ANED explains why the recapitalisation of Discos may not work

The Association of Nigerian Electricity Distributors (ANED) believes that the plan by the Transmission Company of Nigeria (TCN) to recapitalise Nigeria’s 11 power distribution companies (Discos) will not be successful unless investors see the possibility of regaining their investments.

ANED’s Chief Executive Officer, Azu Obiaya, disclosed this while speaking during the second day of a two-day seminar that was recently held in preparation for the Performance Improvement Plans by Nigerian Discos. He acknowledged that the recapitalisation of Discos had recently become a vital issue.

He, however, emphasised that the refund on investments is one thing investors in the sector want to ascertain before agreeing to the recapitalisation process. According to him;

“Recently, there has been a drumbeat for the recapitalisation of the Discos.  There are two principal approaches to recapitalisation – one, we won’t mention today and the other is an investment. For the latter to occur, rational investors would need to see a pathway of recovering their investment for them to make the leap.

 “It is my hope that the PIP guidelines, if implemented faithfully, efficiently and consistently, will provide this pathway, as necessary to re-orientate the sector towards commercial viability and sustainability.”

The decision to recapitalise the Discos was initiated by the TCN. As Nairametrics reported, the Federal Government is working in partnership with some private investors to jointly raise $4.7 billion for the recapitalisation bid.

The Federal Government will inject $1.7 billion into the DisCos, while the private investors will pay up the balance that is proportional to their 60 percent equity in the companies.

Why this matters: The Managing Director of TCN, Usman Mohammed, said that low investment in the power distribution sector is one of the major factors responsible for unstable electricity in the country. Now, there’s a solution on the way in the form of investments. However, for this to happen, those who are risking their money to make the investment must be assured that their investments must be recouped.

This is very important because according to the Executive Director in charge of Research and Operation at ANED, Mr Sunday Oduntan, the recapitalisation process would not work because of inappropriate pricing of electricity. He explained that firm that provides capital for the sector expect returns, but how will they get that when their products are under-priced.

He further stated that criminalizing theft is a measure that states should adopt. Citing Edo and Ekiti state governments as an example, he said they are the only ones that have criminalised energy theft, by ensuring that House of Assemblies passed the bill into law.