9 years after: Banks battle DisCos over N820bn debts

Some banks are working hard to take over 60 per cent stakes in some power Distribution Companies (DisCos) from the core investors for failing to repay at least N819.9 billion acquisition loans. The Central Bank of Nigeria (CBN) in August 2021 put the acquisition loans to the power firms at N819.97bn. NIGERIA DAILY: Why Some […]

Some banks are working hard to take over 60 per cent stakes in some power Distribution Companies (DisCos) from the core investors for failing to repay at least N819.9 billion acquisition loans.

The Central Bank of Nigeria (CBN) in August 2021 put the acquisition loans to the power firms at N819.97bn.

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The DisCos were privatised a little in 2013 after the federal government, through the Bureau of Public Enterprises (BPE), received $1.256bn as payment for 60 per cent stakes in 10 DisCos in 2013 and that of Kaduna DisCo in 2014 from investors. 

The government retained 40 per cent stakes in the DisCos making it the minority shareholder.

The bureau also got another $1.269bn for the sale of six Generation Companies (GenCos), an upstream section of the power sector value chain. The two transactions amounted to $2.525bn which was put at N404bn as of November 2013 when a dollar was about N180.

Documents showed that a major part of that fund was borrowed by the investors from banks and with the official dollar to naira rate jumping to over N400 presently, the loan repayment value plus accruing interest is very high. 

While the power firms grapple with the acquisition loans, they have been unable to utilise the N213bn Nigerian Electricity Market Stabilisation Fund (NEMSF).

NEMSF is a 10-year loan from CBN in 2014 to stabilise their operations.

That notwithstanding, power shortages persist as customers can’t get meters and the electricity market shortfall has climbed to over N1.7 trillion.

Presently, power generation has not improved beyond the average 4,000 megawatts (MW) daily and there is still high Aggregate Technical, Commercial and Collection (ATC&C) losses across the DisCos.

Average monthly energy remittance from the DisCos to the GenCos which improved at the initial take over stage had dropped to below 40% monthly, while over six million of the about 12 million registered electricity consumers do not have meters.

 

Running against time 

Daily Trust has reported a series of crisis signs across some of the DisCos since the 2013 takeover.

For instance, in 2016, salary payment was an issue at Kano DisCo and since 2020, there were similar struggles at Abuja DisCo for some months when officials said the junior staff would be paid and the management would plead with senior staff to wait a little longer.

However, the most pronounced of these crises is the ownership tussle rocking the DisCos, especially Ibadan Electricity Distribution Company (IBEDC) and Abuja Electricity Distribution Company (AEDC).

The Assets Management Corporation of Nigeria (AMCON) on January 20 this year took over control of IBEDC over the inability of the DisCo to clear its acquisition loan from Skye Bank, now Polaris Bank.

A court ruling empowered AMCON to take over the asset and IBEDC immediately came under receivership.

IBEDC was acquired by Integrated Energy Distribution and Marketing Limited (IEDML), which is the same firm that acquired Yola DisCo, all in 2013, both for $160 million.

By 2015, IEDML declared a force majeure for Yola DisCo and requested the federal government to take over the DisCo citing insecurity issues in the franchise area. That DisCo only got another buyer – Quest Electricity which took it over from BPE in November 2021.

AMCON said the investors breached the Loan Purchase and Limited Servicing Agreement executed with Polaris Bank Limited (former Skye Bank) dated 30th November 2018 and a Notice of Appointment of the Receiver/Manager dated August 6th, 2021.

IBEDC had a history of such default as in 2018, the Nigerian Electricity Regulatory Commission (NERC) fined the company N50 million for “its failure to secure a refund of an interest-free loan the board of IBEDC granted to its core investor group (IEDML).”

In 2017, the DisCo diverted N6bn from its N11bn share of the N213bn NEMSF from CBN to power firms.

Abuja DisCo, or AEDC, also had issues with United Bank for Africa (UBA) over acquisition loans.

The investors under the umbrella of KANN Utility Ltd, comprising CEC Africa and Xerxes Ltd, paid $164 million to BPE to acquire the DisCo.

The two investors have had issues since 2019 over who has more of the 60% stakes due to their contributions to get the DisCo.

While the litigations were on, they got enmeshed in another collective issue with UBA over repayment of the $123m loan they got from the bank as part of the acquisition fund.

As of November, UBA moved into receivership of AEDC from KANN Utility towards recovering its loan.

The action replaced the core investors’ board and management with the UBA-dominated board and management. 

Just last week, the new board sacked about 40 general managers which caused a union protest. Negotiations are ongoing to resolve the issue of the sacked but recalled officials.

Apparently accepting their default status, investors in the DisCos had in 2020 recommended that the acquisition debt should be refinanced by the Bank of Industry (BoI) and extended for 10 years on a single-digit interest rate and two years moratorium. That was, however, not accepted by the financial sector regulator, the CBN.

The loans keep growing and would cause more issues for the power sector if they are not addressed.

According to a report by the Nigerian Bureau of Statistics (NBS) in 2020, the Non-Performing Loans (NPL) in the power sector was N33.22bn out of N1.23 trillion NPLs banks have recorded.

 

NERC to halt owner-manager system – Sources 

After the acquisition of the power firms in 2013, it was observed that some of them were directly chaired and managed by their acquirers who had little to no expertise in the power sector.

According to the privatisation process by the BPE, the new investors were supposed to have an acquaintance of the DisCos for about six months or less in what was described as ‘shadow management’.

They were also supposed to physically assess the utilities before concluding the privatisation but labour issues then thwarted those indicators. Even at that, some investors went ahead to head their firms with no known knowledge of managing such firms.

According to sources in the power industry regulator – NERC – has given notices to some of the DisCos to quit their offices as the management team from February ending.

For instance, Jamil Gwamna heading the management of Kano DisCo and managing director, is also a shareholder in the DisCo.

Their investment firm, Sahelian Power SPV, acquired Kano DisCo for $102m in 2013. Gwamna is also a director on the board of Kaduna DisCo.

There is also the MD/CEO of Kaduna DisCo, Engr. Haruna Garba, among the board of directors at the DisCo. The investing firm, NorthWest Power Limited, acquired the DisCo in 2014 from BPE.

Funke Osibodu may also be affected by the new move.

Osibodu is a former MD of Union Bank and is the MD of Benin DisCo as her husband Victor Osibodu firm, Vigeo Power, acquired 60% stake in Benin DisCo in 2013 after paying over $96m.

“According to standard practice, as a shareholder or board member, you would have to have an independent management team composed solely of experts to manage a firm. You cannot be objective and prudent if you as the board member is now a director or heads the company.

 “It is like a sole proprietorship where you can draw money at will for politics or whatever reason without recourse to the health of that business,” said a senior official in a power sector ancillary services agency.

 

Investors overpaid, poorly manage DisCos – Experts 

Daily Trust reached out to experts in the sector on what bank loan default means to the DisCos’ health.

An Energy Partner at Bloomfield Law Practice, Dr Ayodele Oni, said the investors over-paid for the assets in the first place.

 “That is, they paid more than what the assets were worth and were also too leveraged (i.e many of the investors were in too much debt) compared to the income generated from the assets.”

This paper reports that the investors failed to do shadow management or physical evaluation of the assets before they took them over in 2013 due to the labour crisis then.

Dr Oni also blamed low tariffs as they couldn’t generate sufficient revenue to pay back the huge loans.

 “Other reasons, such as electricity theft – a situation where people used electricity without paying full value for the quantum used – have also been responsible.

 “Additionally, the assets could not generate full value, as same needed turn around maintenance and the over-leveraged investors didn’t have funds to undertake such turn around maintenance to put the assets in the best shape possible,” the energy law expert also explained.

On his part, the president of Nigeria Consumer Protection Network (NCPN), Kunle Kola Olubiyo, said the problem of the DisCos is indebtedness and their inability to pay is purely put on the shoulders of regulatory gaps, regulatory discrepancies, lack of oversight and non-enforcement of regulations.

Olubiyo, who monitored the power sector privatisation process in 2013, said there is a whole lot of inaction that has exposed regulatory issues by the Nigerian Electricity Regulatory Commission (NERC). The regulator has teeth but has not been able to bite, 

He noted the lack of fiscal discipline by the operators as even the 20% Minimum Remittance Requirement (MRR) for energy supply by DisCos monthly has not been followed up even as NERC is raising it to 100%.

“If they could not collect 20%, I wonder how they will collect 100%,” he said.

However, with the trending receivership by the banks already across two DisCos so far, Olubiyo said: “But the power sector issues are not as bad as it looks.”

He noted that with the new management of AEDC under the UBA receivership, there was a declared N11 billion collection for December 2021 operations.

“If it were the old one, maybe there would be under-declaration and a bogus recurrent expenditure that will be used to draw it down.

“If we can’t get it right in the power sector, we will not be able to achieve the re-industrialisation and the economic turnaround that is the aspiration of the government,” Olubiyo explained.

Other observers noted that the apparent failure of the DisCos was taking a toll on industrialization, planned future privatization in aviation and other sectors and investor confidence, among others.