Ikeja Electric’s losses pile as debt mounts


January 12, 2018 | 1:05 am
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An examination of the financial statements of Ikeja Electric Plc indicate that the company is in dare need of restructuring as accumulated losses continue to pile.

The Distribution firm or (DisCo), having been compelled by the Nigerian Electricity Regulatory Commission (NERC) to publish the results on their websites, reported a loss of N65.18 billion as at December 2016 from N28.61 billion loss the previous year.

To further exacerbate the already anaemic position of the company is an accumulated loss of N175 billion in its balance. This means it has been recording more losses than profit through its existence.

Discos in Africa’s most populous and largest economy have ascribed much of the challenge in the sector to the absence of a cost reflective tariff, which essentially forced them to price below the cost of production and shoot their debt to N500bn.

However, experts are of the view that these firms are not liquid enough to run a capital intensive business like power distribution while they borrowed money from banks to finance balance, leaving them highly geared.

An industry player, who doesn’t want his name mentioned in a bid to pay back money owed to banks, DisCos have embarked on aggressive cash collection from customers.

He added that most of them are technically insolvent and they rely on Nigeria Bulk Electricity Trading Plc (NBET) for funding and that if the trading company pull out the life support plunge, many will fall off the clip.

Ikeja Electric’s finance costs or interest expense spiked by 377.67 percent to N5.35 billion while trade and other payables or obligations to suppliers spiked by 101.81 percent to N102.54 billion.

It is unsurprising that Ikeja Electric is having working capital issues as its current assets is 8 times less than current liabilities, which means its ability to honour obligation is in jeopardy.

The Disco is burdened by huge costs as operating cost of N76.12 billion swallowed sales of N64.49 billion.

If urgent and responsible steps are not taken by the management of Ikeja Electric, then the company could veer dangerously close to bankruptcy.

Distribution has always been the weakest link in the electricity value chain.

Nigeria, with a population of 180 million people, generates less than 5000 megawatts, this compares to South Africa’s 40,000 megawatt for a population of three times less than Nigeria’s.

Experts say the only way to savage the DisCos from a precarious situation is for government to inject some more funds into distribution in order to acquire more equity that would pave the way for to them to have controlling interest.

“Government can now look for new owners or investors who have the financial strength and technical know how to manage distribution,” said the expert,” said the expert.





January 12, 2018 | 1:05 am
  |     |     |   Start Conversation

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