The Federal Government (FG) is considering repossession of 10 electricity distribution companies (DISCOs) as one of the options to rescue the nation’s beleaguered electricity industry.
This is coming ahead of the scheduled final performance review of the private firms that bought into the distribution companies carved out from the defunct Power Holding Company of Nigeria (PHCN).
However, documents made available revealed that the FG would require up to $2.4bn (N736bn) to repossess the privatised distribution assets from the core investors if it finally takes the decision.
Giving clue that it could recover the assets from the core investors, the Ministry of Power, Works and Housing in a document sighted by one of our correspondents has described the co-owners of the distribution companies as ‘failed investors.’
The distribution and generation companies carved out of the defunct PHCN were handed over to private investors on November 1, 2013, following the privatisation of the power sector by the President Goodluck Jonathan administration.
The Transmission Company of Nigeria, which is responsible for electricity transmission, is still fully owned and operated by the government.
It was garnered on Friday, August 9, that 17 of the nation’s 27 power stations had been forced to shut down some of their units on the back of low demand by DISCOs, worsening the blackout being experienced by millions of customers across the country.
11 DISCOS declared struggling financially
Total power generation dropped to 3,264.4 megawatts as of 6 am on Monday, August 12 from 3,580.5MW on Sunday. It stood at 2,842.1MW as of 6 am last Thursday.
Five and a half years after privatisation, the 11 Discos have been described as ‘technically insolvent.’
The ministry, in its new ‘Power Sector Policy Directives and Timelines,’ said there was an urgent need to recapitalise the Discos.
It described the inability of the DISCOs to improve customer service and meet operational costs as a direct consequence of their inability to raise capital.
The Bureau of Public Enterprises said in October 2018 that the five-year performance agreement with the core investors in the Discos, with the exception of Kaduna Disco, became effective on January 1, 2015, and the fifth anniversary for final performance review would, therefore, be December 31, 2019.
The ministry said the Discos’ accumulated debts to the Nigeria Bulk Electricity Trading Plc and the Market Operator had made them technically insolvent.
On the option of repossessing the distribution assets, it said, “To do so within the provisions of the Share Sale Agreement will require a sum in the region of $2.4bn, some of which will be paid as compensation to the failed investors.
“This is not a desirable outcome. It is noteworthy that the government is yet to pay the investor in Yola Disco for its negotiated return to government.”
While highlighting the reasons for the inability of the DISCOs to raise the capital required, the ministry said new lenders would require additional equity injection.
“But any new equity investor would require clarity about how the accumulated debts would be treated, and what support, possibly in the form of subsidy, regulatory assets and or higher tariff, would be available to manage new operating shortfalls during a transition period,” it added.