RECAPITALISATION DEBACLE: WHY MOST DISCOS MAY CLOSE SHOP


If
 there is one sure way most observers of the current political dispensation would want to assess President Muhammadu Buhari’s success or otherwise at the end of the next four years as Commander InChief of the Nigerian nation, perhaps its fledgling power sector could readily fill the log.

But as if it understands this urgency of that assignment, government had recently inked a six year power upgrade contract with Siemens AG of Germany to raise generations and distribution to a record 25, 000 MW by 2025 from about 4000mw presently .

However, while debate on the feasibility of Siemens deal continues to resonate in different circles the recent alarm raised by Electricity Distribution Companies in Nigeria (Discos), that they recorded a huge operational shortfall of about N3 trillion, now threatening the capacity to meet their  obligations, again stirred fresh controversies.

It gave a clear indication that the 11 power distribution companies have eventually come to the end of the road having failed to significantly improve their services over  the past five years of being in charge.

Speaking to Daily Sun in Abuja, an Executive Director, Association of Nigerian Electricity Distributors (ANED), Sunday Oduntan, admitted that the liquidity crisis was not peculiar to the Discos but cuts across the entire power-value-chain.

“There is a limit to how much you can invest otherwise you cannot recover it in your tariff. That is what happens. If I need an investment of N20 billion and I am allowed N7 billion, it means that if I spend a penny above that I cannot recover it. The purpose of doing business is cost recovery.  Oduntan averred.

With the Nigerian economy already on its knees largely due to power shortages, the thinking among stakeholders including the Federal Government is that its time for the generation and Distribution companies to quit the scene to allow more serious operators come on board to rescue consumers from the stranglehold of a bunch of inexperienced and lilylivered power vendors.

This argument appears in synch with views in the upper legislative chamber Senate which last week urged the Federal Government to divest its 40 per cent stake in Discos and sell same to foreign investors.

Speaking when he received the management team of the Transmission Company of Nigeria (TCN) led by its Managing Director, Mr. Usman Mohammed, the Senate President Ahmed Lawan urged the Federal Government to allow experts in the field an opportunity to invest in the sector.

“The 40 percent holding of the Federal Government as stipulated in the Power Privatisation Act 2005 may also be more beneficial to the nation if it is sold to foreign investors with technical know-how,” he was quoted as saying.

He stated that it is not in the interest of the government to keep disbursing bailout funds to Discos without commensurate improvement in the power supply.

For his part Vice President Yemi Osinbajo, last week  at a project commissioning in Abeokuta, Ogun State underscored the urgency of recapitalization of the 11 electricity distribution companies (Discos) to enable them compete and deliver on their mandate.

Osinbajo, gave the warning signal during the commissioning of the Niger Delta Power Holding Company (NDPHC), 2X60MVA, 132/33KV Substation and Associated transmission lines in Abeokuta, Ogun State.

He said there was the need to open up the space in the power sector to allow the entry of more players in distribution, transmission and generation and transacting among themselves to sell power to willing customers, including the deployment of grid power, and using micro grid and also solar power.

Osinbajo disclosed further that Government cannot afford to restrict the space to those who currently occupy it given that they seem to have failed Nigerians.

The Vice President said there was a need to change the strategy in the power sector, saying at the heart of such strategy was for the Discos to recapitalize because they needed to inject more finances which are clearly absent at the moment.

TCN, ANED clash over recapitalisation

TCN, on several occasions had called for the recapitalisation of Discos, as it had argued consistently that the lack of investments in power distribution network was affecting transmission infrastructure negatively.

“Nigerians are not connected to our (TCN) network. They are connected to the distribution network. So the Nigerian people in a way do not feel what we are doing. But the fact is that even our equipment are not guaranteed because there is no investment in the Senate President, Ahmed Lawan, recently advised the Federal Government to divest its 40 per cent stake in electricity distribution companies (Discos) to foreign investors.

“The Nigerian people are not connected to our (TCN) network. They are connected to the distribution network. So the Nigerian people in a way do not feel what we are doing. But the fact is that even our equipment are not guaranteed because there is no investment in the distribution network. So the Discos just have to recapitalise,” Mohammed, had stated.

The TCN said it was considering a soft landing as it was ready to waive about N270 billion should there be a recapitalization of the  Discos. But, the Association of Nigerian Electricity Distributors (ANED) had said the recapitalisation of Discos, being canvassed by the TCN, will happen when investors in the Discos see a pathway of recovering their investments.

In his address at a two-day seminar for the preparation of Performance Improvement Plans by Nigerian Discos, the Chief Executive Officer of ANED, Azu Obiaya, observed that there had been so much calls for the recapitalisation of Discos recently.

But in an apparent response to the calls for Discos’ recapitalisation, while speaking at the second PIP seminar, Obiaya stated that rational investors would need to see how they would recoup their investments before they could go ahead to recapitalise the firms.

The ANED boss said, “Recently, there has been a drumbeat for recapitalisation of the Discos.  There are two principal approaches to recapitalisation – one, we won’t mention today and the other is investment. For the latter to occur, rational investors would need to see a pathway of recovering their investment for them to make the leap…”