The forceful exit of core investors in DisCos, after IEDM which else?

By Akpobor Jirhue Abuja

Media reports at the weekend confirmed the take over of the assets of Integrated Energy Distribution and Marketing (IEDM) Limited, the core investor of Ibadan Electricity Distribution Company, (IBEDC) by the Asset Management Corporation of Nigeria (AMCON).

The take over which seems to have become a trend in the industry is third coming on the heels of similar fate on Abuja Electricity Distribution Company, (AEDC), and Yola Electricity Distribution Company, (Yola Disco).

United Bank for Africa (UBA) Plc in December 2021 got approval of the federal government and the Nigerian Electricity Regulatory Commission (NERC) to take charge of the assets of AEDC due to the majority shareholder/core investor KANN Utility Company Limited (KANN) to meet its lenders’ obligation.

As usual the initial change of mandate in AEDC which was announced by the Minister of Power, Abubakar Aliyu, was said to have been quoted out of context, as media earlier reported the incident with headline like, “President Muhammadu Buhari approved sack of AEDC management over the strike by the Nigerian Union of Electricity Employees (NUEE).” Industry watchers were left wondering what the rules of the regulatory body, NERC have become if Mr President takes such action, this as well might have highlighted the implications to prospective investors.

Clarifying the federal government’s role, Aliyu said the electricity distribution company had been faced with operational challenges arising from a dispute between KANN Consortium, a core investor with 60 percent equity in AEDC, and UBA which lent the fund for the acquisition of the majority shareholding of the disco.

A joint statement by Sanusi Garba, NERC chairman, and Alex Okoh, BPE director-general, said the decision to fire the management of the AEDC was taken by United Bank for Africa (UBA) Plc and approved by the government as the regulator.

While the dust generated by the unfortunate transition of ownership of AEDC was yet to settle, IBEDC has come under same fate. The common denominator of both situations is financial crisis. The question that readily comes to mind here is, “What is the financial viability of the core investors who took over the DisCos in 2013? If they are financially weak as it’s becoming evident how safe is the Nigeria Electricity Supply Industry (NESI) bearing in mind that the DisCos collect funds on behalf of the other operators?”

Unheeded NERC’s Earlier Warning

Prior to the latest development, NERC had in July 2019 threatened to withdraw the licences of eight DisCos over breaches of some provisions of the Electric Power Sector Reform Act.

NERC anchored the unfilled threat on three main fundamental reasons, namely the breach of provisions of the Electric Power Sector Reform Act (ESPRA), terms and conditions of their respective distribution licences and the Remittance Order of the year 2019.

The eight power firms include Abuja, Benin, Enugu, Ikeja, Kaduna, Kano, Port Harcourt and Yola Electricity Distribution Companies.

Details of the notice posted on NERC’s website, the power sector regulator said it intended to cancel licences issued to the eight DisCos in pursuant to Section 74 of the EPSR Act.

Under the Power Sector Recovery Plan (PSRP), DisCos are liable to relevant penalties/sanctions for failure to meet the minimum remittances requirement in any payment cycle in line with the provisions of its respective contracts with NBET, Market operator (MO) and provisions of the Market Rules.

For the purpose of clarification, NERC said the remittances of the 8 DisCos to Nigerian Bulk Electricity Trading (NBET) in July 2019 billing cycle showed failure to meet the expected minimum remittance thresholds. Basically, the commission’s notice showed that all the listed DisCos failed to meet the expected minimum remittance in July.

Further analysis shows that three other DisCos remitted 10% during the period while the highest remittance was 40%, as they all fell short of the expected minimum remittance stipulated by NERC.

Although, NERC did not carry out it’s proposed threat the industry seems not to have recovered from the highlighted financial crisis. This can be seen from the fact that ownership of two of the listed DisCos have been forcefully transferred within two months. The hope of the other scaling through the year without falling into similar crisis remains uncertain.

IEDM twice loser

The loss of IBEDC to AMCON may be seen as unfortunate incident for an investor, and worse off for Integrated Energy Distribution and Marketing (IEDM) Limited, the core investor of Ibadan Electricity Distribution Company (IBEDC) having earlier lost ownership of Yola Disco.

Recall that Yola Disco was successfully privatised, and the company handed over on November 1, 2013 to the core investor- Integrated Energy and Distribution Marketing Company (IEDM).

However, IEDM declared a force majeure in 2015, citing security concerns in the Northeast region. The Federal Government was compelled to re-posses the company, while the Bureau of Public enterprises (BPE) made provision for the refund of the acquisition fund (US $80.68million) paid by the core investor.

Unfortunately whether the BPE was able to refund the said money remiains unclear as both parties have refused to disclose the details.

Meanwhile, speculators are wondering why IEDM failed to use the refund from Yola DisCo to settle the IBEDC financial crisis bearing in mind the prospect of the company.

What is certain for now is that more crisis may hit the NESI as the core investors who took charge of the DisCos continue to fail to keep their promises with both regulators and lenders. The only unanswered question is, after Abuja and Ibadan DisCos who’s turn is next?