The Federal Government’s plan to divest its 40 percent stake in electricity distribution companies (DisCos) faces mounting challenges, raising doubts about its 2024 timeline, BusinessDay findings show
Experts said the path to full privatisation is riddled with hurdles – from investor scepticism to market jitters.
Chigozie Nweke-Eze, CEO of Integrated Africa Power, said one of the hurdles facing the sales of the government’s assets is institutional. According to him, there are questions regarding corruption and pressure points.
“It’s a welcome idea to privatise because the private sector seems to be more efficient and more profit-seeking. But the government needs to ask if the previous problems with the DisCos are solved before handing over 40 percent of its shares.”
Nweke-Eze said that the government needs to sort out some issues before initiating the sales. “Otherwise, it’ll be a problem for the off-takers to operate.”
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The Bureau of Public Enterprises (BPE) had on Tuesday disclosed plans to sell off the remaining 40 percent shares of the federal government in the DisCos and four other assets in 2024.
Other assets that will be sold off next year via public offerings at the capital market include Eleme Petrochemicals Company Limited, Nigeria Reinsurance, NICON Insurance, and the Nigeria Machine Tools in Osogbo, according to the BPE.
“Before selling any percentage shares in 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, Abdulaziz Abdulahi, proved abortive.
“The larger dilemma revolves around a cost-of-living crisis, making tariff adjustments less effective without significant supply enhancements, which, in turn, require substantial investments. The key question remains: who bears the cost of this investment in the interim?” a top industry operator who pledged anonymity said.
Data from the NERC showed Discos rejected 114.53 megawatt-hours per hour of electricity during this period as load offtake dropped further to about 3,200MW despite the partial activation of the contract regime, which mandated 5,000MW of electricity.
Findings showed these losses affected operators’ collective service to millions of Nigerians within their areas of coverage.
According to data obtained from the National Bureau of Statistics, the breakdown showed that Ibadan DisCo has 2,266,168 customers; Benin DisCo, 1,214,377; Kaduna DisCo, 823,414, Kano DisCo, 691,401; and Port Harcourt DisCo, 725,372.
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NERC’s report also showed the aggregate technical, commercial and collection loss in the first quarter of 2023 stood at 46.39 percent, which implies that for Q1 2023, on average, as much as N46 in every N100 worth of energy received by a DisCo was unrecovered due to a combination of inefficient distribution networks, energy theft, low revenue collection and the unwillingness of customers to pay their bills.
“Selling the federal government shares in the distribution companies is quite feasible and realistic. However, recognising the current momentum and the ongoing transformation in the sector, the government should continue holding on to the shares,” Bayode Akomolafe, a power engineer expert, said.
Other experts said five Discos, which were taken over by the federal government, commercial banks and Asset Management Corporation of Nigeria (AMCON) have little to show off one year after.
The federal government, AMCON and some banks were forced to take over Kano Electricity Distribution Company, Ibadan Electricity Distribution Company, BEDC Electricity Plc, Kaduna Electric, and Port Harcourt Electricity Distribution Company at different points due to alleged poor performance and liquidity crisis.
“The takeover by AMCON and the banks have not helped matters as it could have been effective if there is fresh capital introduced and small operational efficiencies but as these things are still lacking, the problem would persist,” Lanre Elatuyi, an energy analyst, said.
Niyi Fagbemle, senior project manager at Sofidam Capital, said the takeover by AMCON and the banks has not solved the underlying problems of liquidity, adding that the temporary takeover by the banks would not solve the structural challenges.
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He said the DisCos have seen more revenue accrued due to a series of measures like the escrowing of their collection of accounts.
Fagbemle said the takeover has not encouraged more investments as the banks are still sourcing for investments and buyers.
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