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MDAs’ debts to Discos worsen financial stability for power sector

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  • Discos transfer burdens to ordinary citizens

MINISTRIES, Departments and Agencies (MDAs) at Federal, State and Local Government levels; Armed Forces and Security Agencies, owe Electricity Distribution Companies (DISCOs) billions of Naira.

However, unlike ordinary businesses or individual consumers that get disconnected from the power supply for failure to pay bills, they enjoy continuous access to power supply, despite huge electricity debts affecting the operations of DISCOs.

The failure of the DISCOs to recover these debts or cut off the defaulting MDAs and institutions from the power supply has persisted, despite reminders by the Nigerian Electricity Regulatory Commission (NERC) on the rights of the companies to disconnect MDAs that refuse to pay bills.


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Rather than pay up, the MDAs have employed a strategy of disputing the debts and calling for audits and reconciliation of bills over several years.

Consequently, the DISCOs owe other power sector stakeholders and have transferred the cost to ordinary citizens through a combination of estimated billing and other unfair practices.

How much do various MDAs owe electricity distributors?

As of July 2021, The ICIR found that Federal, State and Local Government MDAs owe DISCOs up to N202 billion. The MDAs debts were classified into verified and unverified debts.

According to the Association of Nigerian Electricity Distributors (ANED), the Federal Government has verified N48 billion as MDAs’ debts, while N61 billion is yet to be confirmed. This does not include the estimated N93 billion owed by Armed Forces and Security Agencies in Nigeria.

For a comparative scale, this debt exceeds the total amount released by the Federal Government to the Ministry of Health in five years (2015-2019), which is almost N158 billion.

Records obtained by The ICIR from ANED show that the Nigerian Army owes an estimated sum of N48.9 billion naira in electricity charges. The Nigerian Navy owes N11 billion, the Nigerian Police Force owes almost N6.6 billion, and the Nigerian Correctional Service (NCoS) owes N1.1 billion between 2015 to 2020.

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Other MDAs include the Ministry of Interior with a debt of almost N3 billion, the Ministry of Education owing N2.4 billion, the Ministry of health owing over N855 million, the Ministry of Finance; N443 million and Ministry of Justice; N112 million.

MDAs in Nigeria have an annual budget for electricity usage under their recurrent expenditure, which is passed into law by the National Assembly.

Between 2015-2020, electricity charges for the Nigerian Navy were over N1.5 billion, N3.4 billion for the Army, N780 million for the Nigerian Police, while the NCoS got N614 million.

The National Assembly also approved N214 million for the Ministry of Education, over N547 million for the Ministry of Finance, N272 million for the Ministry of Justice, N140 million for the Ministry of Health and N69 million for the Ministry of Interior.

Approved Electricity Budget and Debts of Some MDAs
Approved Electricity Budget and Debts of Some MDAs

A Freedom of Information (FOI) request was sent to the nine MDAs listed above, demanding details of how much they received for electricity charges from 2015 to 2020.

However, at the time of filing this report, none of the MDAs had responded to the FOI requests sent out on July 22.

The FOI Act establishes the right of a person to request and access information in the custody of government institutions.

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According to Section (4) of the Act, information requested should be made available to the applicant within seven days of receiving the application.

 

Debts by MDAs, Army and security agencies overwhelm power sector

The refusal of MDAs, Armed Forces and Security Agencies to pay electricity bills has had damaging effects on the Nigerian power sector.

The debts have worsened liquidity concerns for electricity companies and contributed to the decline in development within the sector.

The power sector has remained in financial crises and frequent need of intervention funds from the government. This has contributed to poor service delivery as Nigerians continue to record decreasing access to electricity.

In April 2021, the World Bank described Nigeria as the country with the least access to electricity in the world, having dropped below The Democratic Republic of Congo.

A country of over 200 million people, Nigeria currently distributes only an average of about 4000MWs of electricity instead of at least 200,000MWs. Only about 57 per cent of Nigerians are connected to the erratic electricity grid.

Executive Director, ANED Sunday Odutan had earlier identified MDA debts as a major reason for inefficiency in power supply and the liquidity challenges faced by DISCOs.

“Ministries, Departments and Agencies are owing to the DISCOs, and this is the same monies that they are expecting us to remit,” he said.

Technical Specialist ANED Akin Akinpelu also noted that the debts owed meant the DISCOs would deliver less energy to Nigerians.

“The continued failure to pay bills by MDAs leave several DISCOs in severe cash flow constraints as deductions are being made towards market remittance without considering MDA debts.

Less energy will be delivered into the market as DISCOs seek to reduce their exposure as much as possible,” he said.

MDA debts also increase the Aggregate, Technical, Commercial and Collection (ATC&C) losses recorded by the DISCOs.

The ATC&C losses that affect the sector’s efficiency, revenue, and expansion capacity are exceedingly high in Nigeria and have resulted in investors’ unwillingness to finance the industry.

General Manager, Corporate Communications of the AEDC Bode Fadipe confirmed to The ICIR that huge debts had sabotaged advancement within the electricity sector.

“The debt of a company is its asset. So when you withhold the asset of that company, it means you deny the company the opportunity of maximising the benefits that are accruable from that asset.

“So when MDAs and other customers owe, a fundamental effect is that they are slowing down the progress rate of the sector generally,” he said.

The inability of the DISCOs to recover these debts has also negatively affected other members of the value chain as the indebtedness of energy distributors to the Nigerian Bulk Electricity Trading (NBET) has reached N500 billion mark.

 

How small scale, individual consumers bear brunt of MDA debts

Apart from its debilitating effects on the electricity sector, huge MDA debts also negatively impact small-scale energy consumers.

Its role in inflating ATC&C losses result in higher charges as the losses are infused into consumers’ bills during tariff reviews. It is also reflected in the exorbitant amount paid by customers who still receive estimated bills.

Former Chairman, Nigerian Electricity Regulatory Commission Sam Amadi, describing MDAs’ debts as a significant part of the ATC&C losses, told The ICIR that the colossal amount owed often leads to higher tariffs for electricity consumers who pay their bills and poor quality of service.

“If the DISCOs do not have the capacity to finance investment and maintenance because of large MDA debts, it means that the consumers will receive poor quality of power. So the tariff fails because they are not getting money. They are not investing in operations, maintenance and expansion services.

“It means that the burden of payment falls disproportionately on those who are paying because that loss is ploughed back to the tariff. The consumers are paying more,” he said.

Mary Ugwoke, who owns a shop in Jahi, Abuja, told The ICIR that there had been an apparent increase in the amount she pays for electricity in the past couple of years.

Fadipe also said debts hamper expansion in services rendered by DISCOs to consumers.

“Over a period of time, I’m supposed to improve the service I give to you. Non-payment of bills for services rendered delays development and is also hurtful to you as a consumer,” he said.

 

Why we cannot disconnect MDAs, armed forces & security agencies from electricity supply – ANED 

While local consumers and small businesses are disconnected when they fail to pay, MDAs, Armed Forces and Security Agencies still enjoy power supply from DISCOs.

Speaking with The ICIR, Power Technical Specialist Akin Akinpelu said they could not disconnect them due to the sensitivity of their activities and the risks involved.

“If you remember the explosion that happened in Ikeja Cantonment, they said it was because the ammunition was not kept under the right temperature. It’s just like saying you want to go and disconnect a hospital because they are owing. You don’t do that.

“Many of these installations you cannot just disconnect them. There was a time IBEDC went for such disconnection in Ogun State. They beat up the manager in that area,” he said.

In 2016, there were talks on the disconnection of MDAs from the power supply, but the Executive Director, Research and Advocacy of ANED Sunday Oduntan discredited the speculations, saying the DISCOs would instead resolve the issue with the government.

The Federal Government had indicated an interest in verifying and paying off debts owed by MDAs a few years ago.

In 2017, former Minister of Power, Works and Housing Babatunde Fashola said that N26bn had been approved by the Federal Executive Council (FEC) to offset verified debts. But Akinpelu told The ICIR that the approved amount was not disbursed as promised.

“The verified one announced in 2017 by Fashola, no money was paid. They just announced that the Federal Executive Council had approved the payment of N26bn.

It was not supposed to be paid to the DISCOs but to NBET so that NBET can write off some of the DISCOs’ debts with that amount, but there was no instrument, no papers, just sheer talk,” he said.

 

MDAs, DISCOs disagree on debts

Chief Maintenance Officer for the Electricity Unit at the Ministry of Education Kayode David said the ministry does not owe their electricity distributors.

David argued that the Education Ministry had paid all its debts since 2017, and DISCOs do not keep records of payments made by their consumers.

“From the available records, all the money the Ministry owed was cleared in 2017. The Ministry was made to clear them before the process of deducting our bills from the source began.

“I remember last year December we had problems with them at AEDC. We went there with all our documents. But when we got to AEDC, they didn’t have any documents. They don’t have records,” he said.

Also, the Director of Press for the Ministry of Health, Segun Adetola, when contacted by The ICIR, said he was unaware of the debts owed by the Ministry and could not speak on it.

“Sorry, I have no idea about it, and I cannot talk about it,” he said.

A spokesperson for the Ministry of Finance, Charles Nwodo, also said he was on pre-retirement leave and could not speak on the matter.

Other MDAs contacted by The ICIR refused to speak on the debts.

 

Resolving MDAs Armed Forces, and Security Agencies Debt

In a bid to solve the financial crisis in the power sector, especially debts owed by MDAs, Armed Forces and Security Agencies, energy experts have advised DISCOs to provide proof of debts to hasten verification by the government.

Former NERC Chairman Sam Amadi said to ensure payment of the debts and avoid passing financial burdens on other electricity consumers. Discos are expected to run a diligence check to identify particular debtors with proof of why and how the bills cannot be collected.

To prevent the recurrent transfer of debts to consumers, Amadi urged DISCOs to establish which debts qualify as real losses and prove them. He said that regulators should commit DISCOs to collect debts which they ought to recover.

“Collection losses shouldn’t be very high if the DISCOs were doing their work: if they were metering people and improving on their consumer data. It should be going down quickly, and the regulators should be able to say, ‘you can do better in this area; we can’t keep transferring these debts to consumers.’

But if you keep transferring it to consumers, there is no incentive to do better. We’re going to be stuck on this high tariff,” he said.

Also, the National Secretary, National Electricity Consumers Association of Nigeria (NECAN) Uket Ekpo Ubonga told The ICIR that MDAs’ debts were exaggerated.

He argued that it was an attempt to deceive the public and urged DISCOs to provide evidence of the debts as a first step in resolving the issue.

“The first money all the DISCOs were supposed to collect was the bill beginning from 1st November 2013. But they have been collecting debts up to the 80s. Fashola said, go and bring the debts; let’s do debt verification. How many DISCOs have done that? Let them show proof of indebtedness,” he said.

He also called for the employment of more competent officials within the sector to resolve the electricity challenges in the country.

“Those figures are manufactured to hoodwink a regulator that is inept, incompetent, and does not have capacity. They sit down in Abuja here, and whatsoever the DISCOs write and give to them, they take it.

“NERC governance structure in the power sector is non-existent. It is weak. You can’t pick people who are incompetent to man a place like NERC. How do you think the system will operate?” he said.

Executive Director at ANED Oduntan noted that discussions are currently ongoing between the government, investors, and other stakeholders over resolving challenges the power sector faces, including MDAs’ debt.

“There are problems with MDAS’ debts since 2013 when we came on board, but in the past couple of months, there have been some genuine, high-level discussions between the federal government and our investors. Those discussions aim to solve the problems in the sector, including the issue of MDA debts,” he said.

Akinpelu also confirmed a verification process to ascertain debts owed by local and state governments and differentiate them.

“The Federal Government is working on repayment of historical debts and centralised future payment from source,” he said.

Though similar discussions have been held in the past, results are expected from the government’s audit committee to reconcile the challenge of MDAs’ debts in December 2021.

This report was facilitated by the Wole Soyinka Centre for Investigative Journalism (WSCIJ) under its Regulators Monitoring Programme.

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

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