Discos allege procurement loopholes in proposed N72bn investment

Association of Distribution Companies of Nigeria (ANED) has faulted proposed investment into distribution companies of Nigeria’s assets by the Federal Government to the tune of N72 billion, citing concerns of procurement procedures.
Apart from the aforementioned concerns, the Discos note that 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.
In a statement issued on Sunday, ANED said, “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.”
ANED also notes that to ensure that electricity customers do not unduly bear the cost of electricity inefficiencies, fundamentally, all related procurement is required to be implemented efficiently and on a “best-value” basis.
In further clarification, the organisation says, “The implementation of this N72 billion initiative by TCN, outside of the regulated procurement requirements that the Discos are subjected to, will leave the best-value requirement wanting.
“It is not likely that TCN, a legacy Power Holding Company of Nigeria (PHCN) entity, with its historical contracting and project management limitations will implement electricity distribution projects better than DisCo investors that have N427 billion ($1.4bn) of equity and debt invested in the sub-sector, with a motivation to recover their investment.”
Raising further concerns, it says, “The premise of the privatisation was the need to bring in private sector expertise, while removing from the government balance sheets, the potential for outcomes of cost overruns, inefficiency and white elephant projects. This initiative creates the potential for a return to the old days of the government trying to implement projects that it is not suited for.”
It points out further, “It would be difficult for the Discos to acquiesce to TCN/MoPWH adding a further N72 billion of debt to the N1.3 trillion of debt (and growing) already on their financial books, given a) the DisCos’ inability to access debt financing required to address massive capital expenditure requirements that far exceed the N72 billion initiative, that is required to inject the efficiency that electricity customers demand; b) the Discos’ regulatory constraints.
“The uncertainty of projects built by an entity that is licensed only to transmit energy and not distribute energy. It should also not be forgotten that the Discos are already carrying, out of the total sum of N210.61billion, 72.25% or N152.16 billion of legacy gas and energy debt (incurred by PHCN) associated with the Central of Nigeria’s Nigerian Electricity Market Stabilization Facility (NEMSF), a debt unconnected with the DisCos, a contravention of the debt-free requirement, that was a fundamental contractual requirement of the sale of the distribution assets.”
Making further suggestions in the statement, the Discos say, “We believe that the N72 billion should be directed towards filling the tariff gap, providing the commercial framework that will ensure that Nigerian electricity customers receive the benefits of increased and stable power.”
It states further, “The most important objective, that can help NESI achieve the privatization objectives of efficiency; improved and increased power supply; national economic growth, etc., is the attainment of an alignment of the gas-to-power, technical, commercial and risk frameworks.”