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DisCos’ takeover: How CBN saved commercial banks, power sector from collapse

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Following the takeover of five electricity Distribution Companies (DisCos) by banks, stakeholders have backed the Central Bank of Nigeria’s (CBN) support for the move.

This was even as they stated that the move would ensure that shares are successfully transferred to new investors as this remained a leeway for the financial and power sector in the country.

According to sector’s experts, without the action, DisCos’ indebtedness would have led to total collapse of some banks as well as the power sector.

Backed by the apex bank, Deposit Money Banks (DMBs) had taken over five DisCos due to poor performance and inability to pay back loans.

The development was already putting some banks on the edge of collapse.

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

This is coming amidst a fresh $500 million loan by the apex bank to improve the capacity of the distribution companies and also at a time where FG’s intervention in the sector currently stands at N2.9trillion.

Adetayo Adegbemle, power sector analyst, noted that the CBN’s role was imperative stressing that the indebtedness of the power sector to the bank would have led to banks’ collapse.

“I love the fact that CBN came into the power sector, not just to save the power sector, don’t forget even though they have roles to play in the sector, 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 for CBN,” he said.

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Similarly, 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).

It said DisCos are indebted heavily despite huge stimuli from the FG and interventions from the CBN.

Prior to the takeover, CBN had directed the Deposit Money Banks to take charge of the collection of electricity bill payments.

In a circular signed by Hassan Bello, director of banking supervision, it said the move was the basis on the recommendation of the Power Sector Coordination Working Group to improve payment discipline in the Nigerian Electricity Supply Industry (NESI).

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

That said, President of the Nigerian Consumer Protection Network, Kunle Olubiyo in his contribution, said the takeover has helped in averting massive job losses and prevented imminent collapse of the banking industry due to what he described as toxic loans.

According to him, pioneer investors in the DisCos are Nigerian, who meant well but lack the requisite technical requirements of the original financial bidding benchmarks and technical bidding benchmarks originally set out as thresholds for financial diligence.

His words: “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 individuals 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.

Also, a partner, Nextier Power, Emeka Okpukpara, noted that the initiatives by the apex bank is reducing financial liquidity in the sector, thus introducing 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 as 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 collection figures are made public since DisCos are custodians of market funds, rather than the owners.”

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DisCos’ takeover: How CBN saved commercial banks, power sector from collapse

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DisCos’ takeover: How CBN saved commercial banks, power sector from collapse

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