The National Economic Council (NEC) has stressed the need for urgent technical and financial audits of the Electricity Distribution Companies (Discos) in the country before interventions by Siemens, World Bank and others.
The Federal Government and Siemens AG signed a Letter of Agreement on the Nigerian Electrification Roadmap in July 2019, with the aim of ramping up electricity generation in the country to 25,000 megawatts in six years.
In the light of the above, the Ad-Hoc Committee of the National Economic Council on Ownership Review and Analysis of Discos and Electricity Sector Reform, in its report, said the power sector had underperformed due to critical challenges.
Some of the challenges mentioned in the report include, non-implementation of cost-reflective tariffs, misalignment between the investors and the Bureau of Public Enterprises on required investment in Discos, under-investment in infrastructure and poor implementation of rules/contracts.
Amongst other measures recommended by the committee to urgently turn the sector around include: recapitalisation of Discos, firm implementation of industry rules/contracts and the insistence on sound governance principles that improve performance.
According to the committee, observations from the Nigerian Electricity Regulatory Commission’s open book review indicated major governance issues across all Discos, including procurement failures, related party transactions and lack of value-for-money in technical agreements.
The committee further stated that some of the critical assumptions that directly affect liquidity in the market and the ability of Discos to make necessary investments e.g. level of metering, aggregated technical, collection and commercial losses, capital expenditure allowance were incorrect at the point of privatisation.
According to the report, the selected bidders did not conduct thorough due diligence on the state of the infrastructure and finances of the successor distribution companies which led to misalignment on what was required to turn Discos around. And NERC has always set tariffs below costs, causing a failure to implement regulatory rules and contracts and continuous government subsidies to the market that compromise the financial position of the Discos and their ability to raise capex funding.