The decision by the Central Bank of Nigeria (CBN), to escrow the bank accounts of the nation’s eleven Distribution Companies (Discos) may significantly reduce the huge debt in the power sector.
Over a year ago, the federal government through the CBN “locked” the power distributors accounts, to aid in the monitoring of funds and to ensure the monies are allocated based on priority.
This meant that repayment of debts owed the federal government was accorded high priority while invoices from market operators the Nigerian Bulk Electricity Trading (NBET) Company were considered first.
The sector is currently highly indebted to commercial banks, resulting in the taking over of one of the Discos, the Abuja Electricity Distribution Company (AEDC) by the creditors.
It was expected that the collection discipline through the CBN would ensure more transparency, accountability as well as increase revenue and enable government to recover monies loaned to the Discos.
Although, the account escrowing exercise is meant to be a temporary measure industry stakeholders believe that this could significantly impact positively on the sector.
For instance between July to December 2020, total revenue grew by 10.55 per cent to N272.47 billion as compared to 2019, when the revenue was N246.46 billion.
Special Assistant to the President on Infrastructure, Ahmed Zakari agreed that the measure has helped increased remittances, thereby aiding liquidity in the sector.
According to him, the visibility provided by the system had helped NERC’s regulatory oversight of the Discos as well as providing independent data.
A former Managing Director of NBET, Rumundaka Wonodi, explained that while it is a temporary measure, the escrowing of Discos’ accounts has helped in ensuring some level of transparency in the sector.
“So far it had helped in increasing revenue in the sector. So many people have accused the Discos of poor remittances, the initiative will make everything open. But it needs to be widened,” Wonodi said.
Also, the Market Operator, Transmission Company of Nigeria (TCN) Edward Eje, explained that with the development, it had become difficult for any Discos to misappropriate their monthly revenue collection.
This is because the CBN’s Special Purpose Vehicles (SPVs), Meristem, monitors all the Discos’ commercial banks through which every Discos revenue is remitted.
“This intervention has actually brought about a level of payment discipline in the market,” Eje argued.
He maintained that to replicate the relative success of the exercise, the Discos must have an updated bank guarantee with the market operator and Meristem and on their new performance level.
that the key measure of the success of the policy would be when Nigerians can access more power supply.
“The purpose of the escrow was to enable the CBN recover its fund so that it is not frittered 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, ”he said.
