The Federal Government yesterday admitted that most of the electricity distribution companies, DisCos, in Nigeria are technically insolvent and are unable to pay for invoices sent to them from the electricity market and invest in network expansion projects.
Speaking at the 8th Africa Energy Market Place 2024 in Abuja, the Chairman of the Nigerian Electricity Regulatory Commission, NERC, Engr. Sanusi Garba said the poor financial state of the DisCos makes it difficult for them to raise the needed capital to invest.
Engr. Garba pointed out that the challenges facing the sector were a culmination of all past inactions and missteps by those saddled with the responsibilities of managing the sector both at policy and operational levels.
According to him, “today when you look at distribution companies they are clearly and technically insolvent, and you also want them to raise capital in terms of debt or equity. It's a Herculean task. I also want to mention that implementing the power sector reform requires very strong political will to implement decisions that impact on the wider public”.
On his part, the Minister of Power, Chief Adebayo Adelabu said the government was working to get the distribution companies solvent and effective by unbundling their operations along state boundaries.
Chief Adelabu insisted that the areas covered by the current DisCos were too large for them to deliver effective services to consumers.
Speaking on how the government will tackle the N1.3 trillion owed to power generation companies and the $1.3 billion debt to gas companies, the Minister disclosed that President Bola Tinubu has approved a plan to liquidate the debts.
According to him, “Mr. President has approved the submission made by the Minister of State Petroleum (Gas) to defray the outstanding debts owed to the gas supply companies to power generation companies. The payments are in two parts, the legacy debts and the current debts. For the current debt, approval has been given to pay about N130 billion from the gas stabilization fund which the Federal Ministry of Finance will pay.
“The payment of the legacy debt will be made from future royalties in exchange for incomes in the gas subsector which is quite satisfactory to the gas suppliers. This will allow the companies to enter into firm contracts with power generation companies.
“For the power generation companies, the debt is about N1.3 trillion and I can also tell you that we have the consent of the President to pay, on the condition that the actual figures are reconciled between the government and the companies. This we have successfully done and it is being signed off by both parties now. Majority has signed off and we are engaging to ensure that we have 100 percent sign off.
“The debt will be paid in two ways, immediate cash injection and through a guaranteed debt instrument, preferably a promissory note. This assures the companies that in the next three to five years, the government is ready to defray these debts”.
On its part, the African Development Bank, AfDB, said it has so far spent over $450 million to support various power sector projects and programmes with another $1 billion planned to support the power sector reform effort by the government.
Vice President, Power, Energy, Climate and Green Growth Complex, AfDB, Dr. Kevin K. Kariuki, pointed out that with 90 million out of 600 million people in Africa without access to electricity living in Nigeria, the effectiveness of the reforms will be measured based how much of the over 13GigaWatts of installed capacity Nigeria utilizes for its development.
“The African Development Bank is acutely aware of the extent of the challenge, ranging from addressing the electricity access deficit to rehabilitating and upgrading the power system to meet a load of 20GW which is believed to be the true demand, for Nigeria’s 200 million people. Hence, we must have all our hands (i.e. all stakeholders) on the deck empowered by the new Electricity Act, 2023!
“At AfDB we put our money where our mouth is! As is clearly manifested by the fact we will be shortly seeking board approval for a one billion US dollars policy-based operation (PBO) with a significant energy component aimed at supporting the ongoing power sector reforms triggered by the new Electricity Act”, he stated.
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