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Energy Sector: Are Discos Technically Bankrupt?

The electricity distribution companies (DisCos) are in need of funds, such that they cannot procure equipment let alone expand their networks to take loads and give Nigerians regular electricity. In recent years, the distribution segment has been labelled the weakest link in the power value chain, necessitating calls for recapitalisation of DisCos.

The recurring system collapse, rejection of loads by electricity distribution companies (DisCos) and the continuous drop in transmitted power, inability to promptly pay power generators and gas suppliers are pointers to the ills of the power sector.

In the past, the transmission arm of the sector was regarded as the weakest link but, currently, the DisCos have taken over as the weakest link and they are not making any defence about it or efforts to improve on this status.

At a power industry seminar organised for reporters in Lagos, one of the resource persons noted that power is a major hindrance to Nigeria’s objective to be one of world’s 20 economies by 2020. It is expected that the combined installed generation capacity in Nigeria will rise to 14,000Mw by 2020, in line with the power sector road map and Vision 2020. He noted that the vision is endangered because power supply is pivotal to growth and Nigeria is not close to the quantum of power that will grow the economy to that level.

Specifically, he noted that the DisCos are technically bankrupt looking at the entire business, especially information technology and other infrastructure when benchmarked with international best practices.

The analyst listed some of the challenges confronting the DisCos. According to him, electricity tariff needs to be adjusted to market reality or be fully subsidised. He listed inflation, foreign exchange challenge and other macroeconomic realties as part of DisCos’ problems.

“DisCos have to pay for the power purchased and loads are rejected because they go where they make revenue losses through energy theft,’’ he said. He frowned on the cross-subsidisation of tariff.

Transmission Company of Nigeria (TCN) Managing Director Mr. Usman Gur Mohammed called for the recapitalisation of the DisCos, noting that without boosting their operation, the efforts of the generation and transmission segments of the power value chain would be futile.

He said: “When this administration came on board, transmission was the weakest link in the power value chain. But, as at today, transmission is not a weak link. We cannot say we have solved all the problems of transmission but any problem we have in transmission, we have a solution to it.

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“We raised the capacity of transmission from 5000Mw to 8100Mw in the last simulation we did in December 2018 and since then, Nigerians have seen all the capacity we have been adding, including those from Niger Delta Power Holding Company of Nigeria (NDPHC). We have raised $1.661 billion for investment in transmission and we are putting it across the country.

“We have also changed the qualification criteria for doing projects in such a way that the mistake that happened in the past where we met 800 containers in the ports stranded for more than 15 years will not happen again. Since we came in, there is no container that came in that we have not recovered. Of 800 containers that have been stranded, we have recovered 775.

“In spite of all that we are doing, the customers that are connected to the grid are only about 20, other people are connected through the distribution network. We, in TCN, have actually simulated the investment requirement of the DisCos and hired a consultant that certified what we have done. The investment requirement of the Discos is $4.3 billion.

“If we don’t invest in the DisCos and expand the distribution network, there is no way Nigeria will get the benefit of business.”

Vice President Yemi Osinbajo also confirmed that the DisCos are the weakest link. Osinbajo, who spoke at a forum in Abeokuta, the Ogun State capital, said the Federal Government has increased installed power generation capacity to 13,427 megawatts (Mw), while additional 660Mw is expected from some power plants before the end of the year.

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He said later, several solar power plants would come on stream. The national grid already has transmission capacity of 7000Mw,  from about 5000Mw. This is due to the completion of several transmission projects. On the contrary, the distribution capacity of the 11 distribution companies (DisCos) is significantly low hovering around 4000Mw. This low capacity has limited the capacity to deliver power to end-users, despite the substantial generation and transmission capacities. DisCos also lack the ability to provide distribution assets and metering to consumers..

The Vice President acknowledged the need to expand the grid and to recapitalise the DisCos, among others. He stated that despite the efforts of the government, the evidence and structure of the market could not deliver on government’s promises for power for domestic and industrial use. As a result of this, a substantial change of strategy is necessary. There is a need for a change of strategy.

He said: “At the heart of that strategy is recapitalisation of the DisCos first. We have to come up with more resources in one way or the other. Part of that recapitalisation process is in the Siemens’ phased electrification roadmap, which was commissioned by President Muhammadu Buhari recently. The whole idea of the roadmap is to deploy financing and technology on commercial terms agreed with transmission and distribution companies in partnership with the German Government and Siemens to increase transmission and distribution capacities to enable power delivery of at least 7000Mw to consumers.

“In phase two, to eliminate all the bottlenecks in transmission and distribution to enable full utilisation of existing generation of power to deliver at least 11000Mw to consumers, and in phase three, to upgrade and expand generation, transmission and distribution for end-to-end power delivery of 25,000Mw.”

On the other hand, Discos reportedly are only concerned with how to boost monthly revenue, especially through estimation billing system and deployment of modern technologies to facilitate bill collection, without reasonable investments to take more loads and give more power to consumers.

Source: The Nation

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