April 18, 2017

Power Investors flay FG’s plan to escrow discos’ accounts

*Say it’s tantamount to nationalisation

Investors in the Nigeria’s power distribution sector have kicked against the Federal Government’s plan to escrow revenue accounts of distribution companies (discos).

The investors insisted that any attempt to go ahead with this plan is tantamount to nationalization or expropriation of the DISCOs. Executive Director, Association of Nigeria Electricity Distributors (ANED), Sunday Oduntan, said these in a statement yesterday.

Fashola, electric meter

ANED said the government had backslid in the N100 billion subsidy payment and other privatization requirements.

ANED noted: “To date, the government has not met the privatization transaction foundational requirements of providing N100 billion in subsidy to the sector. Indeed, any attempt at escrowing our accounts runs counter to the objectives of the National Electricity Power Policy, 2001 (NEPP) and the Electric Power Sector Reform Act, 2005 (2005), of a private sector-owned and managed electricity sector.

“It would also send very wrong signals to domestic and international investors that Nigeria is not fully open for private sector investment and that we are still partial to the old habits of nationalization, preventing the injection of the cheap and sorely needed capital that is critical to the rehabilitation and improvement of electricity infrastructure.

Electricity infrastructure

“You cannot have a, supposedly, private sector-owned and managed business in which the government now seizes control of its revenues.  It is a contradiction in terms and practice.  The same principle applies to any consideration of regulations or government action that intrudes into corporate responsibilities of procurement, financial management or personnel management.”

In particular, relative to procurement, the DISCOs insisted that they are not aware that Nigerian Communications Commission (NCC) issues regulations to guide the internal procurements of the telecommunication companies. Likewise the Central Bank of Nigeria (CBN) and the Department of Petroleum Resources (DPR), the DISCOs stressed.

They insisted: “Singularly and in aggregate, such proposed action would endanger the ability of the government to hold the discos responsible for performance, at a minimum, and at worse, amounts to government takeover of the discos. It would, absolutely, preclude further private sector investment in the sector.”

On plans to get DISCOs declare their eligible customers, ANED said: “We understand that the idea of Eligible Customer declaration is under serious consideration. Our understanding is that Eligible Customers may only be declared by the Minister when a competitive market exists in the Nigerian Electricity Supply Industry (NESI).

“Such a market requires the presence and utilization of industry contracts; competition and efficiency that will drive down electricity prices for the customers; and infrastructure that will allow for uninterrupted delivery of power to our customers.

“This competitive market, currently, does not exist. Additionally, while Section 27 of EPSRA provides the Minister with the authority to determine “end-use customers” who shall “constitute eligible customers. It also requires that any such determination must be consistent with Section 28 of the same act, which requires that the DISCOs must be compensated for any reduction in their ability to “earn permitted rates of return on their assets” or any inadequacy in their revenues, as a result of such determination.”

On the N800 billion shortfalls in the sector, which had pushed power operators in financial crisis, ANED said : “These shortfalls undermine intervention objectives of the government.

“Similarly, continued failure to account for the outstanding market shortfalls that are currently in excess of N800 billion will, essentially, mean that the upstream operators remain in financial jeopardy, undermining one of the government’s major objectives for the intervention – increased or improved liquidity.”

Dearth of competitive market is a threat to the move by the government on the declaration of eligible power customers nationwide, the investors said, demanding compensation for any loss of revenue associated with such declaration.

On deficiency of Corporate Governance at the DISCO level, the group said: “ There is continuous reference to a connection between the DISCOs’ performance and corporate governance.  Specifically, failed corporate governance.

“Again, we believe that this is another deliberate distraction from the issues and the urgent requirement to address the liquidity challenges that we have in the sector.  Our challenge is not so much inadequate corporate governance as it is the failure of the government to meet the commitments that will significantly impact on our ability to meet the requirements of our Performance Agreement with the Bureau of Public Enterprises (BPE).

“To date, the government has not met the privatization transaction foundational requirements of a) Providing N100 billion in subsidy to the sector; b) Payment of MDA electricity obligations; c) Ensuring that the DISCOs have debt free financial books; and implementing a cost reflective tariff, amongst others.

“All of the aforementioned hold significant value towards the ability of the DisCos to improve their service delivery to their valued customers and not the issue of governance.  Indeed, the issue of the value chain is commercial and not one of corporate governance.”

Of note, ANED added, is that the government, in accordance with the privatization transaction terms, has a representative of its 40 per cent equity on the respective Boards of the DisCos, thereby providing for government oversight and transparency of DisCo operations.

On DisCo Performance, the group stated: “We readily acknowledge and appreciate the need of our customers for uninterruptible 24/7 electricity power supply, as well as the demand for the power sector to contribute to the economic wellbeing of the nation. And rightly so. The DisCos, as well as, we believe, the other operators along the electricity value chain, are committed to such an outcome.

“However, we all have to be mindful of the reality of over 60 years of an inefficient, poorly funded and managed electricity system that existed prior to the handover of the PHCN successor companies to the private investors.  Significantly, any expectations for the reversal of such a decayed system have to be within the context that, for instance, no power infrastructure investment was made in Nigeria between the eight-year period of 1991 through 1999.

“Nevertheless, the DisCos remain committed to meeting the terms and conditions of their Performance Agreements with BPE.  A measure of this commitment is the changes that the DisCos have either put in place or are putting in place.  These improvements or changes include increased customer connections; increased metering, with more than 250,000 customers metered; a reduction of supply interruptions; network expansion and replacement; improvement of customer care quality; improved billing systems; set up of call centres addressing over 2 million queries from customers; improved ICT infrastructure; significant recruitment of, and capacity building of staff, etc.

“We note that there remains much more that needs to be done to improve the quality of service delivery to our customers.  As we continue to operate within a limiting cost structure that does not allow the DisCos to fully recover their cost of doing business and make the requisite capital investment that should drive comprehensive improvement in the sector, we remain focused on ensuring that our customers’ electricity supply experience is an improved one.”

The N210.61 Billion intervention by Nigerian Electricity Market Stabilization Facility (NEMSF) has, according to ANED, been labeled, interpreted and surrounded with all manner of erroneous and misleading information.