As Power Discos Get Lifeline

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Chineme Okafor writes on how the N72 billion injection by the federal government could help enhance operations of the 11 electricity distribution companies

The federal government recently announced it will invest about N72 billion to improve the distribution infrastructure in the 11 electricity distribution companies (Discos) in Nigeria.
The investment plan, according to the Minister of Power, Works and Housing, Mr. Babatunde Fashola, would be part of the government’s 40 per cent shareholding in the Discos.

Fashola also noted that the Federal Executive Council (FEC) had approved the investment plan, while adverts for original equipment manufacturers (OEM) of transformers and other distribution equipment which the Discos can use had been put up.
The OEMs are expected to come up with their proposals for such equipment supplies to the Discos perhaps for the government to select, approve, and contract them.

Justification of the investment plan

Speaking through the Permanent Secretary in the ministry, Mr. Louis Edozien, when he inaugurated a 132/33kV transmission substation with a 40MVA transformer that was built by the Transmission Company of Nigeria (TCN) in Mayo Belwa area of Adamawa State recently, Fashola, explained the financial investment would be used to expand the capacities of the Discos to take more power to Nigerians.

He charged the Discos to invest more in their networks to complement the grid expansion efforts of the TCN and the government’s N72 billion commitment to their networks, adding that the investment would enable the Discos take up the about 2000 megawatts (MW) stranded power from the generation companies (Gencos) to consumers in their networks.

“I can also report that we are making progress on the federal government’s planned intervention in the distribution value chain to help deliver the 2,000MW that is constrained by distribution equipment. The advertisements for quotation by original equipment manufacturers for transformers, breakers, and associated equipment compiled by the Discos have been published, and we await responses,” said Fashola in his address in Adamawa.

In 2017, the government said it would give the Discos investment work plans with which they could build 33/11/0.415kV lines and distribution substations to enable them evacuate the stranded 2000MW.
The government had reportedly commissioned an investigation on the challenges of the distribution networks in a bid to put to use the unused generation capacities. A report on the distribution areas that require investments at the 33/11kV voltage levels to unlock 2,000MW was reportedly sent to Fashola for considerations.

Also justifying the investment plan, Fashola, who had frequently complained about Discos’ network limitations, stated in January in Nasarawa that there was need for the Discos to resolve the network related issues in their franchise areas to ensure that the unutilised 2,000MW was evacuated to users.
He claimed this was necessary with the government’s expectation of more power into the grid from upcoming generation stations in 2018.

The government had within the privatisation exercise retained 40 per cent stakes in the Discos. The planned financial intervention would be the first ever direct funding to the Discos by the government since the exercise was completed in November 2013 when the assets were handed over to their core I investors.

At the moment, only one of the 11 Discos – Yola, is controlled by the government after it was returned back to it by its core investor which declared a force majeure in 2015 on its operations following the insurgency in states in the northeast where it distributed electricity.

Also, the government had provided a N701.9 billion Payment Assurance Guarantee (PAG) to support the Generation Companies (Gencos) through the Central Bank of Nigeria (CBN) and Nigerian Bulk Electricity Trading Plc (NBET), just as the CBN disbursed a loan facility worth N213 billion under its Nigerian Electricity Market Stabilisation Fund (NEMSF) to all operators in the power sector including the Discos.

Details of the investment plan

Days after it announced the plan to invest N72 billion in the Discos’ networks, the government further provided more details on the facility, stating that it would be a shareholder loan which the Discos must be willing to match or it would be converted to an equity.

According to the Discos’ privatisation terms, the government has 40 per cent shareholding in them while the core investors of the Discos maintain 60 per cent shareholding, the government however indicated that the TCN would be the source of the facility and perhaps its manager.

Buttressing Fashola’s disclosure, the Managing Director of the TCN, Mr. Usman Mohammed, however said while commissioning a 60MVA high voltage transformer at TCN’s Bauchi transmission substation that the TCN approached the government to allow it assist the Discos upgrade their networks and its proposal was approved, hence the investment plan.

Mohammed explained that the decision was informed by the Discos’ reported capacity shortfall which is below that of the Gencos and TCN.
“We expect that Jos Disco will expand their network to ensure that they pick the load. To assist Discos in this regard, we approached the federal government and they agreed that TCN is going to invest in distribution on behalf of Ministry of Power, Works and Housing and we already have N72 billion which has been approved by the Federal Executive Council for this purpose.

“Where we discover that we have load and that load cannot be taken by the Disco, we apply this fund to assist in expanding that network so that it can take the load. The fund is like shareholder loan to distribution companies which they must match or it will be converted to equity,” said Mohammed.

Questions about structure of intervention

However, industry experts expressed their thoughts on the development to THISDAY.
They explained that the structure of the intervention was unclear and that the government has to open up on its entire plan in this regards.
Rumundaka Wonodi, who was the pioneer head of the Nigerian Bulk Electricity Trading Plc (NBET), stated in his interactions with THISDAY on this, that the development was a confirmation of the government’s acceptance of the distribution networks as the major challenge of the power industry.

“It would confirm a realisation by government that something needs to be done on the distribution networks. It acknowledges the fact that the distribution is a big problem in this industry and there is a need to enhance the capacity so that more power can be distributed to homes and industries. The truth of the matter is that we have generation capacities that sit idle all because they cannot find home – they cannot get to homes and industries in Nigeria, so we assume that where this intervention will be made, will be to take advantage of the expanded transmission capacity in the network and it is not to make it where at the end of the day transmission will not get there,” said Wonodi.

He further stated: “I want to believe that they have identified the areas where if they make the investments that it should get there. But, that is the physical part of the issue which nobody needs to question because it is noble of government to do that.

“The second part of it is the commercial and regulatory part, which is, is government doing this as an intervention, to step away later, or are they going to make it as a loan that will count as regulated asset base of the industry? It would be nice that if government is doing this, it will count as its equity and through the Bureau of Public Enterprises (BPE), but I guess to do that will involve the Discos’ leaderships and regulatory approval,” Wonodi added.

Wonodi said some of the potential benefits of the loan as just an intervention to the Discos would include reductions on the financial obligations of the NBET to pay for idle capacities of the Gencos, as well as more power to homes and industries in Nigeria.

“Anything that helps get power to the people is better and we hope it is done efficiently,” he added, while stating, “this might be a better intervention than any other interventions in the sector from the government.”

He again explained: “If it is shareholder loan, then it has to be the BPE managing it and not the TCN because the BPE and MOFI hold the shares of the government in the Discos. And the regulator has to approve of this if it will sit on the books of the Discos. The Discos would also ask for tariff that they would use to repay the loan. But if the government wants to just push out power and get the economy working, then it can be faster because it might just want to do it for the sake of getting the sector moving. At the end of the day, it can gain what it would give up from reducing NBET’s obligation for idle capacity, improved power and payments of tariffs by people and generally a better economic benefit,” he said.

On the other hand, an energy business expert, Mr. Dan Kunle, told THISDAY that the government’s plan was still unclear and that it cannot unilaterally procure equipment for the Discos when it does not have controlling shares in them.

Kunle, also stated that the level of confidence of the Discos on the government’s honesty with the plan was low.
“The Discos must be carried along. They cannot procure equipment for the Discos when they don’t have controlling shares in them. I think the government is steadily going off target in it management of the sector. We need to realise that it is better to collectively address the problems of the sector and not on silos,” said Kunle, who also wanted to know the level of interactions the government has had with the Discos on the plan.
“This transaction will not bring anything meaningful, it is not the transaction that will bring this sector forward,” he added.