DISCOs’ Threats To Exit Nigeria’s Energy Distribution Sector

It is a season of decamping and reconnecting: it is all politics. Yes, it is possible right now that Nigeria is on auto-pilot at state and federal levels as politicians work days and nights to retain their jobs. Unfortunately, numbers cannot like: this is how we are growing, using GDP growth figures.

2010: 11.3%

2011: 4.9%

2012: 4.3%

2013: 5.4%

2014: 6.3%

2015: 2.7%

2016: -1.6%

2017: 0.8%

And if you consider that our power sector is moving into a terrible territory, you would be concerned. Things have gotten so bad that DISCOs are ready to exit the energy distribution sector.

The disagreement between the Federal Government and power distribution companies continued on Tuesday, with the Discos threatening to quit the sector and expressed willingness to resell the power assets at discounted rates.

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Speaking at a press conference in Abuja on Tuesday, the investor in Jos Electricity Distribution Company Plc, Tukur Modibbo, stated that the power firms were doing their best but were willing to resell the companies at discounts to whosoever was interested in them.

He said, “You asked me whether we are willing to quit the business. Now, please listen to me and put it down clearly that we bought our distribution company cash down for $82m in 2013; we are willing to take $72m in 24 hours and leave.

“If you have $72m or Fashola can give us $72m, we are giving him $10m discount; if we get that sum, in 24 hours we are out of this business. Please, is there anybody with $72m here? If there is none, please advertise it for me because I’ve given you the price.”

Modibbo advised the minister to call for a meeting of stakeholders in order to avoid a further deterioration of the sector.

This threat from the DISCOs goes back to my old statement: the problem is the government, past and current. Yes, there is something fundamentally wrong that no one wants to do business in Nigeria’s electricity sector despite the obvious latent opportunities. If the opportunities are there, and people are not jumping to make money tapping them, then you have a policy problem. It is irrelevant if you are shouting for investors to come. Great policies are visible because everyone wants to jump in and make money. But making that money comes with fixing market frictions. In our electricity sector, people are not interested to invest because they see no path to profitability. It is a paralysis that government must fix.

Unfortunately, the problem with Nigeria’s electricity is the government. There is no sector in Nigeria where everyone knows that money can be made than in the electricity sector. Yet, it is also the one where people are not investing. The implication is that we have a misalignment between market needs and investment risks. Everyone understands the real need in the market for electricity. Yet, few are running to invest. No matter how you see it, the problem is not with the investors. The problem is with the government because the right policy is not available to stimulate the animal spirit of capitalism.

This is certainly broken; the distribution companies are doing far better compared with the transmission companies. At the moment, despite the fact that generating companies can expand capacity up to 24,000 MW, a limitation is imposed on the transmission system at about 7,000 MW.  For the DISCOs, they are not close to distributing that capacity and they have no clear incentive to expand because doing so is simply losing money. It is in Nigeria where DISCOs will reject power because selling will be making losses. When you look at it, you will agree with them: they are demanding for reflective tariff, and if we expect them to remain in business, the nation has to carefully examine their points.

Finally, DISCOs have to also ensure they have done their parts. The nation is overdue for smart metering, estimated billing must be discontinued immediately.

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