DisCos raise concerns over FG’s N72bn investment in distribution assets

THE electricity distribution companies ( DisCos) has raised concerns over Federal Government (FG) proposed N72billion investment in the distribution assets which is majorly to ensure the evacuation of stranded 2,000MWs power.

The Managing Director, Transmission Company of Nigeria (TCN) Usman Mohammed had recently made the disclosure, stating that the distribution project will be executed by TCN.

However, the umbrella body of the 11 DisCos, Association of Nigerian Electricity Distributors ( ANED) in a statement issued at the weekend, said this was commendable but stressed that the basis of the investment which is to evacuate the stranded 2,000MWs was unrealistic.

It maintained that the purported stranded power is constrained by insufficient gas caused by inadequate and incomplete gas pipeline structure and the absence of a strong commercial framework.

“Premise or basis for the N72 billion investment, as proposed by the Ministry of Power, Works and Housing (MoPWH) has been the need to evacuate the “stranded” 2,000 MW of electricity that is constrained by distribution network limitations. As we have stated in a previous press briefing, there is no such thing, as painted by TCN and MoPWH.

“while the sector has an estimated available capacity of 7,000 MW, of which, on a daily basis, 2,000 MW remains constrained by lack of gas (specifically, an average of 1,500 MW, given that 25 out of 28 of our generation plants are gas-powered thermal plants) caused by an inadequate and incomplete gas pipeline structure and the absence of a strong commercial framework that will spur gas exploration and sales; and the balance of 500 MW is limited by transmission line frequency challenges, transmission line limitations and hydro constraints,” the statement partly reads.

It maintained that Government funds, based on a stranded 2,000 MW capacity that is constrained largely by factors other than distribution limitations (gas, frequency, line, hydro), should not be invested in a sub-sector that has been privatized.

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Also, ANED argued that; “It is not likely that TCN, a legacy Power Holding Company of Nigeria (PHCN) entity, with its historical contracting and project management limitations will implement electricity distribution projects better than DisCo investors that have N427 billion ($1.4 billion) of equity and debt invested in the sub-sector, with a motivation to recover their investment.

“The premise of the privatization was the need to bring in private sector expertise while removing from the government balance sheets, the potential for outcomes of cost overruns, inefficiency and white elephant projects. This initiative creates the potential for a return to the old days of the government trying to implement projects that it is not suited for.

“It will be difficult for the DisCos to acquiesce to TCN/MoPWH adding a further N72 billion of debt to the N1.3 trillion of debt (and growing) already on their financial books, given a) the DisCos’ inability to access debt financing required to address massive capital expenditure requirements that far exceed the N72 billion initiative, that is required to inject the efficiency that electricity customers demand; b) the DisCos’ regulatory constraints; and c) the uncertainty of projects built by an entity that is licensed only to transmit energy and not distribute energy,”it said.

In view of this, the Association opined that the N72billion be channelled into bridging the tariff gap and providing the commercial framework that will ensure that Nigerian electricity customers receive the benefits of increased and stable power.

“The most important objective, that can help NESI achieve the privatization objectives of efficiency; improved and increased power supply; national economic growth, etc., is the attainment of an alignment of the gas-to-power, technical, commercial and risk frameworks. Without such an alignment, interventions such as the N72 billion investment in the distribution network will, unfortunately, continually come to nought.”

It also stressed the need for dialogue between stakeholders saying:“It is also our strong belief that until all the stakeholders, collaboratively and in partnership, begin a dialogue in good faith, without pre-determined agendas, our ability to move the sector forward will continue to be limited.”