Update1: FG considers options to recapitalise troubled DisCos

As part of measures to put the power sector on the path of financial viability, the Federal Government is proposing measures to recapitalise the eleven electricity distribution companies (DisCos).

Two options under consideration, according to the Power Sector Recovery Implementation Programme (PSRIP) recently approved by the Federal Government and seen by BusinessDay, involve using the Central Bank to facilitate renegotiation of the shareholder loans outstanding and redenomination of the loans from dollars to naira, in line with the discos revenue profile.

Another option under consideration is the potential dilution of both the Federal Government’s and privately held stakes, which will help bring some stability to DisCos balance sheet.

In 2013 when the Discos invested US$ 1.42billion to acquire 60 percent stake of the privatised power assets, they were allowed to borrow up to 70 percent of this amount, which the Government guaranteed through the Put-Call option in the Performance Agreement and Direct Agreement with lenders.

But things did not go according to plan. Exhibiting market indiscipline, the DisCos, in 2016 paid 29 percent of their collections to NBET and market operators, though their collection rate was at 57 percent, indicating they kept more for themselves than they should have.

“Evidence seems to suggest that the Discos are focused on servicing their acquisition loans, rather than investing in metering, transformers to enhance their operational efficiency and reducing system losses,” states the PSRIP document.

The DisCos acquired their loans in dollars and unlike the electricity generation companies that have their tariff indexed in US dollars, the Discos tariff is 100 percent in naira, thus the devaluation of the naira massively exposed the Disco shareholders balance sheet.

This situation contributed to the current market shortfall of N473 billion due from DisCos to the market because they are not settling the actual market operators and Nigerian Bulk Electricity Trader’s (NBET) invoices.

In the current shareholding structure of the downstream power sector, the Discos retain 60 percent, while the Federal Government has 40 percent. A dilution of the shareholding will bring in new shareholders and change the shareholding structure.

According to the PSRIP document, further interventions being planned to restore viability in the power sector include payment of accrued market shortfall accumulated in the year 2015 to 2016 attributable to the non-cost reflective tariff, foreign exchange shock and low energy levels by the Federal Government.

The Federal Government will ensure a complete disbursement of the balance of the Nigerian Electricity Market Stabilisation Facility (NEMSF) to the respective gas suppliers, GenCos and DisCos, and implement the N701 billion payment assurance programme with the CBN created for NBET to pay future bills.

Government will also put checks on the activities of the DisCos by ensuring that they perform below the agreed loss levels at the time of handover, as approved by the Nigerian Electricity Regulatory Commission in 2014 and be held accountable for the inefficiency.

Furthermore, the Federal Ministry of Finance and NBET will pay all verified debts to Discos. NERC will provide continuous monthly monitoring of GenCos’, DisCos’, and Service Providers’ market balances.

It proposes to adopt a cost reflective tariff over a five-year period, pursue aggressive Aggregate Technical and Commercial(AT&C) Losses reduction by incentivising DisCos adequately to reduce losses.

The plan to restructure tariff in the electricity market agrees with expert opinion of what is required to breathe life into the sector.

Taiwo Oyedele, head of Tax at PwC says in resolving the pricing issues are key, “Government involvement in the sector in deciding tariff is excessive, it should open the market, issues with pricing, policy, legal issues and technical challenges needs to be addressed quickly.”

 

ISAAC ANYAOGU