Experts are urging the Federal Government to dilute the shares of the core investors in Nigeria’s 11 electricity distribution companies (Discos) using the funding clause in their performance agreement as a way of resolving the current shortfalls in the electricity market, valued at over N800billion.
“The FG should rely on the funding clause in the Shareholders Agreement, which allows the BPE as a 40 percent shareholder in the Disco, to inject capital into the DisCos in the event that there is a requirement for further funding which the core investor is unable to provide.
“The clause allows the BPE (Bureau of Public Enterprises) to dilute Core Investors equity in the DisCo by such funding,” says Wesley Omonfoman, CEO of New Hampshire Capital Investments Limited, an energy consulting firm.
“The dilution mechanism leverages on the huge liabilities of the DisCos to NBET (the Nigerian Bulk Electricity Trader) and the MO (Market Operator). In simple terms, the mechanism for dilution is for the BPE, acting for the Federal Government, to guarantee the Discos obligations to NBET (under the vesting contracts) and the CBN (under the N213billion Nigerian Electricity Market Stabilisation Fund- NEMSF and the N701 billion power sector payment assurance guarantee).
“Where DisCos fail to meet their payment obligations to NBET and the CBN, NBET should call the BPE guarantee. The BPE should then convert the called portion of the guarantee to shareholders funding for DisCos and dilute the core investors.”
After the 2013 privatisation of Nigeria’s power asset to core investors who emerged successor companies to the Power Holding Company of Nigeria (PHCN), the objectives set before them were to promote efficiency, increase private sector funding of the power sector, increase power generation and make the sector more viable under private sector management.
Three years and $3billion worth of intervention later, Nigeria’s power generation hovers around 3,000MW from 1,750MW average daily generation in 1999. The bulk of the blame has been ascribed to the DisCos whose bids were premised on bringing new investments into PHCN’s derelict assets, reducing Aggregate Technical, Commercial, and Collections Loss, (ATC&C) and improving collections, but have failed to deliver on all accounts.
According to the BPE, DisCos have only succeeded in metering 10 percent of electricity customers, a key factor in their collections losses. The DisCos, who were expected to pay everyone along the value chain, began to keep more for themselves than was allowed in their contracts, thereby hurting the ability of electricity generation companies to pay their gas suppliers.
Worse still, NBET, which ought to play the role of a trader, relinquished its position and failed to call the DisCos to account, thereby worsening the state of the sector.
“NBET is not playing its role as the bulk trader, it is not enforcing the rules and is worsening the problem,” said Chuks Nwani, an energy analyst.
Nigeria’s 11 electricity distribution companies currently have negative capital, on account of the over N470 billion owed to NBET and the Market Operator.
Bisi Sanda of Ernst & Young, told BusinessDay that the government should revoke the performance agreement the DisCos entered into with them, take them to the capital market to dilute their shares.
“But for this to work, there must be honest people at the helms of affairs, to run the government for it work,” said Sanda, something Nigeria currently has in shorter supply than megawatts of electricity, as mind-boggling figures of corruption rent the air.
Sanda further said “What we are suffering from now, is the poor way in which the Discos were privatised. If they were done correctly, it would have positive effects and a good number of investors would come to the sector.
“The government itself should go back to the performance agreement and use it to dilute their shares at the capital market.”
Nwani however, says heaping all the blame on the DisCos is oversimplifying the issue. “There were investments the government was supposed to make, as part of the privatisation agreement but it failed to do them.
“NBET has failed to run as a trader and the government has not recapitalised it, also the Transmission Company of Nigeria is the in the hands of the government. Has it fared any better?”
The Discos have consistently called on the Federal Government to pay debts to the tune of around N100billion and fulfil its own obligations in its agreement with them.
OLUSOLA BELLO, FRANK UZUEGBUNAM & ISAAC ANYAOGU
