With about N820 billion debt strangulating the power sector, the Federal Government, via the Central Bank of Nigeria (CBN), came up with a strategy of escrowing the bank accounts of the 11 electricity distribution companies (DisCos) in 2020.
This entailed a partial lock of the DisCos’ accounts where cash inflow was permissible but outflow was blocked and controlled only by the apex bank on a priority basis.
Top on the priority list was withdrawal meant for loan repayment to the federal government, followed by payment of market operators invoices and the invoices from the Nigerian Bulk Electricity Trading Company before other commitments.
Financial liquidity in the power sector hovers around N4 trillion and experts say deliberate efforts must be made to safeguard it.
In retrospect, many stakeholders in the power sector have hailed the Federal Government for this move, just as some have called for more permanent solutions to addressing the perennial debt nightmare because escrowing of the DisCos’ accounts was limiting their investments while priority is given to loan repayment.
The Association of Power Generation Companies (APGC) has thrown its weight behind the Federal Government’s intention to escrow the revenue account of power Distribution Companies (DisCos), saying it would enhance equity in revenue sharing, transparency and attract investors to the power sector.
APGC’s position contradicts that of the DisCos, which had argued that the government’s plan to escrow its revenue account would amount to nationalisation of already privatised assets.
The escrowing option is fuelled by tariff shortfall, receivable collection, technical, commercial and collection losses.
Commercial banks, which loaned out the N820 billion, are already raising the red flags that the money was hurting their operations and staining their balance sheet.
Amplifying the position of the banks, the National Bureau of Statistics (NBS), recently, revealed that the non-performing loans in the power sector stood at N33.22 billion at the end of 2020, out of N1.23 trillion NPLs recorded by banks. While the financial crisis, the especially unpaid debt had led to rancorous development at the Abuja Electricity Distribution Company, the CBN reported that the combined indebtedness of power firms in the country currently stands at about N820 billion.
Last October, the Presidential Power Sector Working Group said: “Through the collection discipline via CBN, there is full visibility to DisCos collections. Collections over the past six months have stabilised at between N57 billion to N65 billion.”
Stakeholders insisted that there might have been a leeway for the power sector through the escrowing of the accounts by the CBN, stressing that the development may have halted misappropriation of fund by the utility companies, introduced transparency, increase revenue, enable the government to recover monies loaned to the companies while reducing the financial burden in the sector.
While some stakeholders are demanding measures that would compel the DisCos to perform, noting that the account escrowing could only be a temporary solution, the Presidency said the account escrowing led to increase in the sector revenue by over 100 percent.
From July to December 2020, industry statistics showed that electricity market revenue grew by 10.55 percent to N272.47 billion. In the same period in 2019, the revenue was N246.46 billion. The development was then linked to the imposition of restrictions on revenue collection bank accounts of DisCos.
The Special Assistant to the President on Infrastructure, Ahmed Zakari, noted that the account escrow led to a significant increase in the upstream remittance from discos to NBET/TCN.
According to him, these remittances have increased by over 100 percent, which has aided the liquidity flows to enable operations of the generation companies and Transmission Company of Nigeria (TCN).
“The visibility provided by the escrow system also aided NERC’s regulatory oversight of the DisCos while also providing data which is being used to independently evaluate the sector’s performance and impact of various interventions being embarked,” Zakari said.
On his part, the TCN Market Operator, Edward Eje, noted that the escrowing of Disco’s monthly revenue collection remains a worthwhile intervention at shoring up revenue accountability.
“By the CBN escrow intervention, therefore, it will be difficult for any DisCos to misappropriate their monthly revenue collection, as the CBN’s Special Purpose Vehicles (SPVs), Meristem monitors all the DisCos commercial banks through which every DisCos revenue is remitted. This intervention has actually brought about a level of payment discipline in the Market,” he said.
Eje advised that the CBN intervention could be complemented with the Market Operator’s instruments, which includes that every DisCos must have an updated Bank Guarantee with the MO and Meristem and should timely update the MO of the Disco’s performance, stressing that such move would inform when MO’s enforcement procedure kicks in, as per the Market Rules.
On his part, Mr. Chijoke James, National President, Electricity Consumers Association, called for greater investment in the power distribution value chain.
He also believes in keeping the financial status of the sector healthy harping on improved quality of service to consumers, describing it as more paramount.
He, therefore, urged the apex bank to ensure that investment on distribution infrastructure and meters for consumers should also be given special attention.
“We want to see all consumers provided with electricity meters and an end to the estimated billing system in Nigeria. We cannot continue to allow the distribution companies to shortchange consumers by issuing them bills for the electricity they did not consume.
“We find this unacceptable and will continue to advocate against such unjust practice by the DisCos”, he added.
The latest industry data released by NERC had shown that electricity consumers across Nigeria paid N565.16 billion for energy in the first nine months of 2021.
The data showed that the amount collected by electricity distribution companies was 34.02 percent higher than the N372.92 billion collected over the same period in 2020.
Former Chairman of NERC, Sam Amadi, insisted that the gains in the revenue may remain elusive if it doesn’t translate to improved operations of the DisCos.
Amadi said: “I don’t think it has significantly improved power supply to homes and businesses,” adding that the purpose of the escrow was to enable the CBN to recover its fund so that it is not frittered away or used by the DisCos to finance their investment.
“The CBN intervention is special funding to deal with the liquidity crisis and legacy debt in the sector. It was supposed to be repaid but through a convenient process that will not adversely affect DisCos’ investment plans. The gains are twofold: whether CBN is getting a repayment when due. I think through the escrow, the CBN can guarantee itself repayment.
Former Managing Director of NBET, Rumundaka Wonodi noted that, while it was critical to ensure DisCos perform their operations, the account escrowing ensured transparency in the sector.