The Federal Government Introduces Stricter Conditions for DisCos’ Licence Renewal
The Minister of Power, Adebayo Adelabu, has issued a clear warning to electricity distribution companies (DisCos) across Nigeria. He emphasized that the Federal Government will implement stricter conditions for the renewal of their operational licences, including a new capital adequacy requirement. This move comes as part of an effort to address long-standing financial and operational challenges within the power sector.
Adelabu made these remarks during a speech at the Nigeria Energy Leadership Summit in Lagos on Tuesday. He highlighted that many DisCos are heavily indebted and undercapitalized, which poses a significant threat to the financial health of the nation’s electricity sector. According to him, several ongoing federal power programmes, such as the Presidential Power Initiative—commonly referred to as the Siemens Project—are funded through loans that have become financial liabilities for the DisCos.
“The Presidential Power Initiative, which you all know as the Siemens Project, is being funded by a loan obtained by the Federal Government from the German Government and some Chinese companies. At least, the distribution portion of it is a debt burden on the DisCos, and they must pay it back. It is a liability on the future income of these DisCos,” he said.
In addition to the Siemens Project, other power sector interventions, like the Presidential Metering Initiative and the World Bank-funded $500m Distribution Sector Recovery Programme, are also contributing to the growing debt exposure of the DisCos. These initiatives, while aimed at improving the sector, require careful management to avoid overwhelming the companies financially.
Adelabu questioned whether the current debt burdens were too much for the DisCos to handle. He urged them to match these loans with improved capitalization to reduce leverage. “If they don’t do this, the DisCos are not in a good position to invest as required to transform the sector,” he stated.
The minister further warned that financially weak operators who fail to meet the new requirements would not be tolerated. DisCos unable to recapitalize or meet their obligations risk losing their licences. He explained that the government intends to introduce a minimum capital adequacy requirement as part of the licence renewal process to strengthen the financial health and liquidity positions of these utilities.
“This time, it is not going to be a joke,” Adelabu said. “In the area of infrastructure development, the Federal Government has introduced targeted national programmes aimed at accelerating the viability, expansion, and modernisation of the national grid.”
Challenges Facing the Power Sector
The country currently has 11 major DisCos, which were later joined by Aba Power. These companies came into existence when the power sector was privatized in 2013. Since then, there have been persistent complaints about the sector’s deteriorating performance.
Adelabu pointed out that the sector continues to face challenges of undercapitalization among several distribution companies and a severe debt burden that has constrained their operational efficiency and service delivery over the years. He expressed concern that most of the DisCos are underfunded, which is affecting the investment needed to ensure a reliable supply of electricity.
He criticized the 2013 privatization exercise, stating that many of those who took over power distribution lacked both technical and financial capacity. “One of the major flaws of the privatisation held in 2013 is the lack of adequate financial backing in addition to poor technical expertise. Yes, a lot of them do not have the expertise in utilities management. To make matters worse, they don’t even have the money to invest,” he said.
DisCos’ Response to the Challenges
Despite the criticism, the spokesman of the DisCos, Sunday Oduntan, emphasized that the companies are working with the government to improve power supply. He noted that the more electricity they distribute, the more revenue they can collect, leading to greater prosperity for Nigeria in terms of job creation.
“We, the DisCos, are working very hard with the Federal Government and state governments to ensure that we bring electricity to Nigerians. The more electricity we are able to distribute, the more money we can collect, and the more prosperity for Nigeria in terms of job creation. So, we are for progress, and we are interested in anything that will improve the power sector. We are interested in the good policies of the Federal Government,” Oduntan stated.
Oduntan also emphasized that the DisCos are committed to realistic policies and will not deceive Nigerians by promising what is not possible. He acknowledged that while the DisCos are not where they should be, they have improved significantly over the past decade.
“We are interested in the good policies of the Federal Government led by our able President, Bola Tinubu. We are for performance. We are for realistic policies. We are for the steps that will be taken towards getting electricity to Nigerians. We will not deceive Nigerians. We will not tell you what is not possible. We will not tell you what we cannot do, and we will not tell you that we are perfect as DisCos. But I can tell you that we have improved so much in the last 10 years, even though we are not where we are supposed to be. We are trying our best to get there,” he concluded.
