CBN not shifting grounds on decision to escrow Disco accounts

The Central Bank of Nigeria (CBN) has said it will not shift grounds on its decision to escrow the accounts of power distribution companies (DisCos).

In a meeting with Vice President Yemi Osinbajo and senior government officials, on Friday afternoon, the Discos sought to convince the government to postpone the decision but were unsuccessful.

Recall that the apex bank recently directed Deposit Money Banks ( DMBS) to take full responsibility for collection and remittance on behalf of Discos if they are providing guarantees to NBET and TCN, a move expected to solve the liquidity challenge facing Nigeria’s electricity sector.

“No DMB is permitted to open or continue to maintain a collection of account for a Disco without the express noobjection of the DMB that guaranteed its exposure to NBET or TCN,” the CBN said in the circular addressed to all banks dated August 24.

The implication of escrowing Discos’ account is that they lose control over their accounts.

Recall also that Etisalat Nigeria in 2017 failed to reach an agreement with local banks to renegotiate the terms of a $ 1.2 billion loan obtained in 2013. As a result, Etisalat’s shareholder structure was changed with the lenders taking over Etisalat Group’s stake, which was written down to zero.

A similar fate could befall the Discos who are also heavily indebted if they cannot improve collections to the market.

Remittances to the market have been around 60 percent and the regulator by its new review of the Multi Year Tariff Order (MYTO) 2015, which kicked in the Service Reflective Tariff, has ordered Discos to remit at least 80 percent of the market

invoice to value chain.

A reconciliation of the monthly invoices and payments between the Nigerian Bulk Electricity Trader (NBET) and operators shows that the 11 Discos owe a combined sum of N622.4 billion, and interest accrued on this debt has risen to N308.2 billion bringing their cumulative debt to N930.6 billion.

To improve liquidity in the power sector, the sector regulator, the Nigerian Electricity Regulatory Commission (NERC), has approved a service-reflective tariff plan, which effects on average at least 50 percent increase on electricity tariffs for customers who get more hours of power supply of between 12 and 20 hours daily.

“This will only solve a part of the problem but not all,” said Ayodele Oni, energy lawyer and partner at Bloomfield Law Firm.

While the CBN’S objective is to reduce market indiscipline but it does not solve the problem of collections and technical losses, as these are important to determine how much is even available, Oni said.

Three years ago, NERC had threatened to escrow Discos account when re

mittance fell to 40 percent of market invoices. The Discos opposed the plan, saying it was tantamount to an attempt at nationalising or expropriating their business.

The Federal Government jettisoned the move then and instead injected N701 billion as payment assurance for invoices of power generation companies and this boosted the sector for a while.

But the liquidity challenges in the sector have worsened. Therefore, analysts expect that the new tariff plan as well as the new financing expected for metering will help inject fresh capital into the beleaguered power sector.