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DisCos Restructuring: Concerns persist on power privatisation

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SOME problems in Nigeria’s power sector have remained unresolved despite the Federal government’s restructuring of some electricity distribution companies (DisCos).

Industry watchers, who spoke on the recent restructuring of the boards of the DisCos by the Bureau of Public Enterprise (BPE) and the Nigerian Electricity Regulatory Commission (NERC), said the government should focus on some unresolved problems that affected the sector prior to the privatisation.

“One of the original issues that led to the privatisation exercise was the expectation that equity would come in, and efficiency in the sector would improve. But that so-called equity hasn’t come in as much as it ought to,” said Oyebode Fadipe, a power sector governance expert and former corporate affairs official for the Abuja Electricity Distribution Company (AEDC).

This, Fadipe said, was in addition to the general belief that the assets were sold at sums regarded as not the proper value for them.

The Federal government, raising an insolvency concern, had on Tuesday July 7, 2022, announced the take-over of Kano, Benin and Kaduna electricity distribution companies by Fidelity Bank Plc after the bank initiated action to take over the boards of the three Discos.

Also, the government announced that with the take-over of the Ibadan Electricity Distribution Company by the Asset Management Corporation of Nigeria (AMCON), the BPE had obtained approval from the NERC to appoint an interim managing director for the troubled power firm.

The BPE and the NERC had in a joint statement announced that the core share of 60 per cent of the three DisCos’ were taken over due to default in their acquisition loans. The loans were taken in 2013 and drawn from Fidelity and AFREXIM banks.

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Upon the take-over, new boards were swiftly approved for the DisCos, while their managing directors were replaced.

The government further stated in a notice that it was restructuring the management and board of the Port Harcourt Electricity Distribution Company to forestall its imminent insolvency.

The notice was signed by the Director-General, BPE, Alex Okoh; and Executive Chairman, NERC, Sanusi Garba.

The federal government has assured that financial institutions would not retain the right of ownership and management of the restructured DisCos to protect the rights of lenders to the core investors.

A former Chairman of the NERC and professor of Law at Baze University, Sam Amadi, who spoke on these concerns, told THE ICIR that the power sector assets were sold without corporatization.

Amadi said, “The sector is basically bankrupt. In fact, when we made our findings and submitted to the then Vice President, Namadi Sambo, he was alarmed. We could have corporatized, commercialised and privatised to avoid some of the pitfalls.

“We sold so quickly, sold in bad shape, and many of those that bought the assets don’t have the financial war chest.

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“When I became chairman of NERC, up until 2012, in a build-up to the sale of the assets, there was no audited account of the so-called NEPA, as big as it was since 1974. When I did the first auditing, there was no audited account anywhere. So, you have an entity that was not corporatized.”

He stressed that some of the mentioned issues were even carried over post-privatisation, noting, “At times, you see the regulator and DisCos giving conflicting data numbers when speaking on some problems about the sector.”

Notably, Nigeria’s power privatisation operations have been hard hit with the problem of poor corporate management.

The operators have had to rely hugely on government’s interventions and World Bank’s facilities to survive, despite the fact that they are private investors.

The situation, industry analysts said, could have been averted if the regulators – the NERC and BPE – had intiated a mid-term review of the privatisation exercise to chart a way forward for the sector.

“Key performance indicators were not assessed in the mid-term, which was 2018. Project analysis would have forestalled the current crisis of restructuring and legal concerns,”  Kunle Kola Olubiyo, the president, Nigeria Consumer Protection Network and member, Presidential ad hoc Committee on Review of Electricity Tariff in Nigeria, said.

“To us as end users, the recent review of the tariff is said to be service- based reflective. It is like the more the tariff is adjusted, the lesser service we get. So, the power sector trajectory is in bad shape,” Olubiyo said.

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He described the privatisation process as “flawed and enmeshed with the Nigerian factor.”

He remarked, “At the inception of the privatisation, it was 30 per cent equity, and 70 per cent credit financing debt from the banking sector.

“Most of the firms that were non-qualified technically and financially, were registered the very week of privatisation, and what we are seeing is that they never had any pedigree anywhere in the world of being in the power business.

“One had expected that the process that had an international expression of interest and global best practices would have maintained key thresholds. As we speak, most of the generation plants we have now are obsolete and in decadence.”

Olubiyo advised that periodic review of the performance set targets by regulatory authorities would save the sector from slipping further into decay.

“We adopted the Indian model and don’t expect a perfect translation. However, we expected a mid-term review to look at the mileage of project milestones, and key performance indicators. This was not done and the licence is expected to expire next year. The regulatory body has failed us consumers in this regard,” he said.

Author profile

Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.

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