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Sunday, April 14, 2024

Kaduna DisCo faces licence revocation as NERC targets N93.42bn debt

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In a decisive move, the Nigerian Electricity Regulatory Commission (NERC) has taken a firm stance against the Kaduna Electricity Distribution Company (KAEDCO) due to its staggering energy debt, which stands at a whopping N93.42 billion. NERC has issued a notice, NERC/LC/023, warning KAEDCO that its Electricity Distribution Licence (EDL) may be revoked unless the debt is settled within 60 days.

NERC’s performance review for 2022 revealed that KAEDCO had only made meager payments of 13.85% towards its minimum payment obligation to the Nigerian Bulk Electricity Trading Plc (NBET) and the Market Operator (MO). This resulted in an average monthly underpayment of N4.33 billion, accumulating to approximately N51.96 billion between January and December 2022. Furthermore, KAEDCO has an additional historical outstanding debt of N41.49 billion, accumulated from 2015 to 2021, owed to both NBET and MO, bringing the total outstanding debts to N93.41 billion.

Citing KAEDCO’s actions as flagrant breaches of the Electric Power Sector Reform Act (EPSRA) and the terms and conditions of its Electricity Distribution Licence, NERC demands that the company presents a written defense within 60 days, explaining why its licence should not be cancelled according to section 74 of EPSRA.

NERC’s comprehensive review of KAEDCO’s performance during the period of January to December 2022 revealed significant shortcomings. The company achieved a mere 13.85% of its minimum payment obligation to NBET and MO, and it consistently fell short with an average monthly market shortfall of NGN4.33 billion. This underperformance indicates KAEDCO’s inability to optimize its functioning as a utility, as stipulated in its approved revenue requirement. According to NERC’s approved revenue requirement for KAEDCO, the utility has failed to collect NGN88.75 billion in revenues, which includes market shortfalls, capital investment allowances (NGN25.33 billion), and allowed operating expenses.

NERC further highlights that KAEDCO is currently grappling with severe liquidity challenges, raising concerns about its commercial viability and continued participation in the electricity market. Despite the regulatory initiatives and financial interventions by the government, KAEDCO’s management has failed to present a clear pathway for capital injection, operational efficiency, and sustainability.

In response to KAEDCO’s financial instability, NERC initiated several regulatory interventions. After the company’s failure to provide a credible plan for financial sustainability, the Commission issued a notice of imminent regulatory intervention to KAEDCO’s core investors, namely Africa Export Import Bank, Fidelity Bank Plc, and the Bureau of Public Enterprises (BPE), granting them 14 days to present their plan. However, the investors sought additional time without committing to address the energy remittance defaults.

On April 14, 2023, NERC held a meeting with the investors to discuss their final proposals, including a plan to reduce debts by N1 billion within a year and a N2 billion stabilisation loan aimed at immediately reducing the DisCo’s N4.3 billion shortfall by N250 million. Despite the submission of a proposed plan by April 17th, NERC reviewed the plan and found it to be inadequate, leading to the Commission’s decision to revoke KAEDCO’s licence.

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