Monday, April 24, 2017

Nigeria: On FG’s Planned Demand For Transparency From Discos

By Idowu Oyebanjo
The Federal Government has announced plans to escrow and beam its searchlight into the revenue accounts of the operations of the DisCos due to poor monthly remittances. Although DisCos have condemned the move, this is a good step in the right direction. To address the problems of NESI, a holistic view of every aspect of the multi-faceted problems plaguing it is required with a view to solving them in a coordinated manner. 
One of the major problems in the Nigerian Electricity Supply Industry (NESI) today is the potential for illiquidity. In simple terms, this arises when DisCos declare, whether truthfully or otherwise, that they have not collected enough money from consumers of electricity and so are unable to make full payments to the bulk electricity trader, NBET, for electricity received.

This has the potential to always create illiquidity in NESI because their remittances should have been used to pay all key stake holders in the industry including but not limited to GenCos, TCN, Gas providers, market operator, NERC, NBET etc. The solutions to address this anomaly include a massive investment in customer metering, reduction in network losses, preventing electricity theft and collusion of staff of electricity companies with consumers to defraud the industry, discontinuation of estimated billing, and ensuring that revenues collected by DisCos in behalf of NESI is transparent to all key stakeholders, and not least the Federal Government which still owns 40% of DisCos. The government has chosen to implement the last of the afore-mentioned solutions but the DisCos have frowned at the move. Thus a critical review of the position of DisCos is in order.

Reacting to the planned move by the Federal Government, Discos, under the aegis of the Association of Nigerian Electricity Distributors (ANED) have spoken against the move in clear but illogical terms. ANED has argued that the move is tantamount to a re-nationalisation of the DisCos. This is true but that is what is required to salvage the current situation. If the DisCos cannot invest in the network, and will require government bail-out, then the government (and any lender for that matter) will like to have a transparent view of the revenues collected for accountability, probity and possible repayment of loans in the form of bail-out funds.

Furthermore, ANED has posited that this move will send the wrong signals to local and international investors but this is far from the truth. Rather, the opposite will be the case. True investors appreciate transparency and will see the seriousness of the administration in maintaining a financially healthy power market and they will be drawn to NESI once the market stabilises to replace the present crop of “investors” who lack the technical cum financial muscle to pull this through. Rather than see this as an effort to ensure the survival of NESI, ANED has said the move will prevent the “injection of the cheap and sorely needed capital that is critical to the rehabilitation and improvement of electricity infrastructure”. However, it has to be stated that it was the continued lack of investment in the network by the so called investors (they are not) since they took over the national assets that has prompted this move by the Federal Government in an attempt to save the industry. Ideally, DisCos should find the money to invest in the network.

Finally, ANED has argued that this kind of move has not been implemented in the communications sector. Perhaps there is need to remind the association that the operators in the communications industry have not asked for unfounded bail-outs and they are largely regulated by means of competition which differs from the regulation of monopolies which is what DisCos are.

The Federal Government is right to demand transparency from DisCos and this is part of regulating the privatised monopoly. It should never be construed as an intrusion if there is nothing to hide. This will bring sanity and improve the financial health of the industry. Yet, there are methods to achieve this kind of regulation for it not to be seen as intrusive even by the DisCos.

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