 DisCos show that in 2017 alone, they recorded a combined loss of N446.85 billion which is 63.88 percent higher than N301.18 billion loss recorded the previous year, an indication that the power sector woes may be worse than many thought.
BusinessDay analysis further revealed that total combined operating cost of N655.16 billion in the period (2017) outstripped cumulative sales of N563.10 billion, compounding the woes of firms grappling with spiralling interest on borrowing.
Interest expense for the 10 firms surged by 129.51 percent to N155.64 billion in December 2017, from N67.81 billion the previous year.
This pattern of losses has been replicated since 2013 but analysts say it worsened considerably since December 2017 with accumulated losses around N1 trillion by June 30, 2019, while payables to both the Nigerian Bulk Electricity Trading Company (NBET) and the Central Bank of Nigeria would now be approximately N2 trillion.
Worse still, the core investors who purchased the power assets during the privatisation exercise are still heavily indebted to Nigerian banks up to the tune of over N500 billion, with the debts currently non-performing.
If this is added to exposure to both NBET/CBN, the Nigerian economy is burdened by a systemic exposure in the region of N2.5 trillion or about $7.5 billion through the DisCos alone who distribute a paltry 4,000MW of electricity.
This compares poorly with South African power utility ESKOM, which is the largest employer in the country and manages over 52,000MW of power. ESKOM is indebted to the tune of $25 billion which the country is already working to resolve.
The Nigerian power sector is technically bankrupt and insolvent; it is sustained by the government at a cost that is almost four times the entire proceeds the same government received from the privatisation of the power sector in 2013.
Analysts say the power situation of the country is gradually becoming irredeemable as DisCos, struggling with huge debts, rising costs, and recurring loses, are on the brink of collapse.
But there is enough blame to go around.
“Everybody in the power sector is to blame for this problem,” Ayodele Oni, energy partner at Bloomfield Law Practice, told BusinessDay.
Analysts place more blame on the Nigerian Electricity Regulatory Commission (NERC), though.
The 2013 power privatisation policy was organised to have the DisCos collect and pay the Nigerian Bulk Electricity Trading (NBET) plc, which will then pay every other operator in the value chain – generation companies (GenCos), gas companies (GasCos) and the Transmission Company of Nigeria (TCN).
It was assumed that the DisCos would collect a cost-reflective tariff, hence a Multi-Year Tariff Order (MYTO) was developed which will see a biannual review of tariffs.
However, three days before the 2015 presidential elections, the then Sam Amadi-led NERC cut electricity tariffs by 30 percent, a decision that tarnished the regulator’s credibility, power sector reforms outlook, market, and investors’ confidence, Eyo Ekpo, former commissioner of market competition and rules (MCR) at NERC, said recently on Twitter.
“He (Sam Amadi) completely bypassed the Market Competition and Rates Division, which I headed and which alone had responsibility for staffing, proposing and implementing rate-making decisions on behalf of NERC,” Ekpo said.
After the decision to reduce tariff, the worst happened. The electricity Distribution Companies (DisCos) declared force majeure while NERC suffered a massive loss of credibility with all its stakeholders who resolved never to accept the commitment of NERC in good faith, a development which ruptured the industry.
Even when all the tariff assumptions changed, NERC did not review the tariff.
“The challenge was assumptions (inflation, FX rate etc) that fed into tariff changed but the regulator did not change the tariff,” Chuks Nwani, an energy lawyer, said.
Inflation jumped from single digit, gas prices rose and foreign exchange went through the roof but tariff did not move, which set in liquidity challenges in the system.
NERC also failed to enforce market rules, allowing DisCos withhold more than they should remit, violate their obligations to metered customers and ignore investments thresholds according to their performance agreements.
Debts to power plants rose and gas companies balked. This has led to calls to review the 2013 privatisation exercise.
“The privatisation of the power sector was a scam organised by a set of professional syndicate,” a source who was very familiar with the matter told BusinessDay.
The reality is that the power situation is worsening with the poor financial performance of DisCos.
The total amount owed to NBET and TCN amounts to N1.1 trillion in the period under review, which represents an 82.15 percent increase from the N698.22 billion incurred in 2016, and two times the cumulative revenue.
Drilling down to individual DisCos, the picture is even worse.
Abuja DisCo recorded total liabilities of N206.15 billion in the period under review, which exceeds total assets of N120.02 billion, resulting in a negative shareholders’ fund of N86.09 billion. It recorded accumulated losses of N105.50 billion in the period under review, a sum that is more than the total asset figure.
Ikeja Electric plc’s total liabilities of N213.64 billion as at December 2017 exceed the total asset of N176.14 billion, resulting in a negative shareholders’ fund of N37.50 billion. Also accumulated losses of N251.91 billion ellipse total asset.
Eko Electricity Distribution Company plc’s total liability of N103.42 billion in the period under review outstrips total assets of N88.89 billion, resulting in a negative shareholders’ fund of N14.52 billion. Accumulated losses stood at N24.9 billion.
Also, Benin Electricity plc had accumulated losses of N7 billion; Enugu Electric plc’s accumulated losses stood at N50 billion; Ibadan Electric plc N54 billion; Jos Electric plc N17 billion, Kaduna Electric plc N78 billion, Kano Electric N37 billion, and Port Harcourt Electric plc N97 billion.
Only the 2017 financial statement of Yola DisCo was not available for review as the company said the board was yet to approve it.
Watch out for what experts say is required to resolve this monumental crisis.
BALA AUGIE, ISAAC ANYAOGU & DIPO OLADEHINDE
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