Discos Fault FG’s Rural Electrification Scheme

Chineme Okafor in Abuja
Investors in 10 of the 11 electricity distribution companies (Discos) in Nigeria, have declared they may not recoup their investments in the Discos in the short to medium term.
According to them, Nigeria’s electricity market is currently in a state of operational disorder.

The investors also questioned the federal government’s decision to fund electricity expansion schemes across the country through the Rural Electrification Agency (REA), with $350 million provided by the World Bank, as well as the government’s handing over billions of naira to the Transmission Company of Nigeria (TCN) to upgrade distribution facilities in their networks.

Speaking at a recent press briefing in Abuja, the Discos said this through the Executive Director for Research and Advocacy of their umbrella body – the Association of Nigerian Electricity Distributors (ANED) – Mr. Sunday Oduntan.

He noted that the financial challenges of the market also made it difficult for them to raise new capitals to upgrade their networks.

“Disco investors, who paid $1.4 billion (N427 billion) for the distribution assets have not made any return on their investment, a condition which was the basis of the investment after the five-year performance period.

“Even worse is that, with current conditions, it is unlikely that they will recover their investment, which is already in the negative, anytime in the near term.

“However, this lack of sight of a return of investment or on investment, certainly, does not encourage the injection of borrowed capital or equity, that is key to driving the turnaround of NESI or providing the efficiency and signalling that will result in improved generation and the resultant tariff reduction,” said Oduntan.

On the REA funding of projects in the country, Oduntan stated, “Funding, inclusive of $350 million from the World Bank, is being made available to the REA to implement projects. That, from our perspective do not make sense.

“Examples of such projects include providing solar-power in Effurun, Warri, an area replete with cheap gas; and gas-powered electricity in Ife, an area without access to gas but replete with lots of solar energy.

“Unfortunately, these projects or contracts tend to be comparatively procured at exorbitant prices, raising the questions whether taxpayers are getting value for their money or whether REA has not strayed completely away from its mandate of providing electricity to the 65 per cent of rural dwelling Nigerians that have no electricity.

“Additionally, N78 billion has been put in the budget for ‘distribution’ projects to be implemented by the TCN. Why would TCN be implementing contracts for a largely privatised sub-sector, utilising taxpayers’ funds?
“Our perspective on this issue is that there seems to be more of an interest from the ministry in awarding contracts than making the Discos whole, which is a resolution that holds greater value for the wider population of Nigeria than the, seemingly, misguided contracts being awarded by the ministry through its agencies of TCN and REA.
“It is almost enough to conclude that the Discos are being deliberately held down for the award of these over-priced contracts,” he added.

He further claimed, “Of even more interest is that four years ago, the federal budget did not contain money for distribution projects, yet, the Discos did much better in their service delivery.
“We believe that taxpayers and our electricity consumers can do better with the use of the funds being used to award contracts to plug the tariff gap, as we seek to achieve the desired objectives of comprehensive metering and uninterrupted electricity supply.
“Wasn’t the objective of the electricity reform to attract private capital, coupled with private efficiency and creativity? Alas, we seem to be returning to the days of a government-operated electricity sector, with government directives and contracting.”