Operators Kick against TCN Managing FG’s N72bn Investment in Discos

Chineme Okafor in Abuja

Operators of the electricity distribution companies (Discos) in Nigeria’s power sector have kicked against the federal government’s selection of the Transmission Company of Nigeria (TCN) to manage the N72 billion financial investment it intends to put in the Discos’ networks.

The government had hinted it would invest about N72 billion in the Discos to upgrade their networks and enable them distribute about 2000 megawatts (MW) of electricity it claimed was laying idle. It also noted the investment would be managed by the TCN.

But operators of the Discos on Sunday indicated they would not back such decision, stating they still maintain up to 60 per cent shareholding in the networks and as part of Nigeria’s company law, their boards should be allowed to deliberate and decide on the conditions for such investments if they would ever accept it.

They specifically stated they do not trust the capacity of the TCN to manage the investment, adding that the TCN had a bad history with project management.

The Discos’ operators made this claim in a statement their umbrella body – the Association of Nigerian Electricity Distributors (ANED) – signed and sent to THISDAY in Abuja.

According to them, they would have celebrated the government’s financial gesture, but would be cautious to because of TCN’s involvement and the possibility of it adding to their existing debt profile.

“It will be difficult for the Discos to acquiesce to TCN/MoPWH adding a further N72 billion of debt to the N1.3 trillion of debt (and growing) already on their financial books, given the Discos’ inability to access debt financing required to address massive capital expenditure requirements that far exceed the N72 billion initiative that is required to inject the efficiency that electricity customers demand; the Discos’ regulatory constraints; and the uncertainty of projects built by an entity that is licensed only to transmit energy and not distribute energy.

“It should also not be forgotten that the Discos are already carrying, out of the total sum of N210.61 billion, 72.25 per cent or N152.16 billion of legacy gas and energy debt (incurred by PHCN) associated with the Central Bank of Nigeria’s Nigerian Electricity Market Stabilisation Facility (NEMSF), a debt unconnected with the Discos, a contravention of the debt-free requirement, that was a fundamental contractual requirement of the sale of the distribution assets,” said the ANED statement.

According to ANED, the N72 billion initiative held for the Discos, pitfalls that will undermine any expected positive outcomes that were the genesis of the government’s planning for it.

They said the basis of the planned funding was to evacuate 2000MW of electricity which they claimed were not stranded on account of distribution limitations but mostly by gas; frequency; and line constraints.

The Discos thus explained that given the heavily regulated nature of their business, they were not sure they could recover the investment through tariff because it may not adhere to the regulatory requirement for capital investment which the Nigerian Electricity Regulatory Commission (NERC) stipulates for them.

“To ensure that electricity customers do not unduly bear the cost of electricity inefficiencies, fundamentally, all related procurement is required to be implemented efficiently and on a best-value basis. The implementation of this N72 billion initiative by TCN, outside of the regulated procurement requirements that the Discos are subjected to, will leave the best-value requirement wanting.

“It is not likely that TCN, a legacy Power Holding Company of Nigeria (PHCN) entity, with its historical contracting and project management limitations will implement electricity distribution projects better than Disco investors that have N427 billion ($1.4 billion) of equity and debt invested in the sub-sector, with a motivation to recover their investment,” they noted.

They also said they believed the fund should be directed towards filling existing tariff gap; and providing the commercial framework that will guarantee good electricity supply.