Nigeria: TCN - DISCOs Used Short-Term Funds for Long-Term Investments

26 January 2021

Abuja — The Transmission Company of Nigeria (TCN) has maintained that part of the challenges in the electricity supply industry in the country was that power Distribution Companies (Discos) used short term funds for long-term investments in the power sector.

General Manager, Market Operations of the transmission company, Mr. Edmund Eje, who spoke during a virtual power dialogue organised by the Power Hub, posited that the illiquidity within the system was triggered by that singular mistake.

He argued that the industry had moved away from a tariff gap, which he said occurs in every market from time to time, due to the movement of some macroeconomic indices, to what he described as a market gap.

He added that although this forced the federal government to assist with a number of subventions which amounted to about N1.5 trillion injected into a business that had been privatised, the funds failed to reflect in terms of increased supply.

Eje, alleged that the power distribution companies were sold to investors who lacked enough capital and who borrowed funds from banks and therefore were trying to repay the loans instead of strengthening their networks initially.

"Now we are talking about funding. What we also learnt about these acquisitions is that public utilities cannot be given to a single person to own. It cannot be given to money borrowed from the bank, but equity.

"It is understood that most acquisitions were done through credit loan and these loans became a very staggering weight on some of the Discos. This prevented some of them from reducing ATC&C because their first charges became bank charges.

"But they started very well. If they had enough equity to start with enough capital, they would have done a lot to strengthen the network. It was not so in Nigeria because of funding. We will not say funding generally because it is a private business.

"You cannot say government did not fund because it is no longer government business. Individuals and groups that bought these utilities needed to fund them themselves. I can't remember that we funded generation because it is a private entity.

"So, the problem started at this point and since the market started widening, the Discos resorted to reducing their invoices monthly and this affected the amount of energy they will take.

"By reducing the amount of energy you take, you restrict the amount of energy to be evacuated through the transmission. Energy consumed, energy generated, energy evacuated is not stored anywhere although there are new technologies coming out now.

"But as the generator is generating, transmission is transmitting or evacuating and the consumer gets it. Any imbalance between these three causes a lot of friction, especially when they Discos drop load for whatever reason," he noted.

He explained that this has caused problems for the transmission company which battles to stabilise the system each time there's an imbalance.

In her contribution, the Chief Financial Officer, Ikeja Disco, Wunmu Olukoju, identified electricity theft as one of the biggest challenges in the industry.

"With respect to internal funding, there are two major issues. One is energy theft by consumers and we have two groups of people. There are customers who steal electricity and are using the energy.

"These ones do not pay and then they are averse to payment. We are seeing an environment where people say that government should subsidise electricity. So, there are a lot of people whose psyche haven't changed.

"Because of the kind of people that we have, even when you meter, you still see them still stealing power by bypassing the meters. So, that has affected the ability of Discos to generate internal funds," she stated.

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