The power sector in Nigeria, faced with numerous challenges for decades, has been a source of concern for many. Despite the privatization of the sector, which was expected to bring development, the illiquidity crisis in the sector, necessitating government intervention, has been a significant issue yet to be solved.
However, analysts say attracting more investments in the sector, rather than relying on subsidies and government interventions that do not guarantee power supply, will be a game-changer for the sector.
In 2024, the federal government anticipates subsidies to reach N1.67 trillion, marking a substantial 170% surge from the N618 billion shouldered in 2023. Analysts say this increase is alarming, especially considering that the subsidies have failed to ensure a consistent power supply. From 2015 to 2023, the government invested trillions in electricity subsidies without yielding significant improvements. The surge to N1.67 trillion this year is attributed to the depreciation of the naira and inflation. The federal government claims to have provided N7 trillion in direct interventions by 2023 to support the sector.
According to energy experts, in a partially-deregulated industry, Distribution Companies (DisCos) find subsidies uncomfortable, preferring a cost-reflective tariff. Currently, the tariff is set at about N140 per kilowatt-hour, but consumers are presently paying around N70 KW/h. This situation has left some DisCos burdened with debt. Many believe that the current subsidy approach is unsustainable. Nigeria has a national budget deficit of N9.8 trillion in the N28.8 trillion 2024 budget, and with 98% of government revenue allocated to debt servicing, there are valid concerns about the financial viability of the subsidy system.
This, according to stakeholders, means that more investments in the sector will be a game-changer and not subsidies. Founder of The Tony Elumelu Foundation, Tony O. Elumelu, stressed the urgent need to invest in Nigeria’s power sector.
Also, the chairman of the Board of Directors of Eko Electricity Distribution Company (EKEDC), Dr. Dere Otubu, emphasized the need for increased investment in the power sector to meet the growing energy demand of Nigeria.
Also, an adviser to President Bola Tinubu on energy, Olu Verheijen, said that electricity distribution companies in Nigeria will need an estimated N2 trillion or about $2.5 billion in capital to improve power supply to Nigerians. He added that new investors need to revive the industry that can barely supply power to nearly 200 million people. “We need to set policies that facilitate reorganization and recapitalization and bring in new partners with new capital,” he said. Speaking at an event last month, the immediate past managing director of Abuja Electricity Distribution Company Plc, Engr. Adeoye Fadeyibi, noted that negative cash flow in the industry was affecting operations and the ability to improve power supply to customers. Adding that presently only Eko, Ikeja, and Abuja DisCos can continue as a going concern.
Speaking about the privatization of the sector, a power sector analyst, George Amoko, said the critical roles of the DisCos in the industry must force stakeholders to collaborate and implement solutions in the sub-sector.
A group of investment research analysts, XGY Limited, in their recent report said investors look for certain things in a company before they invest. According to the report, Eko Electricity Distribution Company EKEDC has a remarkable journey and achievements that have made it a key player in Nigeria’s electricity distribution sector, serving as a shining example of operational efficiency, corporate governance, and customer happiness, setting the bar for others in the business.
Viable Business Model:
The group said: “The financial turnaround and operational efficiency demonstrate EKEDC’s dedication to operational excellence. In 2022, the company declared a substantial gross profit, representing a tremendous turnaround from past losses. This financial performance is supported by reduced energy losses and a focus on cost-effective operations. Furthermore, EKEDC’s proactive strategy to revenue diversification, which included the successful launch of a prepaid metering program, indicates its innovative and long-term business model.”
The report also states:
Financial Turnaround:
EKEDC has made a spectacular financial recovery, earning a gross profit of N4.48 billion in 2022, a huge improvement from its loss of N13.39 billion in 2018. Consistent Operational Surplus: The company has achieved an operational surplus for four consecutive years (2019-2022), as reported in the “EKEDC Annual Report 2022,” reflecting its sustainable business practices. EKEDC has cut energy losses by 17% through improved metering and network upgrades and administrative costs by 15%.
Revenue Diversification:
In two years, EKEDC attracted almost 200,000 additional customers with the launch of a prepaid metering scheme, considerably contributing to income diversification.
Strong Track Record of Corporate Governance:
EKEDC’s success is based on its strong corporate governance framework. The board of directors, which includes competent and impartial experts, oversees the company’s activities with transparency and honesty. EKEDC’s dedication to transparency is further demonstrated by its regular publication of audited financial statements and open communication with the media and the general public. This excellent governance system has received praise from regulatory authorities such as NERC.
High Customer Satisfaction Rate:
EKEDC’s operations revolve around customer-centric initiatives. The company has established a 24-hour customer service hotline, online bill payment, and meter management platforms, considerably improving consumer convenience and happiness. EKEDC’s efforts to resolve customer complaints are remarkable, with an impressive resolution rate of 99.7% in Q4 2018, according to NERC.
EKEDC remained ahead of the curve by certifying readiness for NERC’s planned call center launch. The DisCo now has reasonably robust customer service capabilities, as evidenced by its ability to resolve more than 90% of complaints. As the regulator wants to better user experience with new requirements, The Company’s Board is effective, efficient, and is responsible for providing innovative and strategic leadership and responsible corporate citizenship. This is affected through the Board’s compliance with the Board Charter, NERC Draft Code of Corporate Governance, and the Nigeria Code of Corporate Governance 2018. To ensure efficiency and effectiveness, the Board delegates some of its functions, duties, and responsibilities to well-structured committees, without giving up its duties. The Company has a sound framework in place for managing risk and ensuring an effective internal control system. This is aimed at providing assurance to the Board on the efficiency of the governance, risk management, and internal control systems. The Company ensures there is equitable treatment of shareholders and the protection of their statutory and general rights, especially the interest of minority shareholders and promoting good governance. The Company is a responsible corporate citizen that contributes to the economic development of where it is situated. As such, it pays attention to sustainability issues which include the environment, social, occupational, and community health and safety. Transparency in corporate governance enhances accountability, builds trust amongst Stakeholders, and promotes ethical behavior. Transparency also provides a clear view into the Company’s operations, financial status, and decision-making processes thus enabling Investors, employees, and the public to have access to information and make informed decisions about the Company. This also helps prevent fraud, reduces the risk of misconduct, and leads to a more sustainable environment by creating good corporate governance practice.
