States gave FG control over their DisCos’ shares, trouble is getting it back

Contrary to the Federal Government’s claims that state governments are trying to assume ownership of the DisCos, evidence shows that the states’ investments in DisCos’ equity give them a right to stake a claim.

During the process of privatising the power sector between 2005 and 2013, the Nigerian government sold a 60 percent stake in assets of the state-owned Nigerian Electricity Power Authority (NEPA) to core investors.

In order to spruce up the rickety power assets, investments in transformers and overhead lines were required and both tiers of government contributed capital. Therefore, their contributions in the various DisCos morphed into a split in their share ownership: state governments 27.27 percent, and Federal Government 72.73 percent.

“These investments were pre-privatisation and during privatisation, the understanding, I believe, was that the Federal Government would initially hold their (states’) shares on their behalf,” said Ayodele Oni, energy lawyer and partner at Bloomfield law firm.

Based on this decision, the shares of both tiers of government are managed by the Bureau of Public Enterprises (BPE) which seats on the board of the DisCos. It is a federal agency and reports only to the president through relevant ministries and departments.

An April 11, 2018 letter from the Nigerian Electricity Regulatory Commission (NERC) to the Bureau of Public Enterprise with reference number NERC/03/FMS/RFRA/1/18/0013, signed by Sanni Garba, vice chairman of NERC, providing an update on the valuation of state government investments in the electricity distribution companies (DisCos) confirms state participation in the ownership of the DisCos.

The letter following the directive of the National Council on Privatisation provides a comprehensive update on investment of state governments in successor DisCos. From March 1, 2005 to December 31, 2010, state governments invested N79.9 billion. From January 1, 2011 to October 31, 2013, state governments invested an additional N31.4 billion, bringing their total investment in the DisCos to N111.3 billion.

The Federal Government’s investment in the DisCos was valued at N295.8 billion, which brings the total investment of both tiers of government to N407.1 billion upon privatisation of the sector in 2013.

The letter detailed investments by each state government which was verified by the relevant DisCo. For example, from March 1, 2005 to December 1, 2010, the Lagos State government invested N1,503,722,404.02 and had a 4.2 percent stake in Eko DisCo.

Between 2011 and 2013, the Lagos State government increased its investment to N18 billion, raising its equity to 5 percent, while the Federal Government held 35 percent.

Four states – Abuja, Nasarawa, Niger, and Kogi – contributed to the stakes in Abuja DisCo along with the Federal Government. Abuja had 11.2 percent contributing 5.4 billion, Nasarawa with 3.2 percent stake contributed N1.5 billion, Niger State with 8.3 percent contributed N4 billion, and Kogi State with 4.2 percent stake contributed N2 billion.

This revelation is instructive at this time considering that the Federal Government has rejected what it said was an attempt to unilaterally change ownership of the DisCos without the endorsement of the stakeholders after a government panel recommended that states’ stakes in the DisCos be excised from those of the Federal Government.

In November, the Federal Government set up an ad-hoc committee headed by Nasir El-Rufai, governor of Kaduna State, to review the ownership of the DisCos. Following over N1.3 trillion in bailouts to the sector, the government was seeking a way to recapitalise the DisCos.

The El-Rufai committee recommended that the 27.27 percent state government equity in the DisCos should be removed from the control of the Federal Government and managed by the states while the government retains its 72 percent.

To resolve governance issues in the power sector, the committee recommended that the board composition of DisCos should be expanded to include representation from states and local governments.

The Federal Government has rejected these recommendations, claiming that the panel was giving broad powers to state governments to the detriment of other stakeholders.

In a letter addressed to El-Rufai and NERC chairman and published by another newspaper, Ibrahim Gambari, chief of staff to the President Muhammadu Buhari, said state governments, under the auspices of the National Economic Council, cannot unilaterally change the ownership of DisCos without the endorsement of other shareholders, the Federal Government and private investors, through the appropriate board resolution.

The letter directed that NERC review and, where applicable, develop an implementation plan for the regulatory actions suggested in the reports from the NERC Committee and Power Working Groups, that quarterly updates on implementation by all actors be provided to the president, and that NEC through the vice president should also be briefed quarterly.

It further directed that to ascertain the fair shareholding of all electricity distribution companies, NERC should submit, upon completion, its forensic audit and Regulatory Asset Valuation report, and revised shareholding structures as of December 31, 2019, with the accompanying board resolutions for the president’s consideration.

But the shares of state governments, being minority shareholders, might not get them a seat on the DisCos’ board, said Chuks Nwani, a Lagos-based energy lawyer.

The El-Rufai committee also recommended a forensic audit of the bank accounts of the DisCos, a decision the DisCos have gone to court to stop on the concern that the Federal Government will dilute their stakes in the DisCos over their debts.