DISCOs Are Technically Insolvent – BPE

Babatunde Fashola
Babatunde Fashola

The Bureau of Public Enterprises, BPE, Tuesday, said most of the Distribution Companies, DISCOs, in Nigeria were technically insolvent.

Alex Okoh, Director General of the Bureau, made this revelation during an interactive session held at the instance of House Committee on Power, with critical stakeholders in the Nigeria’s power sector, including Nigeria’s Bulk Electricity Trading Company, NBET, Electricity Distribution Companies, DISCOs, and Generation Companies, GENCOs.

The DG in his submission, said there was need to immediately solve the challenges bordering on price structure and liquidity of DISCOs.

Okoh said, “We need to solve the liquidity challenge. How do we make the industry viable in terms of liquidity? If we take all the energy that the DISCOs buy and the energy sold, assuming there’s minimal losses on collection side, we’ll find it difficult to get enough revenue to push us through.

“There’s a gap in the price structure. There’s an empirical way of bridging other gaps. If we identity what that gap is, then government can handle the other issues.

“They need to improve infrastructure that consumers can pay for, but technically they don’t have the capacity to do so.”

While noting that the proposed N75 billion for the DISCOs by government was an ad-hoc arrangement and unsustainable, Okoh stressed the need for medium and long term solutions to myriad of challenges facing the industry.

He observed that the N701 billion subsidy provided by government through NBET was part of government’s intervention towards subsidizing the system.

Okoh, who noted that the subsidy when introduced, will not be wholly paid by government at the end of the day, explained that the tariff subsidy could be paid back through future adjustment in tariff as part of efforts to solve the liquidity issue.

While stressing the need to expedite action in addressing the liquidity challenge, he argued that “if we don’t address that now, it’s a time bomb and I just pray it won’t explode on all our faces.”

Eugene Edeoga, NBET Director of Procurement, also in his submission, lamented that the company was “technically dead and insolvent with huge liabilities” arising from over N800 billion owed it by the DISCOs.

Earlier, Ernest Mupwaya, MD/CEO Abuja Electricity Distribution Company, AEDC, affirmed that the major challenge bordered on price differential, adding that the DISCOs paid up to 100% of the tariff as a result of the movement of tariff from 2015 to December 2017.

According to him, electricity tariff is impacted mostly by movement in foreign exchange and inflation.

He added that the challenges facing DISCOs needed holistic, sustainable solutions, including “adjustment in tariffs so that there will be regular power.”

He pointed out that Ministries, Departments and Agencies, MDAs, of government owe DISCOs over N72 billion.

“It is important to point out that some government institutions are owing the DISCOs over N72 billion and there are individuals and corporations who are by-passing meters and stealing energy,” Mupwaya said.

While noting that DISCOs had not implemented five minor reviews which ought to take place within six months, he lamented that the “delay has led to the erosion balance sheet of the DISCOs.

”If you borrow from bank to carry out the transformation, it will affect the balance sheet,” he said, adding that the “price differential hinders every aspect of the supply chain and we don’t have enough revenue.”

On tariff adjustment, he urged government to defer debts owed DISCOs to enable them raise more funds.

He also called for resolution of the historical debt due to tariff shortfall as well as a mechanism to automate the payment by MDAs and other public institutions by ensuring central payment.

According to him, in April to June 2016, AEDC experienced “series of vandalism, instead of heating average of 300MW, we got only 160MW but price of electricity shot up by almost 100 per cent, despite getting about half of the supply.”

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While responding to questions on enumeration of consumers, the AEDC noted that carrying out the exercise was costly for the DISCOs, adding that it would cost about $128 million to conduct enumeration.

The committee resolved to expedite action in order to provide solutions to the various challenges faced by NBET, DISCOs and GENCOs in order to guarantee stable electricity supply to all Nigerians.

Some of the lawmakers who spoke during the session, warned that Nigerians would resist any hike in electricity tariff amid failure of operators to ensure stability in power supply across the country.

They also frowned on the failure of DISCOs to adopt innovative marketing strategies and ensure prompt enumeration of consumers after taking over power assets.

Meanwhile, the crisis rocking the Nigerian power sector yesterday took a dramatic twist as electricity Distribution Companies, DISCOs, tackled Mr. Babatunde Raji Fashola, the Minister of Works, Power and Housing, accusing him of deploying propaganda to distort facts for cheap political gains.

Operating under the aegis of Association of Nigeria Electricity Distributors, ANED, the DISCOs vehemently took exception to a deluge of accusations, ranging from incompetence, non-performance to indebtedness being heaped at them by the minister.

Recall that Fashola while briefing the media on the development in the Nigerian Electricity Supply Industry, NESI, had tied most of the problems being experienced in the post-privatisation of the power sector in the country to the inability of the investors to live up to expectation, warning them to quit if they were not prepared for the task.

But, reacting to the minister’s outburst yesterday, DISCOs, in a 16-page document issued to newsmen in Abuja, itemised all the issues raised by the minister and concluded that his actions have resulted in his Ministry’s consistent promotion of policy initiatives that had resulted in sector-wide confusion.

The DISCOs, while accusing Fashola and the Transmission Company of Nigeria, TCN, of lying to the public over the claims of actual megawatts of power generation and transmission, said feeding the public with distorted information was capable of doing more damage to the power sector.

Taking newsmen through the text of the briefing in his office, Mr. Sunday Oduntan, the Director of Planning and Research and spokesperson of the Association of Nigerian Electricity Distributors, disputed the minister’s position on the megawatts of power generation transmitted in the last three and half years.

The minister had stated: “Generation of power has improved from 4,000 MW (approx) in 2015 to 7,000 MW(approx) in 2018 averaging an increase of 1,000 MW (approx) per annum and we expect to add 455 MW (Azura); 215 megawatts (Kaduna), 240 MW (Afam III); 40 MW (Kashimbilla); almost a total of 954 MW in 2018; and 700 MW (Zubgeru) 480 MW (Okpai II) about 1,150 MW projected for 2019, and the GENCOs are undertaking various repairs, rehabilitation and expansion that will bring on incremental power.”

But the DISCOs in response, said: “Like our customers, we believe that progress must be made in turning around a sector that was inefficiently operated for 62 years, prior to its handover to private investors.

“However, we do not understand the constant references to the increase of generation capacity to 7,000 MW, from 4,000 MW, for the period of 2015 to 2018, that has been used as the basis of defining the DISCOs as incapable of taking on more power – the stranded 2,000 MW.

“A review of NERC’s “Daily Energy Watch” for January 28th, 2015 would indicate a generation availability of 6,421 MW (divided into peak of 4,230 MW and constrained energy of 2,191 MW).

“In other words, it is misleading to state that available generation has grown from 4,000 MW in 2015, as a measure of progress, given that a volume of generation slightly under 7,000 MW already or previously existed, prior to the beginning of this administration.

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“Furthermore, there is no stranded 2,000 MW. While there is an available capacity of 7,000 MW, the best that can be generated, at this time, is 5,000 MW.

“This is because there is insufficient gas to power the thermal plants due to gas line limitations (for instance, the non-completion of the Oben pipeline) and the absence of a commercial framework that would encourage gas exploration.

“Generation that is constrained by gas amounts to an average 1,500 MW daily. Of note is that 25 out of 28 generation plants are fuelled by gas. Transmission grid frequency, line limitation and water management make up the difference of the balance 500 MW of constrained generation.

“In simple terms, the often-advertised and pronounced DISCOs limitation to take on 2,000 MW of additional generation is not consistent with the facts or reality. This, therefore, shows that very little has actually changed contrary to the Minister’s constant pronouncements.

“It is with much regret that we feel compelled to respond to the significantly distorted picture that has been painted of the electricity distribution companies, DISCOs by the Minister of Power, Works and Housing, in his Press Briefing of Monday, July 9, 2018.

“In good faith and with recognition that the challenges of the Nigerian Electricity Industry, NESI, cannot be turned around based on a culture of misrepresentation, we have declined to rebut previous inaccurate assertions by the Minister and other government functionaries.

“In this instance, it is clear that the objective of that briefing was to demonize the DISCOs, who by the structure of NESI, are the faces of a difficult sector.

“We are also left wondering whether such demonization of the DISCOs is camouflage for the absence of the effective policy leadership that is desired for implementing the enabling environment that is necessary for the viability and sustainability of NESI?

“We recognize that we are on the crux of a political season, in which all manner of advantage is being sought by political contenders, we however do not want to be used as the whipping dog to advance other people’s agenda.

They said further that, “Our members, the DISCOs, are not politicians, even though they distribute a product that is of great importance to politicians, in view of the needs of their constituents.

“Our constituency which consists of customers, employees, bankers, vendors and investors have a greater interest in improved service delivery than the adoption of cheap theatrics and propaganda for political advantage.

“We take our service delivery obligations to our customers seriously, with total commitment to improving the quality of the electricity distribution experience to them, as well as meeting the performance obligations of the agreement that we have with the Bureau for Public Enterprises, BPE.

“This is more so as the commercial success of our investments is intrinsically tied to the quality of our service delivery. Thus, it is important that our customers not suffer from any false impressions of an abrogation of our total commitment to providing them with an improved electricity supply experience, however, promoted by persons who have a different agenda.

“Consequently, we believe that it is critically important that we provide both clarification and information as to the issues of misrepresentation indicated in the Minister’s press briefing.”