July 23, 2024

Unpaid Debts: Experts give troubling verdicts on power sector, as Banks takeover DisCos

Samuel Agbelusi
Experts’ reactions have trailed the Nigerian power sector’s massive debts, estimated at $1.95 billion,  comprising the total sum of money that the core investors have accrued since they took over the assets of the defunct Power Holding Company of Nigeria(PHCN)in 2013.
This is coming on the backdrop of the recent plan by deposit money banks to take over some of the electricity distribution companies (DisCos) due to unpaid debts.
The banks, it would be recalled, provided the credit facilities for the power distribution and generation companies operating within the Nigeria Electricity Supply Industry(NESI) to ensure that stability is maintained in that sector.
This was part of an effort by the commercial banks to alleviate the dire circumstances that the Federal Government found itself in when it was managing the affairs of the electricity industry.
EnergyDay gathered that when the core investors realised the severity of the liquidity crisis and the viability of the market, in 2020, some of the players especially the owners of the DisCos, suggested that the acquisition debts “be refinanced by the Bank of Industry and further extended by ten years(10) more.
In their prayer then, the core investors sought for a single-digit interest rate and a moratorium of two years to allow the market to stabilise.
When this request failed, in July, the Nigerian Electricity Regulatory Commission and the Bureau of Public Enterprises stated in a joint statement in a working relationship with the Fidelity Bank, other banks, and AMCON, finalised the process of taking over the management of five electricity distribution companies (Discos) over debts owed to the banks.
Before that period, the United Bank for Africa Plc had taken over the majority stake in the Abuja Electricity Distribution Company (AEDC) in December 2021.
The acquisitions of the distribution and generation companies, which are part of the power sector, by the investors were financed mostly by banks through loans, which led to the privatisation of the power sector, bringing in a revenue of $3.2 billion for the federal government, as the Discos and GenCos were sold for $1.7bn and $1.5bn, respectively.
In a report by CSL Stockbrokers Limited, Lagos (CSLS) titled; “The continued rise of bank loans to the power sector”, obtained by EnergyDay, power generation firms and independent power producers (IPPs) owe banks an estimated $1.31 billion, while power transmission and distribution firms are indebted to the tune of $638 million.

EnergyDay gathered that since its privatization in 2013, the Nigerian electricity sector has failed to live up to consumers’ optimism that the country would build nothing less than 40,000MW of electricity and failed to live up to its target of 5000 MW set by the Transmission Company of Nigeria as at July 1st, 2022.

 

REACTIONS

Stakeholders urged the Federal Government to take the necessary action, towards ensuring that measures are put in place to protect the power sector from inexperienced private investors, who are likely to plunge it into crisis.
They noted that the response and poor handling of the entire NESI value chain, are some of the major factors responsible for the instability of the power sector.
According to them, the private sector’s business models adopted in the power are sustainable and effective. They claimed as it will hurt consumers through a high rate of tariff charges.

They insisted that despite the huge debts and over 20 years of budget for the sector by the Government, the country has continued to battle many issues including power transmission and distribution challenges, leading to frequent disruptions, known as national grid failures.

In a chat with EnergyDay, Dr. Boniface Chizea, Managing Director, BIC Consultancy Services, an economic and business development consultant, stressed that the power sector has been in distress since it was privatized some years ago.

Dr. Chizea noted that the debts incurred by the power sector will see banks take over their assets, and this is a result of the consequences of wrong choices. He stressed that the government gave a critical sector to those who had little knowledge or expertise about what they wanted to control.

He said, “The power sector is in distress and poorly utilised loans can no longer sustain the sector. There is a spillover effect on the entire economic system of the country due to inefficient electricity infrastructures.

The whole issue started with the privatization process, where those who didn’t have any expertise were approved to control electricity value chains, Boniface Chizea concluded, adding that “the people in charge do not know the implications of these loans, which is now a threat to the health of the entire economy of the country.

He said, “Now, we have to bear the brunt of the high cost of tariffs and other charges being imposed by the discos and GenCos. Now the government is gradually taking control of these distribution companies.”

In a recent chat with EnergyDay, Dr. Godwin Orovwiroro, MD/CEO of Winman Nigeria Limited and former Regional Head, Port Harcourt Electricity Distribution Company (PHED), stressed that there is a need for banks to help the sector when the need arises.

He said the power sector has been doing well towards the payment of their loans to the various deposit banks except for some distribution companies like the Ibadan Electricity Distribution Company (IBEDC), which have fallen out and the government is about to take control due to its lapses.

“The power sector has been doing well in repaying their loans and there is a need for banks to come in to help alleviate situations facing the sector when the need arises. The money borrowed was for the intervention to ensure stable electricity in the country.

“However, the government needs to take strict measures and evaluate the Discos and GenCos to ascertain their performance if it is in agreement with what they plan to achieve.”

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