We Cannot Recover N72bn Investment in Our Networks, Discos Say

Chineme Okafor in Abuja
The electricity distribution companies (Discos) in Nigeria’s power sector have cautioned the federal government against unilaterally investing N72 billion to upgrade their distribution networks, stating that they may not be able to recover it from the current tariff they charge for distributing power to consumers.

Speaking through their umbrella association – the Association of Nigerian Electricity Distributors (ANED), in a statement, the Discos explained that they would have welcomed the planned investment but were cautious of it based on their evaluation of its processes.

According to them, the investment if not evaluated and appropriated by the Nigerian Electricity Regulatory Commission (NERC), as part of the laws governing investments in their networks, would become a pitfall to their operations.
They also pointed out the heavy illiquidity crisis in the sector as another reason for their cold shoulders to the investment.

“Ordinarily, any attempt to improve any aspect of the Nigerian Electricity Supply Industry (NESI) value chain – a value chain that was mostly neglected and inefficiently operated for the 62 years prior to the November 1, 2013 handover to private investors – would be praise worthy.

“Particularly laudable is when such investment is coming from the government, as is the case now, establishing its determination to have “skin-in-the-game” and explicit acknowledgement of the urgency of turning around a sector that is a vital contributor to the national economy.

“Unfortunately, in this instance, the N72 billion initiative is one that, potentially, holds pitfalls that will undermine any expected positive outcomes that were the genesis of the government’s planning for it,” said the Discos.
Giving reasons for their decision, they stated, “Government funds, albeit, based on a stranded 2,000MW capacity that is constrained largely by factors other than distribution limitations should not be invested in a sub-sector that has been privatised.

“It is the obligation and business of the investor to access debt financing for any such investments, freeing government funds for other more urgently needed social investments.”

“Given the heavily regulated nature of the distribution sub-sector and that this planned expenditure falls outside of the legal/regulatory requirement that capital investment must be recovered through the tariff (based on Disco cost submissions to the regulator, Nigerian Electricity Regulatory Commission (NERC) and after mandatory public consultations), failure to adhere to this requirement will cause a problem of lack of recovery of the N72 billion,” they explained.

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