… as hard times render GenCos insolvent
Stakeholders want privatisation policy reversed
Why fresh investment is elusive
BY ROTIMI DUROJAIYE AND BENEDICT NWACHUKWU, ABUJA
Nine years ago, the Federal Government unbundled the Power Holding Company of Nigeria and handed over 18 utility firms to private investors.
The government raked in $2.5 billion (about N916.575bn) from the transaction involving six Generation Companies and 11 Distribution Companies.
The private investors collected their share certificates from the then President Goodluck Jonathan on September 30, 2013 and took over the management of the assets from November 1 of that year.
Politically exposed personalities were mainly the beneficiaries. Although backed by some globally known foreign partners like Siemens and Manila Electric, the buyers had borrowed money in dollars from commercial banks in Nigeria to complete the transactions.
In 2013, when most of the buyers rushed to the banks for the loans, little did they know that the dollar, which then exchanged for an average N200 for $1, would jump to about N500 in no time, even as they are to repay the loans for businesses transacted in naira.
Although banks were also expected to do due diligence to avoid bad loans, while they were yet to recover from the liquidation of the sector, most stakeholders in the sector did not project that implementation of tariff order would remain a major concern, alongside weak infrastructure, to dispatch the generated electricity.
For years, most of the DisCos were being spoon-fed, while the Key Performance Indicators agreement they signed with the government were never met, leading most consumers to provide basic infrastructure like wires, transformers and electricity poles that should have been the responsibility of the investors.
Also, the metering gap has persisted with high aggregate technical and commercial loss while none of the DisCos, except Eko, has been able to meet their revenue remittance threshold.
Amid theft and estimated billing, end-users such as the Federal Government and the states with their agencies, which should have paid electricity bills promptly, currently owe the sector nothing less than N202billion, while most DisCos reportedly run on bloated overheads and operate system typical of the public sector, where employment, salary scale and promotion favour the powers that be.
Records from the Bureau of Public Enterprises, which coordinated the transaction, show that the government sold stakes and concessioned the six GenCos for $1.269bn (N460.7bn), while 10 DisCos (the sale of Kaduna Electric held later) were sold at $1.256bn (about N455.9bn). The Federal Government sold 60 per cent shares and retained 40 per cent.
In addition, each DisCo paid N1million as licence application fee to the Nigerian Electricity Regulatory Commission and paid $75,000 (about N27.1million) as the licence fees, valid for 10 years.
In all, the 11 DisCos paid N298.3million as licence fees to NERC in addition to N11million application fees.
According to the performance agreements, the privatised GenCos and their new owners were to have added 5,000 megawatts of electricity to the national grid after five years, which was 2018.
The DisCos were to have metered their customers and reduced their Aggregate Technical Commercial and Collection losses in the first five years when a review would be done on how well the investors managed the firms.
But an investigation by The Point has revealed that electricity consumers still get epileptic supply, buy metres, transformers and other electrical materials across the 11 privatised DisCos.
Nine years after the power sector was privatised, calls by experts and stakeholders abound for the government to review the performances of the players in the industry value chain.
This appalling development made the Federal Government to constitute a Ministerial Power Sector Working Group to charge, coordinate, monitor and evaluate activities in the Nigeria Electricity Supply Industry.
Minister of Power, Abubakar Aliyu, while inaugurating the team, reassured electricity consumers that the government was prepared to solve problems of epileptic power supply.
The members of the working group include the five Directors from the Technical Departments of the ministry – Transmission Services, Distribution Services, Renewable and Rural Access, Energy Services and Investment Sector, and top institutional stakeholders, comprising all the chief executives of the agencies under the ministry, with the secretariat headed by Mahmud Suleiman.
Power sector and loan default
On December 9, 2021, the United Bank for Africa Plc took over the majority stake in the Abuja Electricity Distribution Company. This was after the bank had received the endorsement of the Federal Government.
The Minister of Power, Abubakar Aliyu, said the Deposit Money Bank had to take over the power firm due to the inability of the AEDC’s major investor (Kann Consortium) to effectively service the loans obtained from UBA when it acquired the Disco in 2013.
UBA had acted as the mandated lead arranger, underwriting $122m (about N20bn then) for Kann Consortium’s acquisition of the AEDC.
Providing explanations on what led to the recent changes in the ownership structure and management at the AEDC, the power minister, in a statement he signed, said the takeover of the Disco by the bank had to happen.
He said, “The AEDC has, of recent, been facing significant operational challenges arising from a dispute between the core investors (KANN Consortium) as owners of 60 per cent equity in the AEDC and UBA as lenders for the acquisition of the majority shareholding in the public utility.
“The situation has currently deteriorated due to lack of access to intervention finances leading to a point whereby legitimate entitlements of the staff are being owed thus leading to service disruptions on December 6, 2021 within its franchise area.
“The Federal Ministry of Power has since taken the initiative to engage organised labour and electricity service has since been restored in the Federal Capital Territory and the states served by the AEDC.”
“The UBA, as a lender, and in exercising its rights over the shares of KANN Consortium in the AEDC, has taken over the shares of the obligor in the AEDC. This takeover of the majority stake in the AEDC by UBA has consequently led to the reported changes in the management of the AEDC,” Aliyu added.
He said the changes in shareholding in the AEDC and the appointment of an interim management for the Disco by the shareholders had been endorsed by the Nigerian Electricity Regulatory Commission and the Bureau of Public Enterprises (as co-shareholders in the AEDC).
The AEDC is the licensed utility that serves end-user electricity customers in Kogi, Nasarawa, Niger states and the Federal Capital Territory.
Also the NERC and BPE, in a joint statement, said there had been an ongoing dispute among competing factions of the AEDC’s majority shareholder/core investor – Kann Utility Company Limited.
They said this dispute eventually spilled over to a dispute with the lender that provided the acquisition loan to Kann for the acquisition of majority shares during the privatisation exercise in 2013.
“During the course of the intractable crisis, the AEDC not only struggled to meet its obligations to the market under the terms and conditions of its licence but was also unable to meet its obligations to key stakeholders in the organisation including staff, culminating in the industrial action by members of the Nigerian Union of Electricity Employees,” they stated.
Six years after losing Skye Bank, Nigerian businessman, Tunde Ayeni, lost another company, Integrated Energy Distribution and Marketing Limited, to the Nigerian government.
Six years ago, the Central Bank of Nigeria had taken over the asset of Skye Bank (now Polaris Bank), where Ayeni was majority shareholder and served as chairman, due to bad loans and mismanagement.
Those reasons have now cost him Integrated Energy Distribution and Marketing, which is the majority stakeholder of Ibadan Electricity Distribution Company, a disco firm purchased in 2013.
IBEDC distributes electricity to consumers in Oyo, Ogun, Osun, parts of Kwara, Ondo and Ekiti states.
Ayeni reportedly owed Skye Bank an unpaid N102billion loan during the CBN clampdown in 2016, forcing him to resign his position. A similar situation happened in IBEDC, where he and his board have now been ousted by the Asset Management Corporation of Nigeria.
AMCON, which serves as the Federal Government loan recovery agency, stated that IBEDC granted loans from Nigeria Electricity Market Stabilisation Funds to the core investors in the disco company.
The Central Bank had given the NEMS funds to electricity companies with the intention that the money be used to better their networks, reduce aggregate technical, commercial, as well as collection losses.
The investors were accused of delaying repayment of the loan, leading AMCON to order the dissolution of the company’s board, within 21 days, on June 19, 2018.
Ayeni denied the loan default claim by AMCON, stating that monthly expectation for repayment had been met as of June 14, 2018.
He and other affected directors filed a case against the loan recovery agency, and subsequently won a judgement against AMCON’s order in an Abuja Federal High Court on July 10, 2020.
This resulted in AMCON appointing Kunle Ogunba as the Receiver/Manager in the receivership action in October 2021.
IBEDC on Friday, January 21, 2022 announced the takeover officially.
The NERC had previously fined IBEDC N50million for failure to secure a refund of an interest-free loan the IBEDC board granted to its core investor group.
As of last year, the debt owed to banks by the power sector stood at about N819.97 billion.
The National Bureau of Statistics had, in 2020, put non-performing loans in the power sector at N33.22billion out of N1.23trillion NPLs recorded by banks.
Also, the power generation sub-sector is experiencing investment constraints following the inability of DisCos to take the load as well as transmission inadequacies.
How to improve sector – Experts
The President, Consumer Protection Network, Kunle Olubiyo, said there were still a lot of gaps to be addressed with regard to the performance of the DisCos in terms of customer services.
“I cannot say we have really gotten it so well. From DisCos to DisCos, they have what they call their KPI and an automated device, which allows for tracking from DisCos to DisCos.
“But if we have to look at it generally, there is a backlog of unresolved issues that have to do with consumers’ dissatisfaction in the sector. Until lately when the regulator (NERC) gave notice for their intention to review the operational licence of some DisCos, the operators in the last four years operated like lame ducks,” Olubiyo held.
The President, Association of Public Policy Analysts, Princewill Okorie, said the level of performance of the DisCos, in terms of customer services, since privatisation, was not encouraging because of ‘exploitation.’
“For instance they have not been obeying Sections 80, 81 and 82 of the Electric Power Sector Reform Act of 2005; that is on consumer protection and licensing performance standards. Specifically, there is exploitation and fraud in collecting reconnection fee that is contained in that Act.
“Also they are not obeying estimated billing methodology. Therefore, both the DisCos and NERC have not helped matters in the area of consumer protection,” he said.
A former Managing Director of Nigerian Bulk Electricity Trading Company, Rumundaka Wonodi, said the capital structure of the DisCos was not sustainable.
According to him, a situation where investors used debt to purchase the shares of the company and became reluctant to sell down their shares to attract new equity remains a challenge.
“Worse still, many of the DisCos have failed to invest to raise service level and revenues, failed to run prudent operations, the case of Abuja DisCo is a clear case where the management was seriously bloated. We can only hope that these two cases will make others sit up,” he noted.
A top manager in one of the DisCos, who pleaded not to be mentioned because he has no authority to speak to the press, said that the financial crisis in the power sector might make fresh investment elusive, adding that most international firms had no interest in investing in the sector other than to look for contracts.
He pointed out that the DisCos were only players in the sector and could not function very well because of other factors like the transmission bottlenecks and prevailing economic issues that were beyond them.
He said that the impact of the account escrowing was being felt in the sector, adding that the embattled Ibadan DisCo generates about N8.9billion revenue, monthly, from an invoice of N14billion, pointing out that the accounts of all the companies were open to the CBN, including spending pattern.
According to him, there are only a few profitable states in most of the DisCos across the country. He added that even if the government or banks take over the DisCos, running them profitably remains a critical challenge.
He said, “The investors cannot get additional money to put in the power sector because the structure of the transaction as dictated by the Bureau of Public Enterprise cannot allow the investors to get capital. The multi-year tariff order has also not been effected to bring the sector to full market status. This government disallowed the multi-year tariff order. We are generating electricity at N30 per kilowatts and selling at N21, not to talk of making a profit.
“Even if we declare force majeure, we may not get our money back. In Yola, when we declared force majeure, it took five years for the government to pay N88million. Where are they going to get the money from?”
Former President and Chairman of Council, Chartered Institute of Bankers of Nigeria, Segun Ajibola, noted that the loans from the power sector threatened most commercial banks in the country, stressing that borrowing in dollars for a transaction domiciled in another currency remained a bad decision.
Lamenting that DisCos were not properly managed, Ajibola feared that the worsening state of the DisCos would put pressure on Nigerians who might endure poor service and continue to fund electricity infrastructure across their communities to enjoy supply, which is barely available.
“Nine years after the power sector was privatised, calls by experts and stakeholders abound for the government to review the performances of the players in the industry value chain”
“Banks were made to lend to the DisCos. It is bad credit practice to borrow in one currency and the project is generating cash flow in another currency. There was a currency mismatch. The movement in currency rate has always been against the Naira,” Ajibola said.
He said most borrowers would have to pay back double of what they had borrowed, noting that debt in the power sector not only threatened the banks but the sector.
Ajibola added that most banks were facing their inability to adhere to prudential guidelines, corporate governance rules, ethical conducts and others, stressing that the shareholder’s fund of most banks was being affected by the power sector loans.
Executive Director, Power Up Nigeria, Adetayo Adegbemle, noted that it was unfortunate for most of the DisCos to have borrowed with an expectation that things would go well, adding that the escrowing of the accounts exposed the weakness of most of the DisCos.
On his part, a former Managing Director of one of the DisCos, who pleaded not to be mentioned, said if the prevailing situation was not addressed, it could lead to the collapse of the distribution companies.
“All along, the DisCos were enjoying a subsidy from the government. This subsidy has been removed while the customers are not paying because electricity is still seen as a social service. Apart from a loan taken to acquire the assets, there are other associated loans that are now being deducted from the source. This will make many DisCos fall victim to what happened in Abuja and Ibadan DisCos,” he said.
General Manager, Public Affairs of the Transmission Company of Nigeria, Ndidi Mbah, said, “Prompt payment of electricity bills can indirectly improve power supply. Prompt bill payment means adequate funding for the generating, transmission and distribution companies to run their stations and fund their services.
“Funds collected by distribution companies nationwide are shared using approved tariff methodology to the players in the power sector value chain. All the companies in the value chain must be able to take care of their cost of production, improve efficiency and make profit.”
She added that while the service providers should ensure that enough metres are provided, Nigerians must desist from vices like tampering with the metre as well as bypassing of the metres to evade paying accurate bill.
“Nigerians should desist from erecting structures, businesses along transmission lines, Right of Way under transmission towers or even using the base of towers as refuse dump site. This compromises the integrity of such lines and towers in the long run.
For instance, on December 24, last year, pipeline vandals in Lagos caused an inferno, which destroyed a portion of TCN’s Akangba – Ikeja West 330kV transmission line and pulled down five transmission towers along that line route,” she noted.
Okey Obinna, a resident at Mararaba, in the outskirts of FCT, said, “Electricity issue in Nigeria is one thing we have left for God.
It is only God who can solve it. Come to the part of Mararaba where I am living, you will see electric poles standing but you will not see electricity. At the end of the month, they will give us bills as if we have industries. Give us light and give us bills, we will not complain, but the wicked thing is that we pay for electricity we are not using,” he lamented.
“Ayeni reportedly owed Skye Bank unpaid N102 billion loan during CBN clampdown in 2016, forcing him to resign his position, a similar situation happening in IBEDC, where he and his board have now been ousted by the Asset Management Corporation of Nigeria”
Michael Abdul said the suppliers of the electricity and the users need reorientation if power supply must improve.
Abdul said the providers were not sincere in dealing with the public who also were not sincere. He said whether AEDC or NEPA, they had failed the country woefully “because for over six decades, they are still grappling with the situation and they seem to be very far from finding a solution.”
“The electricity providers are only after the money they will extort from the people. They are not bothered about seeking the improvement of the supply, that is why when an area has a problem, you report to them, they will ignore you but continue to bring their bills. All they are after is money,” he noted.
A civil servant who resides in Lugbe, a suburb in the FCT, but preferred anonymity, said the the Federal Government was a major problem. He said after the privatisation of the power sector, Nigerians thought power supply would improve tremendously but regretted that the reverse is the case.
“What did they tell us when they were privatising NEPA? Today, it is even worse than when it was NEPA, yet the government is not asking questions, probably because the people who will ask questions are involved in the deal. So who will probe whom?” he asked.
In May 2021, the Federal Government announced that it was planning to sell five GenCos to investors through the BPE.
The bidding processes for the GenCos, which are part of the National Integrated Power Project have already commenced.
The NIPP projects being considered for sale are: Geregu Generation Company Limited, installed capacity at ISO condition of 506 Megawatts (MW); Benin (Ihovbor) Generation Company Limited, with 507 MW; and Calabar Generation Limited, with 634MW.
Others are Omotosho Generation Limited, with 513MW; and Olorunsogo Generation Company Limited, with 754MW.
Adeola Samuel-Ilori, National Coordinator, All Electricity Consumers Protection Forum, shared his view on the development.
Samuel-Ilori noted that while the BPE had directed that the bidders must have prior experience in power generation, the government must, however, ensure that they adhere to the requirements.
“We don’t want it to be mere rhetoric as we have seen in the sales of critical national assets in the past; particularly in the same power sector.
“For us, as an electricity consumer group, we can only support the selling of these power plants to investors that have both technical and financial competence.
“Anything short of that will not be good for the Nigerian Electricity Supply Industry and will further put more electricity consumers in darkness,” he said.
On September 1, 2021, President Muhammadu Buhari sacked the Minister of Power, Salleh Mamman, in a minor cabinet reshuffle.
The President replaced him with Abubakar Aliyu, who until his appointment was Minister of State for Works.
However, electricity consumer groups believe that ensuring that the NERC adequately performs its statutory responsibilities should be a major focus of the new minister.
The groups, the Energy Consumer Rights and Responsibilities Initiative and AECPF, said this would unlock the potential of the sector.
Samuel-Ilori of AECPF and Surai Fadairo, National President, said the minister should be firm on NERC and oversee the regulatory agency to protect the interest of consumers.
Muda Yusuf, an economist and former Director-General of the Lagos Chamber of Commerce and Industry, said the entire experience had given privatisation a bad name.
“There were issues of due diligence, technical capacity, financial capacity, political interference, metering issues, commercial losses, technical losses, tariff rigidities and the economics of the private sector investment in the sector,” he said.
Also, Sina Odugbemi, Convener, Where’s the Light Movement, said Nigerians had not experienced the desired objectives of available, accessible and affordable electricity supply over eight years after the sector was privatised.
He said, “The only way forward is for the government to reverse the privatisation policy and bring back the power sector under exclusive public ownership.
“Nigerians have witnessed both; that is, public and private ownership. Service under the so-called private investors is worse.
“We advocate the democratic control and management by workers and consumers in a more transparent manner.”
Deficit of infrastructure across the value chain of the power sector remains another challenge, which affected stable power supply in the country in the year under review.
From generation to transmission and distribution value chain, the sector is in dire need of infrastructure upgrade to meet the energy needs of the populace.
Joy Ogaji, Executive Secretary, Association of Power Generation Companies, said only 25 out of 150 GenCos licensed by NERC were operating optimally in Nigeria.
