Could focus on power sector by AfDB salvage sinking Nigerian Discos

by | January 22, 2018 2:31 am

The country Director of African Development Bank (AfDB), Ebrima Faal, said in an interview few weeks ago that the bank would focus mainly on power in 2018. According to him, the lender intends to fund solar projects in conjunction with the World Bank.

Such commitment is coming at a time when the power sector is riddled by insufficient power supply to the grid as the country generates 4617 Megawatt (MW) of electricity for a population of 180 million. This compares with South Africa’s 40000 MW of power generation for a population 59.51 million people.

The most challenged in the electricity value chain are the distribution companies (Discos). These firms are burdened by huge debt, insufficient working capital, mounting operating costs and accumulated losses.

Analysts say the Discos are grappling with enormous operational challenges such as old and obsolete networks; lack of maintenance of network equipment; poor customer data; low meter penetration; and little or no investments due to poor revenues, low tariffs, and lack of external funding.

For instance, the cumulative loss after tax of six (6) Discos that have released their financial statement on the website of the Nigerian Electricity Regulatory Commission (NERC) stood at N196.15 billion in December 2016 from N104.23 billion the previous year.

Combined operating costs of N344.64 billion in the period under review swallowed the whole of sales of N336.72 billion, leaving them with operational losses.

Experts are of the view that the suspension of tariff increases by the NERC is inimical to a sector in dire need of cash to reverse a weak liquidity position.

However, such a hike could hit consumers, whose purchasing powers have been undermined by inflationary pressures. The vast majority of Nigerians earn less than a dollar a day while unemployment rates are rising.

Nigerian Discos have huge debt in their capital structure as cumulative debt of the six firms spiked by 62.90 percent to N60.91 billion while money owed to suppliers otherwise known as trade and other payables surged by 97.37 percent to N472.89 billion in the period under review.

Perhaps more worrisome is the fact that they do not have the operating profit to absorb interest expenses.

Cumulative finance costs increased surged by 216.51 percent to N37.34 billion in December 2016 from N25.54 billion as at December 2015.

Ikeja Disco, Benin Disco, Kaduna Disco, and Abuja Disco have accumulated losses of N175.43 billion, N4.77 billion, N28.66 billion and N29.60 billion in their balance. This means they’ve recorded more losses than profit since they started to exist as corporate entities.

Benin Disco and Abuja Disco are technically insolvent as total liabilities of N128.22 billion and N49.52 billion are more than total assets of N117.20 billion and N89.52 billion respectively.