THE managing director of Azura Power West Africa, a power generating company, Edu Okeke, on Thursday, said there’s a need to address insolvency – unable to pay debt obligations –   in the power sector, advocating $500 million market capitalisation of all the 11 Electricity Distribution Companies(DisCos).

Okeke, who spoke in Abuja at the 4th edition of the Power Correspondents Association of Nigeria (PCAN) annual workshop, on Thursday, November 14, noted that many of the DisCos are struggling to pay their total bills to the entire power sector market value chain.

The workshop was themed “Nigerian Power Sector: Ending the Talk, Moving to Action.”

Okeke advocated that DisCos must be adequately capitalised, adding that many of them carry a heavy burden of debt and are unable to pay when due.

To this end, he said no DISCO should operate without at least $250m in shareholder funds and called on the federal government to be decisive in addressing the issue.

Okeke, however, called on the government to remove the debts from the DISCOs’ books and to increase the capitalisation to $500m.

He said, “For any investment in the power sector to be viable, investors must be assured of Cost recovery. There are only two ways to achieve this: either the Government pays or consumers do. I commend the Government’s recent decision to transfer costs to, consumers, starting with Band A.

“Ultimately, consumers will bear a fair share of the cost of the power they consume. However, this equation has a critical weak link — the Distribution Companies (DISCOs), who directly interface with consumers. As things stand, even with tariff adjustments, many DISCOs struggle to pay their total bills to the entire value chain.

‘This is largely due to their lack of capacity to make the necessary investments to recover costs effectively. To enable meaningful progress, DISCOs must be adequately capitalized.

“Unfortunately, most DISCOs have negative equity, leaving them with little to no financial stake. This situation must change. Ideally, no DISCO should operate without at least $250m in shareholder funds. Just as the Central Bank of Nigeria has raised capital requirements for banks to ensure their stability and capacity to serve, the Nigerian Electricity Regulatory Commission (NERC) should mandate similar capitalization standards for DISCOs.

“Many DISCOs also carry a heavy burden of debt, accumulated over time through a mix of operational challenges and systemic issues. To truly address this problem, the Government needs to come clean and take a decisive step.

“My recommendation is a two-pronged approach: to consider removing these debts from the DISCOs’ books and mandating them to increase their capital by at least USD 500 million each.

He stressed that the move  will require existing shareholders to dilute their holdings to attract new investors with real capital to invest in infrastructure — not just on paper, but in transformers, cables, and equipment to serve customers reliably”.

The ICIR has earlier reported  over N5 billion electricity debts owed by ministries departments and agencies (MDAs) of the governments to DisCos which is increasing insolvency problems in the sector.

The report pointed out that the  debts by the MDAs have huge impacts on Nigeria’s power sector crisis, prompting the Federal Government’s borrowing of about $1.5 billion from the World Bank to put the power sector on the right trajectory.

These loan facilities would be paid for eventually, despite the ‘payment delinquency’ by the various debtor MDAs, which is already affecting investments in power sector infrastructure.

“I’m worried about the MDA debt to the tune of over N5 billion, because looking at it from the perspective of the policymakers, I mean the policymakers manning various debtor ministries don’t have respect for their policy. In that respect, how would an investor take you seriously?,” the CEO of Sage Consulting and former corporate spokesperson of AEDC, Oyebode Fadipe told The ICIR.