How CBN Interventions Bails DMBs, Power Sector From Collapse 

The Central Bank Nigeria’s role in protecting the collapse of banks as a result of the power sector loan remained sacrosanct, which if not for the indebtedness of the power sector to the bank would have led to the collapse of banks. CHIDI UGWU writes on the commendable apex bank intervention in both banking and power sectors

For some industry watchers and analysts, the Central Bank of Nigeria’s (CBN’s) over 40 intervention programmes aimed at resetting and stimulating the nation’s economy have paid off, especially in the electricity sector. Specifically, some analysts said many Deposit Money Banks (DMBs) in Nigeria may have collapsed except for the CBN, especially in the takeover of some distribution companies.

The experts, who also noted that the apex bank’s backing of the takeover of the DisCos saved the country job losses and economic catastrophe. They noted that recovering government loans as well as that of commercial banks remained critical for the nation’s financial sector even as government intervention in the sector now stands at N2.9 trillion.

A power sector analyst, Adetayo Adegbenle noted that the CBN role in protecting the collapse of the bank from power sector loans remained sacrosanct, adding that the indebtedness of the power sector to the bank would have led to the collapse of banks.

“I love the fact that CBN came into the power sector, not just to save the sector, don’t forget even though they have roles to play in the sector but they came in to save their own banking sector. The loans that the power sector took from the banks have become bad and if you do not do anything it is going to be on the books of the banks. So CBN backing the banks to take over the shares is a good thing,” he said.

Transparency, in most cases, increases trust in a system. Therefore, I would recommend that the collected figures are made public since DisCos are custodians of market funds, rather than the owners

Backed by the apex bank, DMBs had taken over five DisCos amidst poor performance and inability to pay back loans, a development which is already putting some banks on the edge of collapse. With indications that the government’s intervention fund for the power sector now hovers around N2.9 trillion since the sector was privatised in 2013, stakeholders insist that the total collapse of the power sector would have had serious implications, not only for the banks but the entire economy.

In what has been described as poor financial performance, Abuja DisCo, Ibadan DisCo, Kano DisCo, Kaduna DisCo and the Benin Electricity Distribution Companies (BEDC) have been at loggerhead with the banks in a move backed by the CBN and Nigerian Electricity Regulatory Commission (NERC) and Bureau of Public Enterprises (BPE).

Coming amidst a fresh $500 million loan by CBN to improve the capacity of the distribution companies, the development is happening at a time of global energy crisis where diesel now hovering around N850 per litre, as the government spends heavily to subsidise Premium Motor Spirit (PMS).

A report by CSL Stockbrokers Limited, (CSLS) titled, “The continued rise of bank loans to power sector”, had last week stated that the power sector owed N836.08 billion to Deposit Money Banks (DMBs). The payback loans notwithstanding, the DisCos are indebted heavily despite huge stimuli from the Federal Government and interventions from the Central Bank of Nigeria (CBN).

Prior to the takeover, CBN had directed the Deposit Money Banks to take charge of the collection of electricity bill payments as a circular signed by Hassan Bello, director of banking supervision had linked the move to the recommendation of the Power Sector Coordination Working Group to improve payment discipline in the Nigerian Electricity Supply Industry (NESI).

BPE had disclosed last week that it is working with CBN to ensure that banks, which took over the DisCos exit in six-month as the Director-General of the BPE, Alex Okoh said the banks were not expected to hold the shares perpetually.

“In fact, in conjunction with the CBN, we have given them a deadline of six months within which to sell those shares to credible operators approved by the BPE and NERC and should they not be able to meet that deadline, they can be given a maximum extension of another six months.  So in one-year maximum, they should be out of the DisCos,” Okoh stressed.

Recall that the Distribution Companies (DisCos) are responsible for the sector’s revenue collection. While there was a clamour for an increase in tariff, the sector’s inability to improve on the collection and reduce losses, a basic part of DisCos Key Performance Indicators, as well as the inability to make remittance to the Bulk Electricity Trading Company remained a serious concern for the sector.

President of the Nigerian Consumer Protection Network, Kunle Olubiyo said the takeover has helped in averting massive job losses and prevented the imminent collapse of the banking industry due to toxic loans. According to him, those who were the pioneer investors in the DisCos are Nigerians, who meant well but lack the requisite technical requirements of the original financial bidding benchmarks and technical bidding benchmarks as originally set out as thresholds for financial diligence as well as the technical due diligence.

“What is most important is our ability as a nation to rally round indigenous investors with the right financial muscles, who in turn can put together an assemblage of individual professionals with collective cognate experiences of working in the business of management of power generation, transmission and distribution value chain to apply and take over. I am quite sure that in the next one, the present crop of receivers’ managers would have learnt a lot from the multifaceted sector-wide learning curves,” he said.

Partner, NexTier Power, Emeka Okpukpara, had earlier noted that the initiatives by the apex bank are reducing financial liquidity in the sector, and introduced transparency, which enabled players in the sector to have access to information. According to him, aside from offering visibility to the sector’s finance, the efforts ensured payment of debts at first-line charges.

Okpukpara said: “The financial discipline allows visibility of what DisCos are collecting. It allows debts such as generation, services, and other charges to be settled first before operating expenses. Transparency, in most cases, increases trust in a system. Therefore, I would recommend that the collected figures are made public since DisCos are custodians of market funds, rather than the owners.”

While electricity consumers pay for the inefficiencies of the sector under a Service Based Tariff arrangement, stakeholders are miffed that the current takeover by the banks remained a pointer to poor corporate governance, technical and commercial losses as well as the dismal technical regulations in the power sector.

Recall that none of the DisCos, except Eko, is currently able to meet the minimum remittance order set by NERC, none of them has declared profit for eight years, and none of them has also met the Key Performance Indicators (KPIs) set by the sector, leaving consumers to pay for minor repairs and maintenance due to the country’s energy situation.

An energy lawyer, Madaki Ameh had stated that there was a need for the total overhaul of the sector, insisting that the patch up is long overdue and the takeover of the DisCos remained legally justified under the terms of the agreement, which brought them into the Nigerian Electricity Supply Industry (NESI). He quipped that the DisCos have not met any of the minimum thresholds set for them by the government since privatisation despite the huge investment the government has continued to make in the sector.

“If you compare happenings in the power sector with the telecoms, you will see clearly that there were structural defects with the implementation of the privatisation policy in the power sector and that nothing short of a total takeover of the DisCos and some of the non-performing GenCos would deliver the sort of efficiency required to transform the sector in Nigeria,” Ameh said.

• Source: Saturday Independent