Seven Discos to Invest N878.9bn on Network Upgrade in Nigeria

Seven out of the 11 electricity distribution companies (Discos) in the Nigeria’s power sector are planning to invest about N878.905 billion over the next five years between 2019 and 2024-to upgrade the working conditions of their distribution networks, the Nigerian Electricity Regulatory Commission (NERC), has disclosed.

According to the Performance Improvement Plans (PIPs), the seven Discos-Ikeja, Eko, Kano, Enugu, Kaduna, Benin, and Ibadan-sent to the NERC, most of the expenditures would be channeled to capital expenditure on metering, transformers, and other core distribution assets.

The Discos' PIPs showed that Ibadan would spend N83 billion; Enugu, N118 billion; Benin, N286.71 billion; Ikeja, N105 billion; Kaduna, N117.8 billion; Eko and Kano Discos will spend N78.6 billion and N49.795 billion respectively.

It explained that for instance, the key outcomes from the PIP of Ibadan Disco included the reduction of its Aggregate Technical Commercial and Collection (ATC and C) losses to 19 per cent by 2024; 100 per cent metering of all customers by 2024 as well as the improvement of customer satisfaction.

It noted that the investment requirements to achieve the performance agreement targets of Ibadan Disco would result in a tariff increase which would enable it to successfully deliver the performance plan.

It said: “Over the next five years, Ibadan Disco (IBEDC) plans to invest over N83 billion in its network to expand capacity in line with our demand growth; replace assets and deploy state-of-the-art technology to improve the efficiency of our operations.

“Our strategy over the next years is to aggressively reduce losses by deploying meters across our network to improve energy accountability and collection efficiency. Our performance strategy will be achieved by driving our efficiency through innovation.”

Ibadan Disco further stated in the PIP that it planned to raise 70 per cent (N60 billion) of its capital expenditure requirement through loan from the Central Bank of Nigeria (CBN) or Bank of Industry (BoI) with the remaining 30 per cent coming from shareholders equity investment and funds generated from the business as return on capital investments component.

The Discos PIP explained that its expected interest rate on the loan would be 10 per cent with a 20-year tenure, adding that “this is currently the cheapest source of funds available to IBEDC.”

It is worthy of note that IBEDC will only be able to access this loan if there is adequate government and regulatory support needed to convince lenders against any uncertainty (like the removal of collection loss in 2015) which might affect the loan repayment, it noted.

With regards to Enugu, the Disco said it projected that over the period, it would reduce its ATC and C loss level to 30 per cent and to meet the expected loss reduction thresholds as set out, and would need a capital expenditure of N40 billion and operational expenditure of N118 billion.

 

The Discos PIP noted that “it intends to use these funds for network reinforcements and upgrades to increase the capacity of the network to meet the growing demand in our franchise area. It is our target to have availability of over 80 per cent on our network at the end of the period planned and to serve 25.8 per cent more customers as well as increase the reliability so as to reintroduce some of the large industrial customers who have gone off-grid.

“It is expected that the funding for this plan would be raised from shareholders’ loans as well as the Siemens intervention of the federal government. In the event that there are none of these interventions, there will only be the possibility of funding through internally generated revenue (IGR).”

Similarly, Benin Disco said the N286.71 billion proposed expenditure is be used for additional network maintenance cost, increase in manpower cost, new IT deployment and software expenses, growth in customers service charges, administrative and general expenses.

Ikeja Disco explained that over the next five years, it would invest N105 billion in its network to expand capacity in line with demand growth, replace assets and deploy state-of-the-art technology to improve it efficiency.

Kaduna Disco equally noted that its expenditure is estimated to be N117.8 billion with its distribution management plan (technical upgrade and substations and feeders) taking 60 per cent of the total capital expenditure which would result to reduction of its ATC and C loss level to 25 per cent.

For Kano Disco, it said its N49.795 billion planned investment would be sourced from its surplus or retained revenues as well as available credit from banks, non-banking financial institutions, Export and Import (EXIM) banks, and suppliers’ credit.