• Thursday, May 23, 2024
businessday logo

BusinessDay

DisCos’ sale: Trillion-naira debt to test investors’ appetite

Best and worst performing DisCos

The Federal Government’s plan to sell the electricity Distribution Companies (DisCos) under the management of banks and the Asset Management Company (AMCON) is facing a snag as potential investors are spooked by trillion-naira debts owed by DisCos, BusinessDay’s findings have revealed.

These staggering liabilities, estimated at trillions of naira, threaten to dampen enthusiasm for the upcoming sale of the DisCos, a move aimed at revitalising the nation’s troubled power industry.

“The DisCos under management by AMCON or banks are in a complete mess financially; most investors have become sceptical in putting their money due to the uncertainty surrounding the huge debt burden of the distribution companies,” a senior energy lawyer who relates with investors in the power sector said.

“These debts stem from a complex web of issues, including inefficiencies in power distribution networks, rampant energy theft, and tariffs that don’t reflect the true cost of electricity production,” he added.

Ikechukwu Obialor, an energy lawyer and research fellow at the African Energy Council said the four DisCos managed by banks and AMCON are struggling with huge debt burdens that will scare any potential investors.

“Most of the DisCos do not have their books in the positive. Any investor buying will be taking a big risk. One that will demand a lot of guts,” Obialor said.

Currently, three Discos are under the management of banks and one under AMCON.

Abuja Electricity Distribution Company (Abuja DisCo) is under the management of the United Bank of Africa (UBA), while Fidelity Bank manages Benin Electricity Distribution Company (Benin DisCo),  and Kaduna Electricity Distribution Company (Kaduna DisCo).

The Ibadan Electricity Distribution Company is under the AMCON management.

The three Discos are under these new managements due to their inability to repay their loans to the financial institutions.

“These banks won’t invest in expansion or customer obligations; instead, they focus on buying megawatts from generation companies, distributing them, and collecting receivables to repay loans and interest,” Charles Akinbobola, energy analyst at Sofidam Capital said.

The latest available data showed Abuja DisCo recorded a loss after tax of N7.3 billion in 2022 while Kaduna DisCo recorded a loss of N36.1 billion in 2021.

Efforts to get the financial statements of Benin DisCo proved abortive at the time of filing this report.

Martins Arogie, chairman of the power arm of the Lagos Chamber of Commerce and Industry (LCCI), Nigeria’s largest business think-tank, said the challenges faced by many DisCos under AMCON’s control in functioning properly stem from a complex issue, primarily related to cash flow.

“While Discos may have their shortcomings, they’ve also been impacted by unfavourable government policies,” Arogie said in a note.

BusinessDay’s findings showed Kaduna DisCos’s total liabilities stood at N428 billion while its total assets stood at N287 billion as at 2021, making it technically insolvent.

Abuja’s DisCos’s total liabilities stood at N251 billion while its total assets stood at N284 billion as at 2022.

“With over 50 percent Aggregate Technical, Commercial and Collection (ATC&C) losses, there is no profit in sight for the DisCos,” Akinbobola said.

Latest data gleaned from the Nigerian Electricity Regulatory Commission (NERC) showed Kaduna DisCo recorded an ATC & C loss of 66.09 percent in the third quarters of 2023.

This level of ATC&C losses imply that N66.09 out of every N100.00 worth of energy received by a DisCo was unrecovered due to a combination of distribution network losses, energy theft, low revenue collection and unwillingness of customers to pay their bills.

Further findings showed the Multi-Year Tariff Order (MYTO) target for Abuja DisCo is 19.27 per cent but the Disco reported an ATC&C loss of 40.42 per cent, while Ibadan DisCo had a target of 15.47 percent but recorded 44.98 percent. Kaduna Electric had a target of 6.60 per cent but recorded 66.09 per cent while Benin DisCo’s 17.37 per cent target was well below the actual ATC&C loss of 42.02 per cent.

“The failure of the DisCos to meet their allowed loss targets means they are unable to meet revenue requirements, thereby compromising their long-term financial position,” NERC said in its quarterly report.

“Before selling any Discos, an audit of what is due to everyone must be done,” Jide Pratt, country manager of Trade Grid, said. “The Nigerian Bulk Electricity Trading or Discos should settle outstanding before any sale or new equity/share/percentage is injected.”

The Nigerian Electricity Regulatory Commission (NERC) had on May 15, 2023 announced the revocation of Kaduna DisCo’s operational licence owing to its indebtedness of N93.42 billion for unaccounted energy supplied to its area of operation.

With over 90 days after the expiration of the 60-day ultimatum by NERC, the DisCo still holds an electricity distribution licence, which gives it powers to continue to carry out the electricity business and normal operations in its licence areas of Kaduna, Kebbi, Zamfara and Sokoto states.

Efforts to reach Abdulaziz Abdulahi, head of corporate communications at Kaduna Electric, proved abortive.

Adeola Adenikinju, a professor of energy Economics and the current president of the Nigerian Economic Society, said all the existing DisCos should be mandated to recapitalise before being unbundled along state lines or auctioned to investors.

“The capital base of the existing DisCos can no longer meet the needs of the sector,” Adenikinju said.

For Adebayo Adelabu, minister of power, those who acquired the Discos when they were privatised lacked the required expertise and financial capacity.

“We are transforming the Discos and very soon you’ll see that a lot of tough decisions will be taken against these Discos because they are the last mile in the sector. If they don’t perform then the entire sector is not performing,” he said.

“Our problem started from the privatisation era. Not that the privatisation has a problem in itself, but its implementation and execution have robbed the process of its laudable objectives,” Adelabu said.

“We believe that people who bought the power companies do not have the required expertise to run the utility firms. Secondly, they were not buoyant enough in terms of financial buoyancy to pay for the power plants.

“All of them used bank loans to pay for the assets. And we all know that the power business is a long-term business. It is not something you recoup your capital and make profit in a short time. So they were all under pressure to repay the bank loans that they used to acquire the power companies.

“This is why today a number of them have been taken over by their lenders, either AMCON or the banks, both local and international banks. They also promised to invest and enhance the distribution network, but they did not do this.”

The minister stated that the investors had promised to reduce the losses in the Discos, but stressed that up till now the losses had remained at about 40 per cent across the power value chain.

“We can no longer afford AMCON to run our Discos. We can no longer afford the banks to run our Discos. This is a technical industry and it must be run by technical experts,” the power minister said.