NEC Recommends Discos’ Audit Before Any Interventions
Nigeria’s National Economic Council (NEC) has called for technical and financial audits of the electricity distribution companies in the country before interventions by World Bank, Siemens AG and others.
Last July, the Federal Government and Siemens AG signed a Letter of Agreement on the Nigerian Electrification Roadmap. The aim was the ramping up electricity generation in the country to 25,000 megawatts in six years. NEC’s Ad-Hoc Committee on Ownership Review and Analysis of Discos and Electricity Sector Reform, in its report, said the power sector had underperformed due to critical challenges.
The challenges include non-implementation of cost-reflective tariffs, misalignment between the investors and the Bureau of Public Enterprises on required investment in Discos, under-investment in infrastructure and poor implementation of rules/contracts.
“Urgent measures needed to turn the sector around include recapitalisation of Discos, firm implementation of industry rules/contracts and the insistence on sound governance principles that improve performance,” the report said.
Observations from the Nigerian Electricity Regulatory Commission’s open book review indicated major governance issues across all Discos, including procurement failures, related party transactions and lack of value-for-money in technical agreements.
“Some of the critical assumptions that directly affect liquidity in the market and the ability of Discos to make necessary investments e.g. level of metering, aggregated technical, collection and commercial losses, capital expenditure allowance were incorrect at the point of privatisation.
“The selected bidders did not conduct thorough due diligence on the state of the infrastructure and finances of the successor distribution companies which led to misalignment on what was required to turn Discos around,” the committee stated.
According to the report, NERC has always set tariffs below costs, causing a failure to implement regulatory rules and contracts and continuous government subsidies to the market that compromise the financial position of the Discos and their ability to raise capex funding. “Across various levels of the value chain, there have been continuous cases of non-compliance with contracts and NERC regulations without appropriate punishments, further eroding investor confidence in the market.
The committee held that the absence of a take or pay obligations on Discos for energy supplied combined with direct interference by the TCN in Disco’s dispatch, combine to cause repeated load rejection by Discos, which creates financial liability for NBET and also compromises grid safety and reliability.
Chibisi Ohakah, Abuja