Investors in Nigeria’s power distribution sector have kicked against the Federal Government’s plan to escrow revenue accounts of distribution companies (DisCos).

The investors insisted that any attempt to go ahead with this plan was tantamount to nationalization or expropriation of the DisCos.

Executive Director, Association of Nigeria Electricity Distributors (ANED), Sunday Oduntan, said these in a statement yesterday.

ANED said the government had backslid in the N100 billion subsidy payment and other privatization requirements.

ANED noted: “To date, the government has not met the privatization transaction foundational requirements of providing N100 billion in subsidy to the sector.

“Indeed, any attempt at escrowing our accounts runs counter to the objectives of the National Electricity Power Policy, 2001 (NEPP) and the Electric Power Sector Reform Act, 2005 (2005), of a private sector-owned and managed electricity sector.

“It would also send very wrong signals to domestic and international investors that Nigeria is not fully open for private sector investment and that we are still partial to the old habits of nationalization, preventing the injection of the cheap and sorely needed capital that is critical to the rehabilitation and improvement of electricity infrastructure.

“You cannot have a, supposedly, private sector-owned and managed business in which the government now seizes control of its revenues.  It is a contradiction in terms and practice.  The same principle applies to any consideration of regulations or government action that intrudes into corporate responsibilities of procurement, financial management or personnel management.”

In particular, relative to procurement, the discos insisted that they are not aware that Nigerian Communications Commission (NCC) issues regulations to guide the internal procurement of the telecommunication companies. Likewise the Central Bank of Nigeria (CBN) and the Department of Petroleum Resources (DPR), the discos stressed.

The insisted: “Singularly and in aggregate, such proposed action would endanger the ability of the government to hold the discos responsible for performance, at a minimum, and at worse, amounts to government takeover of the discos.

“It would absolutely preclude further private sector investment in the sector.”

On plans to get discos declare their eligible customers, ANED said: “We understand that the idea of Eligible Customer declaration is under serious consideration. Our understanding is that Eligible Customers may only be declared by the Minister when a competitive market exists in the Nigerian Electricity Supply Industry (NESI).

“Such a market requires the presence and utilization of industry contracts; competition and efficiency that will drive down electricity prices for the customers; and infrastructure that will allow for uninterrupted delivery of power to our customers.

“This competitive market, currently, does not exist. Additionally, while Section 27 of EPSRA provides the Minister with the authority to determine “end-use customers” who shall “constitute eligible customers. It also requires that any such determination must be consistent with Section 28 of the same act, which requires that the DisCos must be compensated for any reduction in their ability to “earn permitted rates of return on their assets” or any inadequacy in their revenues, as a result of such determination.”

On the N800 billion shortfalls in the sector, which had pushed power operators in financial crisis, ANED said: “These shortfalls undermine intervention objectives of the government.

“Similarly, continued failure to account for the outstanding market shortfalls that are currently in excess of N800 billion would, essentially, mean that the upstream operators remain in financial jeopardy, undermining one of the government’s major objectives for the intervention – increased or improved liquidity.”

Dearth of competitive market is a threat to the move by the government on the declaration of eligible power customers nationwide, the investors said, demanding compensation for any loss of revenue associated with such declaration.

On deficiency of Corporate Governance at the disco level, the group said: “There is continuous reference to a connection between the DisCos’ performance and corporate governance.  Specifically, failed corporate governance.

“Again, we believe that this is another deliberate distraction from the issues and the urgent requirement to address the liquidity challenges that we have in the sector.  Our challenge is not so much inadequate corporate governance as it is the failure of the government to meet the commitments that will significantly impact on our ability to meet the requirements of our Performance Agreement with the Bureau of Public Enterprises (BPE).

“To date, the government has not met the privatization transaction foundational requirements of a) Providing N100 billion in subsidy to the sector; b) Payment of MDA electricity obligations; c) Ensuring that the DisCos have debt free financial books; and implementing a cost reflective tariff, amongst others.

“All of the aforementioned hold significant value towards the ability of the DisCos to improve their service delivery to their valued customers and not the issue of governance.  Indeed, the issue of the value chain is commercial and not one of corporate governance.”

Of note, ANED added, is that the government, in accordance with the privatization transaction terms, has a representative of its 40 per cent equity on the respective Boards of the DisCos, thereby providing for government oversight and transparency of DisCo operations.


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