The takeover of the five electricity distribution entities is questionable
When the Bureau for Public Enterprises (BPE) announced the takeover of the five electricity distribution companies (Discos) in Kano, Benin, Kaduna, Ibadan and Port Harcourt on July 6, it must have reasoned that the season was not only ripe, but that elements were working all in its favour. First was the incessant collapse of the grid which had come to lay bare the hollowness of the sectors’ promise of restoration. This year alone, the grid is on record to have collapsed six times – for reasons that are as complex as are varied – cutting through the layers of an intriguingly complex service delivery chain.
Then was the perceived pathetic performance of the key players creating an oasis of unmet expectations particularly in the background of modest investment by the operators. All of these have come to be accepted as dampening any expectations of service and operational optimisation for an enhanced service delivery.
If we add to this the daily anguish of the ill-served Nigerian electricity consumer who have seen service ebb further and further down to such a point that they have virtually given up on any real prospects of imminent recovery; the action by the government could only have come to many as a proverbial case of Daniel finally coming to judgment.
Yet again, it was another instance in which a powerful government agency – the BPE would chose to blame victim – rather than treat the problem as an organic whole requiring an industry-wide re-evaluation.
Of course, the BPE claimed that the takeover of the five distribution companies was over an alleged poor financial performance by the operators – a claim that must have come to many as a surprise as few could recall any claims of insolvency either being made against the entities in the public space let alone an established one.
Even more curious is that the Nigerian Electricity Regulatory Commission (NERC) and the BPE – as against the presumed lenders – would take the lead in mounting a frenzied rationalisation of an act said to have stemmed from a dispute over an alleged indebtedness. That the alleged indebtedness would itself be disputed by the distribution company in question must have added another interesting angle to the puzzle.
Needless to state that both the BPE and NERC had cited the statutory responsibilities as ‘sufficient justification’ for the rather drastic and patently extra-legal act; suffice to state that they had determined, in their opinion – even if against credible evidence – that the five entities were technically incapacitated and also financially insolvent.
Having thus determined that the companies failed to meet their loan obligations with Fidelity Bank Plc as a result of which their shares, ostensibly, collaterised, had to be called in by the lender, all that was left for the BPE was to position itself as an undertaker in what smacked of a stage-managed takeover of a private entity in what would open another tragic chapter in the nation’s never-ending tale of corporate and institutional infamy!
How they came up with their finding in the absence of a credible, independent audit of the firms and by competent bodies would itself remain moot. That, most assuredly, will constitute another intriguing element in the unending puzzle. Reminds of a proverbial crying by the witch in the night and the death of the child in the morning; as they say, it does not require a soothsayer to tell who did what…
As it is, many more questions would spew forth in the coming weeks and months in what promises to be a titanic battle. Already, the signs are that the battles have been joined. Indeed, they have been on multiple fronts.
Take the case of Benin Disco as an example; the company has since fired back: “The shares of the BEDC have not been given as security or to any other party”.
Yes, it admitted that Vigeo Holdings Limited (VHL – a non-shareholder of BEDC) obtained credit facilities from Stanbic IBTC Bank Limited, Fidelity Bank Plc, and Keystone Bank Plc (the VHL Lenders)”; it nonetheless insists that the credit facilities (and any enforcement action in relation thereto), ‘have…become subject of litigation in an action instituted by VHL and other plaintiffs (the VHL Action) with Suit No: FHC/L/CS/239/22 – Vigeo Holdings Limited and 4 Ors v. Stanbic IBTC Bank Limited, and therefore, sub judice.”
Meanwhile, Vigeo Power Limited, the majority shareholders of BEDC, worried at the possibility of back door reacquisition of the entity, had filed a suit at a Federal High Court in Abuja to restrain Fidelity Bank Plc and other co-defendants from taking over BEDC pending the hearing and determination of the motion on notice. The action, dated July 8, had, among as the defendants, NERC, the Corporate Affairs Commission (CAC), K.C. Akuma, and Henry Ajagbawa– the two persons appointed by the federal government to take over the management of the company.
Also, the BEDC apparently convinced that BPE took the actions in bad faith dragged it to a United Kingdom arbitration to challenge what it considered as arbitrary takeover of the BEDC by the Fidelity Bank.
The above is the basic outline of dispute in what portends an epic fightback by the injured entities.
Interestingly, while the BPE was showboating, none of the issues at the heart of the crises in the electricity sector came for mention. For instance, the issue of regulatory inconsistencies under which minor reviews were not implemented for a three-year period; removal of collection losses from the Multi Year Tariff Order (MYTO), which adversely impacted Disco revenues; the non-implementation of the original baseline loss studies, misalignment of the foreign exchange rate under the tariff order – a factor that would expose the operators to the vagaries of exchange rate fluctuations and associated regulations which hobbled their operations in an environment where vital equipment are purchased internationally. There is also the issue of the alleged failure, by the government to fulfil a N100 billion subsidy and other privatisation promises made since 2013; and not the least, the by-pass of the established process by which a change of the Board of Directors and management in those entities could occur.
Here is how the Association of Nigerian Electricity Distributors, (ANED) captures the scenario in the Nigerian Electricity Sector Industry as it affects the electricity distribution companies: “What we have in the electricity distribution sub-sector of NESI is a misalignment of risk, technical and commercial factors… with the Disco investors bearing the brunt of the misalignment. Unless there is a correction of this misalignment to establish a balance that shows a pathway to sustainable commercial operations, from gas production to retail electricity delivery, the power sector will never attain the level of efficiency that is necessary to provide Nigerians with the significantly improved power situation that is urgently required”.
Making the five Discos the industry fall-guys would in the circumstance seem preferable to the BPE than tackling the problem holistically.
As it is, the eyes of the global investor community would be on Nigeria for, as usual, the wrong reasons. While the BPE continues in the frenzied bid to de-market the Discos to justify its ignoble act, the rest of the world would rather focus on global best practices – issues of rule of law and due process; sanctity of contracts and such other conventions that the international community have long taken for granted. The chances are that they will inevitably see through the sophistry, the populist and the barely disguised reacquisition packaged and sold as ‘restructuring’.
Surely, the development itself must have come as a sad turn for a country in dire need of investment – domestic and foreign. For in the final count, it would not be so much about what is sold to the ordinary man on the street, but how international investors would perceive the unfortunate development.
On the future of the Nigerian electricity sector, the words of ANED would again come across as instructive: “Expropriation or renationalization, by itself, of the Discos will not change the currently bleak situation or outlook of NESI. If anything, it fosters the long-held perception of Nigeria as a country where the prevailing culture is a lack of respect for contract and the rule of law”.
For those Nigerians currently baying for the blood of the Discos, it is certainly something to chew upon.
Chris ‘Tobi Oni writes from Benin City
