Minister of Power, Adebayo Adelabu, has said the federal government will not renew operational licences of Distribution companies that do not demonstrate strong financial and technical capacity in line with new capital adequacy requirement.
This is just as he faulted the 2013 privatisation exercise, saying most of those who took over power distribution lacked both technical and financial capacity.
Adelabu, who stated this in his address to the Nigeria Energy Leadership Summit in Lagos, said many of the DisCos were heavily indebted and undercapitalised, threatening the financial health of the nation’s electricity sector.
The country currently has 11 major DisCos and Aba Power. The 11 DisCos are Ikeja, Eko, Abuja, Ibadan, Port Harcourt, Enugu, Benin, Kano, Kaduna, Jos, and Yola, all of which have been in existence since 2013.
The minister explained that several ongoing federal power programmes, including the Presidential Power Initiative, popularly known as the Siemens Project, are funded through loans that will become financial liabilities to the DisCos.
“The Presidential Power Initiative, which you all know as the Siemens Project, is being funded by a loan obtained by the Federal Government from the German Government and from some Chinese companies. At least, the distribution portion of it is a debt burden on the DisCos, and they must pay it back. It is a liability on the future income of these DisCos,” he said.
Adelabu also revealed that other power sector interventions, such as the Presidential Metering Initiative, jointly funded by the federal and state governments to the tune of $700bn, and the World Bank-funded $500m Distribution Sector Recovery Programme, are additional debt exposures that must be managed prudently.
“Are these debt burdens not too much on the DisCos? And are they supposed to match these loans with improved capitalisation to reduce the leverage? If they don’t do this, the DisCos are not in a good position to invest as required to transform the sector,” he stated.
The minister said the government would not tolerate financially weak operators who cannot meet the new requirements, adding that DisCos unable to recapitalise or meet their obligations risk losing their licences.
“There is a warning: as the tenure of the operational licences of these DisCos approaches renewal, the government intends to introduce a minimum capital adequacy requirement as part of the licence renewal process to strengthen the financial health and liquidity positions of these utilities.
“I must let you know, there will be stringent conditions upon which licences will be renewed. There are automatic interested investors that will take them up. If you want to do good business, you must be able to invest capital. That is the risk you have to take. We know what is happening in the financial sector. You must have a healthy capital adequacy for you to accelerate migration, accelerate expansion, and improve reliability for people to have confidence in you and in the government.”
Adelabu emphasised that the power sector could only grow through sound financial discipline and sustained investment.
He added that the Federal Government had launched targeted national programmes aimed at expanding, modernising, and improving the viability of the national grid to enhance power supply reliability.
“This time, it is not going to be a joke, I must let you know. In the area of infrastructure development, the Federal Government has introduced targeted national programmes aimed at accelerating the viability, expansion, and modernisation of the national grid,” he stated.
Adelabu added that there is sector monitoring and enforcement, as the national regulator and state regulatory commissions are working in close synergy to drive performance improvement across the utilities.
He stressed that the distribution companies are also a major focus, saying they need to raise their game.
“The sector continues to face challenges of undercapitalisation among several distribution companies and a severe debt burden that has constrained their operational efficiency and service delivery over the years,” he explained.
The minsister expressed concern that majority of the DisCos are underfunded, and this is affecting the investment required to ensure a reliable supply of electricity and the movement of consumers to the Band A tariff category.
“We have restricted the Band A tariff to just a 15 per cent portion of the industry, not because of anything but because of poor infrastructure and inadequate investments. We have seen a faster and accelerated migration of lots of customers to this Band A, but the DisCos are incapacitated.
“One of the major flaws of the privatisation held in 2013 is the lack of adequate financial backing in addition to poor technical expertise. Yes, a lot of them do not have the expertise in utilities management. To make matters worse, they don’t even have the money to invest,” the minister said.
