Promoting transparency in debt-laden power sector, through CBN’s Escrow of DisCos’ account

Following the handover of the Power Holding Company of Nigeria (PHCN) successor companies to the private participants 2013, the Nigerian Electricity Supply Industry (NESI) was confronted with liquidity challenges arising from insufficient gas supply among other problems.

Amidst the dire situation which could have far-reaching implications for the economy, the Central Bank of Nigeria (CBN), under the leadership of Mr Godwin Emefiele, had indicated its desire to invest in the electricity sector and provide a facility known as the CBN-Nigerian Electricity Market Stabilisation Facility (CBN-NEMSF).

The facility aimed to settle outstanding payment obligations due to market participants, service providers, and gas suppliers which accrued during the Interim Rules Period (IRP Debts) as well as the legacy gas debts of the PHCN generating companies owed to gas suppliers and the Nigeria Gas Company Limited (GCL) which have been transferred to the Nigerian Electricity Liability Management Company Limited (NELMCO).

Clearly, the problems facing the country’s power sector are very unique and some are simply exclusive to Nigeria. So the government must take unique and exclusive approaches in order to address these challenges.

Struggling under the weight of about N820 billion debts, it was obvious that the power sector needed help and for some time now, this support has been coming from the Federal Government, via the Central Bank of Nigeria (CBN).

The sector which was partly privatised several years ago has struggled financially due to poor performance, suppressed tariff and lack of infrastructure at the transmission and distribution ends.

According to industry data, financial liquidity in the power sector has risen to around N4 trillion as the apex bank alongside the Federal Government had to initiate a series of interventions to enable the sector to avoid imminent collapse.

The CBN had launched the Power and Aviation Intervention Fund (PAIF), hovering at about N300 billion, Nigerian Electricity Market Stabilisation Facility (NEMSF) at about N229 billion to nine DisCos. This according to available records led to an increase in power generation from 4000 MW in 2021 to 5,000 MW in 2022.

Also the apex bank set aside N140 billion solar connection intervention facilities, over N600 billion tariff shortfall interventions and a recent N120 billion interventions designed for mass metering among others.

The Federal Government had similarly released N600 billion for the power sector to bridge shortfall in the payment of monthly invoices by key stakeholders in the sector with another N701 billion CBN facility deployed in March 2017 as Power Assurance Guarantee.

However, the bank saw that even though 11 electricity distribution companies (DisCos) in Nigeria were generating money, mismanagement of such funds limited their ability to service the debts.

Industry stakeholders agree that with such funds already sunk into the sector, it is expedient that appropriate measures be taken to ensure their recovery.

So, in order to guarantee loan repayment to the Federal Government (FG) and ensure 100 per cent payment of market operators and Nigerian Bulk Electricity Trading Company (NBET’s) invoices, the CBN escrowed their bank accounts in 2020. It allowed inflow of cash into the accounts but restricted withdrawals, thus prioritising certain operations that the fund is used to avoid mismanagement.

Experts have hailed the initiative; saying that the development may have halted misappropriation of fund by the utility companies, introduced transparency, increase in revenue, enabled the government to recover monies loaned to the companies while reducing the financial burden in the sector.

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It is noteworthy that even though discos have complained of lack of access to funds to finance their operations, as a result of government’s escrowing of the accounts, the CBN and Federal Government have since realised huge revenue which was initially going into the discos vaults with little or no accountability.

Analysts are of the view that given the laudable concept and positive impact which the CBN funding intervention had brought into the power sector, it is important for all parties in the agreement to strive at ensuring compliance for the benefit of the industry and economy.

Industry data showed that between July and December 2020, revenue from the market grew by 10.55 per cent to N272.47 billion.

Indeed, between July and December 2020, industry statistics indicated that electricity market revenue grew by 10.55 per cent to N272.47 billion. In the same period in 2019, the revenue was N246.46 billion. The development was then linked to the imposition of restrictions on DisCos’ revenue collection accounts.

It should be noted that Electricity consumers across Nigeria paid N565.16 billion for energy consumed in the first nine months of 2021, data from the Nigeria Electricity Regulatory Commission (NERC) has shown. It also showed that the amount collected by electricity distribution companies (DisCos) was 34.02 per cent higher than the N372.92 billion collected over the same period in 2020.

Stakeholders’ comments

The Special Assistant to the President on Infrastructure, Ahmed Zakari, in his contributions said the account escrow led to a significant increase in upstream remittance from DisCos to NBET/TCN.

He explained that the remittances have increased by over 100 per cent and aided liquidity flows to enable operations of the generation companies and Transmission Company of Nigeria (TCN).

“The visibility provided by the escrow system has also aided NERC’s regulatory oversight of the DisCos while also providing data which is being used to independently evaluate sector performance and impact of various interventions being embarked on in the sector,” Zakari said.

Market Operator, TCN, Edmund Eje, said the move brought about payment discipline in the market.

“By the CBN escrow intervention, therefore, it will be difficult for any DisCos to misappropriate their monthly revenue collection, as the CBN’s Special Purpose Vehicles (SPVs), Meristem monitors all the DisCos commercial banks through which all DisCos revenue is remitted,” he added.

Former Chairman of NERC, Sam Amadi, insisted that the gains in the revenue may remain elusive if it doesn’t translate to improved operations of the DisCos.

Amadi said: “I don’t think it has significantly improved power supply to homes and businesses,” adding that the purpose of the escrow was to enable the CBN recover its fund so that it is not frittered away or used by the DisCos to finance their investment.

“The CBN intervention is a special funding to deal with the liquidity crisis and legacy debt in the sector. It was supposed to be repaid but through a convenient process that will not adversely affect DisCos’ investment plans. The gains are twofold: whether CBN is getting repayment when due. I think through the escrow, the CBN can guarantee itself repayment.

A Director at PricewaterhouseCoopers, Habeeb Jaiyeola, noted that while the financial discipline has achieved stability in the sector, especially in strengthening the liquidity crisis, there was a need to keep improving collection in the sector.

He noted that controlling DisCos’ accounts remained a temporary solution, stressing that the CBN and other players in the sector must improve infrastructure that would ensure the collection of revenue.

“One of the major measures that can further improve liquidity in the sector is to improve on collection. For that to happen, metering of consumer and capacity development is important.

“If there is a low collection, there will be low distribution and high collections will lead to high distribution. So, we need to urgently address those challenges affecting low collections in the sector. Until this is done, we may not have a sustainable solution to the liquidity issue,” Jaiyeola said.