Federal Government is considering buying back the 10 electricity distribution companies otherwise called DISCOs as one of the options to save the nation’s troubled electricity industry.
This is coming ahead of the scheduled final performance review of the private firms that bought into the distribution companies in 2014. The companies werebcarved out from the defunct Power Holding Company of Nigeria.
This is as the Managing Director of Transmission Company of Nigeria (TCN), Mr Usman Mohammed has warned of consequences if the government toes this line. Although, the TCN boss, had consistently called for recapitalisation of the distribution companies.
He says that cancelling the sale of the Discos was not in the best interest of the nation.
Mohammed however supports any initiative aimed at expanding the distribution network.
According to Punch reporting however, documents available shows that the Federal Government 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 Power Holding Company of Nigeria were handed over to private investors on November 1, 2013, following the privatisation of the power sector by the President Goodluck Jonathan administration.
TCN which is responsible for electricity transmission, is still fully owned and operated by the government.
A media report had on Friday reported 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.
Total power generation dropped to 3,264.4 megawatts as of 6am on Monday, August 12 from 3,580.5MW on Sunday. It stood at 2,842.1MW as of 6am 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 government is yet to pay the investor in Yola Disco for its negotiated return to government.”
On July 2015, the Federal Government took over Yola Electricity Distribution Company following the exit of the core investor after it declared a force majeure, citing insecurity in the North-East geopolitical zone of the country.
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.