Claims of Illiquidity: The Burden of Proof is on Discos



With the opposition to the decision of the Nigerian Electricity Regulatory Commission to centralise the revenue generated by the country’s financially-troubled electricity market, the 11 electricity distribution companies may have raised doubts among other market operators about their sincerity, writes Chineme Okafor

Within the legal context, the burden of proof which is also referred to in Latin as onus probandi, entails the responsibility of a party in a trial to show evidence that could shift a decision away from a default position to a position that would be favourable to it.

Such occasion usually would mean that one party is initially presumed to be right or truthful and as such gets the benefit of the doubt while the other party is left with the burden of proof, and expected to bring forth unassailable evidence to switch the table against the other party or parties.

Situating this with the current financial challenges of Nigeria’s electricity market, the 11 electricity Discos seem to now have such burden to deal with, given the manner they reportedly undertake their operations, and their stiff resistance to the new plan by the government to instil probity in the management of the market’s fund.

For the first time in its interactions with operators in the market, the 26 generation companies (Gencos) last week openly condemned the Discos’ operational practices in the sector, especially their opposition to a central transparent revenue management system for the sector.
Literally, the Gencos asked the Discos to come clean on their opposition to the new model which they said would be good for all market participants.

Damaging systemic blame games

Dating back to 2015, which was a little over a year after the federal government concluded its power privatisation programme in 2013, the practice of blame games for the troubles of the sector started with the Discos accusing everyone but themselves for aggravating the challenges. The Gencos have however stayed away from such practices.

In the blame trading, the Discos frequently accused the government for breaching extant pacts it signed with them in the privatisation exercise. They claimed the NERC for instance had failed to provide cost effective tariff to fund their investments in the sector.

They were however reasonable to an extent because the NERC repeatedly made regulatory blunders that eventually contributed to the huge shortfalls in the sector’s revenue base, and at a point stopped the application of electricity tariff on certain consumer classes, in addition to expunging collection loses from the tariffs’ methodology.

Similarly, the Nigerian Bulk Electricity Trading Plc (NBET) was at some point equally blamed by the Discos with some of them reportedly refusing to activate their vesting contracts and Letters of Credit (LC), as well as filing a class action against NBET’s attempt to escrow their respective accounts in line with the market’s contractual terms.

The Transmission Company of Nigeria (TCN) on the other was the Discos’ punching bag. It was frequently accused and labelled the weakest link in the sector and lacking of adequate capacity to efficiently transmit electricity generated by the Gencos to them.
These blames were however repudiated by all the concerned entities as they came from the Discos, yet, it never stopped, or at the minimal improved the fortunes of the sector.

A sector in financial tatters, needing corrections

On the back of the blame games and other irregular operational practices, the financial status of sector has however continued to recede with the Discos reportedly at the centre of it.
Alleging that remittances from the Discos have consistently dwindled and no longer meeting the minimum mandated remittance thresholds, the market pointed accusing fingers at the Discos claiming they have been untruthful with their revenue collections and remittances.

Operators thus claimed that a larger part of the sector’s financial troubles were prompted by the Discos’ poor remittance practices. They in turn sought the intervention of the regulator to restore confidence in the market by getting the Discos to pay for volumes of electricity sold to them or at best openly declare what they collected at various periods.

Responding to this call, the NERC thus announced at the last monthly meeting of the operators in Osogbo, that it would centralise the industry’s revenue to allow for transparency and probity, a move the Discos said they would not support.
The Discos described such move as an attempt by the NERC to nationalise their operations, stating they would stand against it. According to them, the government has failed to create a conducive operational atmosphere for their operations to grow, and as such lack the standing to interfere in their internal affairs.

Gencos challenge the Discos to come clean

In response to their opposition to NERC’s proposed transparent revenue management model, the 26 Gencos in the sector subsequently called out the Discos, and requested that they come clean on why they are opposed to the open revenue management model.
The Gencos alleged that the Discos were increasingly creating lots of suspicions amongst sector operators on their operational integrity, and then for the first time since taking over the generation assets in 2013, made such sweeping attack on them.

They in fact, openly blamed the financial troubles of the power market on the Discos, alleging that they have remained financially irresponsible in their obligations to the market.
The Gencos’ entry in the blames game provided a new dimension that is different from what previously obtained when the buck-passing practice was often shared between the Discos, government, and TCN.

Addressing the development through their umbrella body – the Association of Power Generation Companies (APGC) in Abuja, the Gencos stated that the Discos opposition to NERC’s central revenue management initiative suggested that they might be hiding something from other operators.

The Executive Secretary of APGC, Dr. Joy Ogaji, said in this regard that claim by the Discos that the proposal was an attempt by the government to nationalise their operation was unfounded.
Ogaji also explained that concerns raised by the Discos on the proposal were worrying especially on the basis that the revenue in question belonged to the entire market and not just them.

According to her, “The recent development to escrow the account of the distribution companies is not just a welcome development but also a wake-up call to all participants in the electricity market.
“About a fortnight ago, the Association of Nigerian Electricity Distributors (ANED) likened such move to centralise their revenue accounts to nationalisation of the Discos. The electricity sector is a value-chain which needs to be remunerated as applicable covering the cost of generation, transmission and distribution.”

Market revenue not Discos personal funds

Speaking further on the worries of the Gencos with the Discos’ opposition to a transparent market revenue cycle, Ogaji explained that the Discos were less impacted by the decision of the NERC, and thus wondered why it was a huge problem to them.

“The Gencos are entitled to 60 per cent of market remittance as they not just generate power but also pay for gas supply and gas transportation. Transmission charge cost 11 per cent, distribution gets 25 per cent while the remaining four per cent is meant for regulatory charges and NBET.

“The revenue referred to by the distribution companies are not their personal revenue but market funds to which they were made trustees to collect and remit. The poor remittance of market funds by the Discos has prevented the rest of the electricity value-chain from meeting up with their operations and also service their liabilities which include gas payments,” she explained.

While buttressing the Gencos backing of the new proposal, Ogaji said: “The need to monitor the flow of market funds has become necessary as this will enable transparency in the market and also give the regulator the ability to identify issues that will progress the sector and act accordingly in advising the government and stakeholders where funds actually needs to be plunged into in order to bring about self-sustenance and competitiveness.”

She noted that this would also send the right signals to potential investors and licensed generation investors to advance their commitments to the sector.
She further questioned the Discos’ mindset on the development, saying: “The issue of everyone crying wolf should be fast gone. There have been blame games being played by the various players in the sector; it does not matter whose voice is loudest.

“The truth is, the generation companies have in keeping to the terms of their contract, generated power which has been sold by NBET to the distribution companies. What the generation companies want is to be paid fully for power received and sold. If one claims electricity consumers are not paying, let us see the payments transparently.”
“If the Discos claim they are not collecting enough, then they should open their books to make it plain for all to see and confirm their story. He who asserts must prove,” she added.