How Ministers’ directive on reconnecting debtor discos weakens regulatory compliance

NIGERIA’S minister of Power, Abubakar Aliyu, has come under severe criticism for his directive that some distribution and power companies that the market operator had disconnected from the national grid be reconnected.

The Market Operator arm of the Transmission Company of Nigeria (TCN) had confirmed that it had disconnected three electricity distribution companies (DisCos) for failure to comply with market regulations, in line with the Electricity Regulatory Act of 2005.

The three affected companies are the Aple (Aba), Kaduna and Kano discos.


READ ALSO:
DisCos grow profit from estimated billing, amid FG’s slow pace on mass metering

CBN confirms latest N3.01bn release to DisCos for power sector intervention

DISCOs warn of blackout over workers’ strike

ANED disagrees with FG on DisCos take-over


But Aliyu, according to a statement that the TCN issued on April 25,  directed that the defaulters be reconnected to the national grid.

The Technical Officer of Market Operator, Edmund Eje, told The ICIR that non-adherence to set market rules included payment of outstanding invoices, posting of adequate Bank Guarantee (BG), and forwarding of their active power purchase agreements (PPA).

Abubakar Aliyu, Nigeria's Minister of Power.
Abubakar Aliyu, Nigeria’s Minister of Power.

Eje stated, “The reconnection is coming at the intervention of the Honourable Minister of Power, Engineer Aliyu, who has considered the collateral consequences on the paying Disco customers.These suspended and disconnected defaulting market participants will be reconnected to the National Grid at the instance of the Honourable Minister of Power.”

The market operator further said that the minister’s intervention had automatically prolonged the grace period for the debtors to 60 days and warned that all market defaulters should comply with the provisions of the market rules.

What Minister’s action means for power sector reforms

Some industry analysts viewed the minister’s action as detrimental to the power sector reform as his tenure is barely a month to end. More so, they said, there is no Act that empowered him to reverse a regulatory compliance and market rules in the industry.

Some experts considered the minister’s action as a wrong signal to a sector that is barely surviving on a World Bank loan facility, and had failed several tests on market compliance.

“The Minister’s tenure is elapsing in less than a month’s time, and he’s reversing a sanction by a market operator. I’m not aware of any policy document where the Minister has to re-order the market operator to reconnect those guilty of market delinquence,” a power sector expert, Oyebode Fadipe, told The ICIR.

Fadipe argued that investors’ confidence would be eroded if the government’s decision on the sector was influenced by political considerations instead of market compliance.

He said, “If we continue to flout market rules like this, how would investors be serious with us? Many members of the market value-chain have complained that market values are not followed.”

To him, Aliyu was being clever by half in issuing a reconnection directive and 60 days’ grace when his tenure would be expiring in less than a month.

A letter to a distribution company confirming disconnection
A letter to a distribution company confirming disconnection

Another power sector governance expert, Kunle Kola Olubiyo, told The ICIR that the minister’s actions could weaken the reinforcement of market compliance and regulatory consistency.

Olubiyo said, “Market & Extant Rules relating to day-to-day operations in the electricity market, particularly those relating to enforcement
and sanctions are the bedrock of the electricity market.

“There can not be a viable electricity market if the market rules are randomly flouted and deliberately designed for formality.”

He maintained that though the action by the minister could be well-intended, it nevertheless could set back gains recorded so far.

He said the minister’s action amounted to an assertion of political influence that could soon be counter-productive to the entire electricity demand and supply industry value chain.

Debts in power sector fuelled by poor market compliance

Government’s intervention in the power sector has been put at above N2. 7 trillion. Despite these interventions, the sector has yet to evolve to a self-funding status devoid of Federal government subsidies and growing debts.

Analysts said that to ensure a more efficient and market-driven compliance, the Central Bank of Nigeria has to take up some regulatory enforcement to ensure the sector does not collapse since the DisCos are struggling to repay loans from commercial banks because of illiquidity and poor regulatory compliance.

The CBN, at some point, escrowed the accounts of the distribution companies to ensure proper revenue tracking and payment of other power sector players in generation and transmission.

Proper liquidity in the sector, they pointed out, would also ensure that the Nigeria Bulk Electricity Trading Company (NBET) gets easier payment assurance guarantee for gas companies who had threatened force majeur severally as a result of debts owed gas companies.

The executive director of PowerUp Nigeria, Adetayo Adegbemle, described the CBN’s interventions in the power sector as a good development.

Adegbemle: ‘CBN’s interventions a welcome development’

“I love the fact that the CBN came into the power sector, not just to save the electricity sector but to save the banking sector as well of huge debts owed the sector by deposit money banks.

“The loans that the power sector took from the banks have become bad and if you don’t do anything, it’s going to be on the books of the banks and would cause more problems for the banks,” Adegbemle said.

Way forward and possible solutions

Nigerians are largely relying on multilateral lending from the World Bank and African Development Bank to sustain the power sector. The sector is also largely depending on subsidies from the government.

According to the World Bank Nigeria Country Director, Shubham Chaudhuri, Nigeria is currently accessing $1.5 billion from the global lender to address huge concerns in the sector.




    Analysts say if market reforms are not prioritised and market rules adhered to, these interventions will not have effects on the necessary reforms needed to grow the sector.

    State of electricity metering in Nigeria
    State of electricity metering in Nigeria

    “The World Bank has put some conditionalities before we can draw from the loan facility they have approved for us. For instance, they spoke on regulatory compliance and adherence to market rules. They also spoke on improving the liquidity through proper metering,” a power sector governance expert and energy lawyer, Chuks Nwani, told The ICIR.

    Nwani stressed the importance of market rules adherence that removes the sector from debts and prepares it for an efficiently run sector post-privatisation.

    “The sector is bedeviled with illiquidity problems and poor compliance to market rules. Look at how we are even struggling to meter everybody to improve the collection in the sector. There are lots of issues that market discipline will solve for us, and we need to brace up for that, especially now the new government has emerged,” he said.

    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.

    Join the ICIR WhatsApp channel for in-depth reports on the economy, politics and governance, and investigative reports.

    Support the ICIR

    We invite you to support us to continue the work we do.

    Your support will strengthen journalism in Nigeria and help sustain our democracy.

    If you or someone you know has a lead, tip or personal experience about this report, our WhatsApp line is open and confidential for a conversation

    LEAVE A REPLY

    Please enter your comment!
    Please enter your name here


    Support the ICIR

    We need your support to produce excellent journalism at all times.

    -Advertisement-

    Most read