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Published On: Mon, Aug 20th, 2018

ANED faults FG’s N72bn plan investment in Distribution Assets

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By Etuka Sunday

Association of Nigerian Electricity Distributors (ANED) has questioned the motive of the Federal Government to invest the sum of N72billion in the distribution networks, therefore, called for it to be revisited together with the challenges associated with its potential implementation.
The Association however, advised that the N72 billion 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 supply.
ANED in a statement issued yesterday in Abuja said,” the Company and Allied Matters Act (CAMA) guidelines stipulate a process by which companies make investments. The guidelines for good governance require that any such investments be considered by the Boards of the respective DisCos, relative to, and prior to the implementation of projects that may, potentially, result in adverse outcomes for their financial books and, ultimately, the shareholders. In this instance, it seems that the government’s ownership of 40% of the DisCos seeks to unilaterally impose projects that have not been reviewed or deliberated by the Board, on the 60% majority ownership. Additionally, each DisCo has unique distribution network needs that must be addressed specifically. Lack of detail, beyond newspaper references or information, will not provide the best-value results that are associated with a tailored approach to such uniqueness. We believe that an initiative, however well-intentioned, should not result in a potential illegality.”
ANED said, ”the premise or basis for the N72 billion investment, as proposed by the Ministry of Power, Works and Housing (MoPWH) has been the need to evacuate the “stranded” 2,000 MW of electricity that is constrained by distribution network limitations. As we have stated in a previous press briefing, there is no such thing, as painted by TCN and MoPWH”.
It said, “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. The following are several concerns associated with the initiative –
“Government funds, albeit, based on a stranded 2,000 MW capacity that is constrained largely by factors other than distribution limitations (gas, frequency, line, hydro), should not be invested in a sub-sector that has been privatized. 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.
“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. 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 ($1.4 billion) of equity and debt invested in the sub-sector, with a motivation to recover their investment. The premise of the privatization 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 will 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; and c) 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.
“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. Without such an alignment, interventions such as the N72 billion investment in the distribution network will, unfortunately, continually come to naught. It is also our strong belief that until all the stakeholders, collaboratively and in partnership, begin a dialogue in good faith, without pre-determined agendas, our ability to move the sector forward will continue to be limited”.
ANED said, of significant and related note is that the central tenet of the National Electric Power Policy, 2001 (NEPP) that states“The priority is to create efficient market structures, within clear regulatory frameworks, that encourage more competitive markets for electricity generation and sales (marketing), which,at the same time, are able to attract private investors and ensure economically sounddevelopment of the system.”

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