Experts Insist CBN’s Backing of Takeover of Selected Discos Saved Banks, Power Sector

Emmanuel Addeh in Abuja

Some analysts have hailed the support of the Central Bank of Nigeria (CBN) for the recent takeover of selected electricity Distribution Companies (Discos) by some banks, saying that it saved the country the financial institutions and the power sector from an imminent collapse.

The affected distribution firms which included Ibadan, Kano, Kaduna and the Benin Discos had been at loggerheads with the Nigerian Electricity Regulatory Commission (NERC) and Bureau of Public Enterprises (BPE).

A number of respondents maintained that the move by the apex bank to ensure the shares are successfully transferred to new investors remained critical to the survival of both the banks and the Discos.

A power sector analyst, Adetayo Adegbemle noted that the CBN’s role in protecting the banks involved in funding the purchase of the power sector loans was important, since according to him, the indebtedness of the power sector to the financial institutions would have led to the collapse of banks.
“I love the fact that CBN came into the power sector, not just to save the power sector. Don’t forget even though they have roles to play in the sector, they also came in to save their own banking sector.

“The loans that the power sector took from the banks have become bad and if you do not do anything, it is going to be in the books of the banks. So CBN backing the banks to take over the shares is a good thing for CBN,” he argued.
In his intervention, President of the Nigerian Consumer Protection Network (NCPN), Mr. Kunle Olubiyo, said the takeover had helped in averting massive job losses and prevented imminent danger to the banking industry due to toxic loans.

He said the pioneer investors in the Discos are Nigerians who meant well for the sector, but argued that they probably lacked the requisite technical requirements of the original financial bidding and technical bidding benchmarks set out as thresholds for financial and technical due diligence.

“What is most important is our ability as a nation to rally round indigenous investors with the financial muscles, who in turn can put together an assemblage of professionals with collective cognate experiences of working in the business of managing power generation, transmission and distribution value chain to apply and takeover.

“I am quite sure that in the next one year, the present crop of receiver managers would have learnt a lot from the multifaceted sector’s wide learning curves,” he opined.

Also, Partner, Nextier Power, Emeka Okpukpara, had noted that the initiative by the apex bank was increasing financial liquidity in the sector, and introduced transparency, which enabled players to have access to information.
He stressed that aside offering visibility to the sector’s finance, the efforts ensured payment of debts as first-line charges.
“The financial discipline allows visibility of what Discos are collecting. It allows debts such as generation, services, and other charges to be settled first before operating expenses.

“Transparency, in most cases, increases trust in a system. Therefore, I would recommend that the collection figures are made public since Discos are custodians of market funds, rather than the owners,” he explained.

In the same vein, an Energy Lawyer, Madaki Ameh, also stated that there was need for the total overhaul of the sector, insisting that it was long overdue.
He noted that the takeover of the Discos was legally justified under the terms of the agreement which brought them into the Nigerian Electricity Supply Industry (NESI).

According to him, the Discos have not met any of the minimum thresholds set for them by government since privatisation despite the huge investment the government has continued to make in the sector.

“If you compare happenings in the power sector with the telecoms sector, you will see clearly that there were structural defects with the implementation of the privatisation policy in the power sector.

“Nothing short of a total takeover of the Discos and some of the non-performing Gencos would deliver the sort of efficiency required to transform the sector in Nigeria,” Ameh argued.

Backed by the apex bank, the banks had taken over five Discos amid alleged poor performance and inability to pay back loans, a development that was said be  putting some banks on the edge of failing.

The move is also coming amid a fresh $500 million loan by CBN to improve the capacity of the distribution companies.
A report by CSL Stockbrokers Limited recently revealed that the continued rise of bank loans to the power sector may have hit N836.08 billion despite intermittent interventions by the federal government through the CBN.

Before now, the CBN had directed some deposit banks to take charge of the collection of electricity bill payments as a means to allow for more openness in the sector.

BPE disclosed last week that it was working with the CBN to ensure that banks, which took over the Discos exit in six months, with the Director General of the organisation, Alex Okoh, maintaining that the banks were not expected to hold the shares in perpetuity.