Electricity Distribution companies and their unresolved challenges

Electricity distribution is part of the three value chain of connection that ensures end users get power supply to their homes and industries.

Despite private investment into the power sector, power supply situation in Nigeria remained unresolved as issues with collection, transmission, gas supply among others have limited the impact that private sector would have had in the sector especially as it affect the distribution companies (DISCOs).

This situation continues to be a source of concern to the state of the power sector in Nigeria and the implications for investors in the sector and the various disruptions to the operations of other enterprises in the economy.

A cursory look at the operation of the power industry indicates that Discos are strategic because classically, they serve as the mid-point between generators (who expect payment from the Discos) and final consumers who are supposed to make the payment expected from the Discos, by the generators.

In addition, electricity distribution companies suffer from a lack of sufficient energy supply from grid, old, obsolete networks, lack of maintenance of network equipment, poorly trained manpower, poor customer data, low meter penetration, health, safety and environmental issues and a near absence of investments due to poor revenues, inadequate tariffs and external funding constraints.

Experts in the industry express concerns that the Discos have not been able to make substantial improvements to the distribution networks they cover due to the paucity of funds.

They observed distribution companies play a tactical role because, through their ownership of the sector’s entire on-grid customer base, they are the sources of all the revenues that drive the Nigerian Electric Supply Industry’s value chain.

Energy operators however argue that considering the importance of power as the fundamental ingredient for the growth of any economy, getting all the parts to work in sync is crucial. But, getting the distribution to function effectively is vital.

Industry close watchers further disclosed that Discos are faced with huge operational challenges, which are clearly visible in their operations and service delivery.

They observed that while these challenges may have severely constrained the operations of Discos and thus, the non-realisation of the supposed gains of the privatisation of the power sector, it is important to state that these challenges were precisely the reason why the privatisation of the power sector was done in the first place.

The broad objective of the privatisation according to Odion Omonfoman, an energy consultant and the CEO of New Hampshire Capital Ltd was for the private sector to address these challenges that had plagued successor Discos while under government ownership. The reality is that these challenges were underestimated and in some instance, completely overlooked, by the BPE, NERC, core investors and their financiers”.

In the views of power sector analysts, to resolve the financing challenges facing Disco operations, Core Investors, in line with their performance agreements, need to urgently capitalise disco operations by the injection of capital by way of long-term debt or equity.

Analysts opine that it is imperative that Core Investors inject significant patient capital to address the challenges mentioned above. Short-term debt or borrowings will not suffice and only serve to exacerbate the financing and operational challenges.

Omonfoman was quick to point that the entire electricity sector is faced with huge revenue shortfalls. The implementation of cost reflective tariffs, access to long-term debt capital and equity injection, will still not address the revenue shortfall to the system in the short term.

KELECHI EWUZIE