DisCos Are Technically Insolvent, says BPE

Alex Okoh, BPE Director General disclosed that most of the Distribution Companies (DISCOs) are technically insolvent. This he said, during an interactive session held at the instance of House Committee on Power, with critical stakeholders in the Nigeria’s power sector including Nigeria’s Bulk Electricity Trading Company (NBET), Electricity Distribution Companies (DISCOs) and Generation Companies (GENCOs).

Bureau of Public Enterprises (BPE) on Tuesday disclosed that most of the Distribution Companies (DISCOs) are technically insolvent.

In his presentation, BPE Director General harped in the need to immediately solve the challenges bothering on price structure and liquidity of DISCOs.

“We need to solve the liquidity challenge. How do we make the industry viable in terms of liquidity? If we take all the energy that the DISCOs buy and the energy sold, assuming there’s minimal losses on collection side, we find it difficult that there is enough revenue to push us through.” “There’s a gap in the price structure. There is an empirical way of bridging other gaps. If we identity what that gap is then government can handle the other issues,” he noted.

According to the BPE helmsman, the assessment conducted by the Bureau showed that “many of them are technically insolvent. Their current liabilities are in excess of their assets, most are owed to NBET. They are unlikely to pay because of poor tariff.”

“They need to improve infrastructure that consumers can pay for, but technically they do not have the capacity to do so,” he said.

While noting that the proposed N75 billion for the DISCOs by government is an ad-hoc arrangement and unsustainable, Okoh stressed the need for medium and long term solutions to the myriad of challenges facing the industry.

He observed that the N701 billion subsidy provided by government through NBET was part of government’s intervention towards subsidizing the system.

Okoh who noted that the subsidy when introduced will not be wholly paid by government at the end to the day, explained that the tariff subsidy can be paid back through future adjustment in the tariff as part of efforts to solve the liquidity issue. While stressing the need for expedite action in addressing the liquidity challenge, he argued that “if we don’t address that now, it is a time bomb and I just pray it won’t explode on all our faces.”

In his representation, Eugene Edeoga, NBET Director of Procurement lamented that the company is “technically dead and insolvent with huge liabilities” arising from over N800 billion owed it by the DISCOs.

Speaking earlier, Ernest Mupwaya, MD/CEO Abuja Electricity Distribution Company (AEDC) affirmed that the major challenge bothers on price differential, adding that the DISCOs paid up to 100 percent of the tariff as a result of the movement of tariff from 2015 to December 2017.

According to him, the electricity tariff is impacted mostly by movement in foreign exchange and inflation.
He added that the challenges facing DisCos need holistic, sustainable solutions, including “adjustment in tariffs so that there will be regular light,” pointing out that Ministries, Departments and Agencies (MDAs) of government owe DisCos over N72 billion. “It is important to point out that some government institutions are owing the DISCOs over N72 billion and there are individuals and corporations who are by-passing meters and stealing energy,” Mupwaya said.

While noting that the DISCOs have not implemented five minor reviews which ought to take place within six months, he lamented that the “delay has led to the erosion balance sheet of the discos if you borrow from bank to carry out the transformation it will affect the balance sheet,” adding that the “price differential hinders every aspect of the supply chain and does not have enough revenue.”

On the tariff adjustment, he urged government to recognise in the books by deferring the debts to enable the DISCOs raise more funds, adding that “when the balance sheet is cleared with the aid of CBN, we can borrow the funds we need to expand”

He also called for resolution of the historical debt due to tariff shortfall as well as putting a mechanism in place to automate the payment by MDAs and other public institutions by ensuring central payment of all their bills.

According to him, in 2016 April to June, AEDC experienced “series of vandalism. Instead of getting an average of 300MW, we got only 160MW but price of electricity shot up by almost 100 percent, despite getting about half of the supply.”

He however confirmed the receipt of some payment from the MDAs debt, though it is still growing, just as he called for further government’s intervention.

While calling for stiff sanction on electricity theft, he called for punitive sanction of up to 25 years’  for imprisonment for power theft  in order for it to act as a deterrent. He said that this is applicable in places like India and Zambia.

While responding to question on enumeration of consumers, the AEDC noted that carrying out the exercise is costly for the DISCOs, explaining that it will cost about $128 million to conduct enumeration.

The Committee resolved to expedite actions on reforms in the power sector in order to provide solutions to the various challenges faced by NBET, Discos and GenCos, so the  stable electricity supply can be guaranteed to all Nigerians.

Some of the lawmakers who spoke during the session, warned that Nigerians will resist any hike in electricity tariff amidst failure of operators to ensure stability in power supply across the country.

The lawmakers also frowned at the failure of DISCOs to adopt innovative marketing strategies and ensure prompt enumeration of consumers after taking over of the power assets.

While speaking, Mutiu Sadimu, acting chairman of the Committee on privatisation and commercialisation, explained that the interactive session was aimed at finding lasting solution to the endemic challenges facing the power sector, just as he called on various stakeholders to proffer lasting solution to the liquidity problems which started from the generation and cut across the entire value chain.

 

Source: Business day

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