By Samuel Bankole

Nigeria’s electricity sector faces a significant hurdle: the technical insolvency of most electricity distribution companies (DisCos).

This revelation came from the Chairman of the Nigerian Electricity Regulatory Commission (NERC), Sanusi Garba during his speech at the 8th Africa Energy Market Place 2024 in Abuja.

Garba acknowledged the dire financial state of the DisCos, highlighting their inability to pay for electricity invoices and invest in critical network expansion projects. He attributed these challenges to a combination of past policy oversights and operational shortcomings.

“The DisCos are demonstrably insolvent,” Garba stated. “Expecting them to raise capital through debt or equity under these circumstances is a monumental task.”

He further stated the need for strong political will to implement reforms that may impact the public negatively in the short term but benefit the sector in the long run.

Minister Outlines Debt Resolution Strategy

In response, Power Minister Adebayo Adelabu outlined a government plan to address the sector’s financial woes. The crux of the strategy involves:

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  • Unbundling DisCos: The government proposes dividing the vast operational areas of current DisCos into smaller, state-aligned entities. This, according to Adelabu, will enhance service delivery to consumers.

  • Debt Relief for Power Generation Companies (GenCos): President Bola Tinubu has approved a plan to settle the GenCos’ N1.3 trillion debt owed to them by the DisCos. This debt will be addressed through a combination of immediate cash injections and guaranteed debt instruments.

  • Debt Relief for Gas Suppliers: A separate N130 billion is earmarked to settle outstanding gas supply debts owed by GenCos. The government plans to utilize the gas stabilization fund for this purpose. Additionally, legacy debts will be settled through future gas royalties.

African Development Bank Pledges Continued Support

The African Development Bank (AfDB) has already invested over $450 million in various Nigerian power sector projects and programs. The Bank intends to allocate an additional $1 billion to support the government’s ongoing reform efforts.

Nigeria’s power sector reforms aim to tackle the root causes of inefficiency and pave the way for a more sustainable and functional electricity market.

The success of these reforms hinges on addressing the DisCos’ financial health, resolving outstanding debts, and implementing strategic restructuring. The coming months will be crucial in determining the effectiveness of these initiatives.

(Edited by Oludare Mayowa; omayowa@globalfinancialdigest.com; Newsroom: +234 8033 964 138)

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