Abuja Distribution Company Plc is technically insolvent as its total liabilities of N128.22 billion as at December 2016, exceeded total assets of N117.20 billion.
This resulted in a negative shareholders’ fund of N11.09 billion in the period under review.
Negative shareholder equity on a company’s balance sheet is a red flag that investors should steer clear of the firms stocks.
The company has been making more losses than profit throughout its existence as accumulated losses otherwise known as negative retained earnings stood at N29.60 billion in the period under review.
Abuja Distribution (DisCo) Company and its peers are struggling with enormous operational challenges such as insufficient energy supply grid; old and obsolete networks; poor metering; little or no investment due to little revenue, and low tariffs.
Also, these firms are grappling with inadequate cash flows, huge debt burden and mounting operational costs.
Experts are of the view that the suspensions of tariff increase by Nigerian Electricity Regulatory Commission (NERC) deal a great blow on firms that is in dare need of cash to strengthen working capital.
However, such a tariff increase could squeeze consumers whose purchasing power has been eroded by rising inflation and high transportation costs as a result of the hike in pump price in 2016.
Analysts say distribution has always been a disruption in the electricity power chain and if urgent and responsible steps are not taken, some DisCos could seize to exist in the foreseeable future.
Nigeria generates 4976 megawatts of electricity for a population of 180 million people, while South Africa, with a population of 59 million, generates 40000 megawatts of electricity.
Further analysis of Abuja DiSco’s financial statement shows the company recorded a loss after tax of N47.44 billion in December 2016 from a loss of N42.97 billion as at December 2015.
The Nigerian DiSco is burdened with huge interest expense as finance costs spiked by 3.34 percent toN12.24 billion in the period under review while money owed to suppliers otherwise known as trade and other payables increased by 81.12 percent to N121.70 billion in the period under review.
Abuja DiSco has no earnings to cover rising interest expenses because of its huge operating loss of N35.31 billion recorded in the period under review, which means it is exposed to financial risks.
Operating costs are 1.08 times sales, which inevitably resulted in a gross loss of N5.17 billion while operating expense are 0.49 times revenue.
Abuja DiSco has liquidity problems, which means the company, may be unable to meet short term obligations as current ratio is less than 1.
In other words current liabilities of N126.70 billion exceeded current assets of N33.07 billion, which resulted in a negative net working capital of N93 billion in the balance sheet.
There is light at the tunnel as the Country Director of the African Development Bank (AfDB), Ebrima Faal, said in an interview with news men that the bank would focus mainly on the power sector in 2018.
The question on the lips of many commenters is that will the AFDB capital injection salvage power companies from an imminent catastrophe given the fact the non-reflective tariff is a clog on the wheels of these firms.