By CLEMENT NWOJI, Abuja
The Nigerian Electricity Regulatory Commission (NERC) has threatened to revoke the operating licence of the Kaduna Electricity Distribution Company (KAEDC) following its protracted insolvency and inability to discharge its responsibilities to the stakeholders.
This is even as NERC has advanced reasons why the KAEDC licence revocation has become inevitable and still gave the core investors 60 days notice within which to show cause why the Commission should not proceed to effect its intention.
In the notice sign by NERC Commissioner, Dafe C. Akpeneye and dated May 15, 2023, the Commission regrettably observed that it “has reasonable cause to believe that KAEDC has breached the provisions of Electric Power Sector Reform Act (EPSRA) and the terms and conditions of the Electricty Distribution Licence.
The Commission further maintained that it “considers KAEDC’s actions to be “manifest and flagrant breaches” of EPSRA and the terms and conditions of its Electricity Distribution Licence.
Consequently, it demanded that KAEDC should SHOW CAUSE in writing within 60 days from the date of receipt of the Notice as to why the Electricity Distribution Licence should not be cancelled in accordance with section 74 of EPSRA.
The Commission cited that its review of KAEDC operations within
January-December 2022 confirmed that KAEDC only achieved a combined average of 13.88% of its minimum payment obligation to the Nigerian Bulk Electricity Trading Pic (NBET) and the Market Operator (MO) and recorded an average monthly market shortfall (underpayment) of NGN4.33billion.
Further, the Commission noted that
based on the its approved revenue requirement for KAEDC, the utility under-collected its revenues to the tune of NGN88.75billion being the sum of its market shortfall, capital investment allowance (NGN25.33billion) and allowed operating expense (NGN11.46bn).
Also, the Commission observed the incremental liability of KAEDC, citing that “Over the period of 12 months covering January-December 2022, KAEDC accrued a total liability to the tune of NGN51.93 billion to NBET and MO. This is exclusive of the sum of NGN41.49 billion historical outstanding debts for the 2015-2021 owed to the NBET and MO.”
According to NERC, “KAEDC is currently experiencing severe liquidity challenges and its commercial viability and continuation as a market participant is in doubt.
“The Commission notes that KAEDC’s management team has not been able to develop and present a clear pathway towards systemic risk that poses to the electricity market capital injection operational efficiency, and sustainability despite the various regulatory initiatives of the Commission and other financial interventions of the government.
“The Commission has afforded KAEDC’s management team several opportunities to develop and present a clear pathway toward recapitalisation and improvement of operational efficiency, and sustainability of the utility, and they have been unable to present a credible plan that would yield the desired results.”
The notice reads in part:
NOTICE OF INTENTION TO CANCEL ELECTRICITY DISTRIBUTION LICENCE NO:NERC/LC/023 ISSUED TO KADUNA ELECTRICITY DISTRIBUTION COMPANY PLC PURSUANT TO SECTION 74 OF THE ELECTRIC POWER SECTOR REFORM ACT
TAKE NOTICE that pursuant to section 74 of the Electric Power Sector Reform Act (EPSRA” or the “Act) and the terms and conditions of electricity distribution licence No NERC/LC/023 (the “Electricity Distribution Licence” or “EDL) issued to Kaduna Electricity Distribution Plc (KAEDC) by Nigerian Electricity Regulatory Commission (herein referred to as “NERC” or the “Commission) has reasonable cause to believe that KAEDC has breached the provisions of EPSRA and the terms and conditions of the Electricty Distribution Licence
The Commission considers KAEDC’s actions to be “manifest and flagrant breaches of EPSRA and the terms and conditions of its Electricity Distribution Licence and therefore requires KAEDC to SHOW CAUSE in writing within 60 days from the date of receipt of this Notice as to why the Electricity Distribution Licence should not be cancelled in accordance with section 74 of EPSRA.
The Commission conducted a detailed review of the current performance outlook of KAEDC for the period covering January-December 2022 confirming that KAEDC only achieved a combined average of 13.88% of its minimum payment obligation to the Nigerian Bulk Electricity Trading Pic (NBET) and the Market Operator (MO) and recorded an average monthly market shortfall (underpayment) of NGN4.33billion.
The Commission further notes that the evaluated level of underperformance indicates that the utility has been unable to recover the additional liquidity required by KAEDC to optimally function as a utility as provided in its approved revenue requirement. Based on the Commission’s approved revenue requirement for KAEDC, the utility under-collected its revenues to the tune of NGN88.75billion being the sum of its market shortfall, capital investment allowance (NGN25.33billion) and allowed operating expense (NGN11.46bn)
KAEDC is currently experiencing severe liquidity challenges and its commercial viability and continuation as a market participant is in doubt. The Commission notes that KAEDC’s management team has not been able to develop and present a clear pathway towards systemic risk that poses to the electricity market capital injection operational efficiency, and sustainability despite the various regulatory initiatives of the Commission and other financial interventions of the government. Over the period of 12 months covering January-December 2022, KAEDC accrued a total liability to the tune of NGN51.93 billion to NBET and MO. This is exclusive of the sum of NGN41.49 billion historical outstanding debts for the 2015-2021 owed to the NBET and MO.
The Commission has afforded KAEDC’s management team several opportunities to develop and present a clear pathway toward recapitalisation and improvement of operational efficiency, and sustainability of the utility, and they have been unable to present a credible plan that would yield the desired results.
STATEMENT OF FACTS
Following the talume of KAEDC’s management and shareholders to provide a credible plan for the financial sustainability of the utility, a notification of imminent regulatory intervention dated 23 March 2023 was issued to the following core investors in KAEDC
a Africa Export Import Bank
b Fidelity Bank Plc
c Bureau of Public Enterprises
The notification of imminent inquistory intervention granted the core investors a 14-day notice period with effect from 27 March 2023, to present a final plan that addresses the financial situation of the utility failing which the Commission would commence licence cancellation procedures in accordance with the provisions of the Act. In response, the Commission received a letter dated 2 Apr 2023 from the Receiver Manager appointed by Africa Export Import Bank and Fidelity Bank seeking more time to enable for the divestment of their shareholding to a private investor. The Bureau of Public Enterprises further sent a letter dated 4 April 2023 to the same effect seeking for more time to secure a new core investor but without a commitment to place a bank guarantee to cover the utility’s monthly underpayment to NBET and/or MO pending the conclusion of the divestment
The representatives of the core investors were invited to a meeting held at the Commission on 14 April 2023 to discuss their proposals for the financial sustainability of the public utility. At the meeting, the representatives presented the following proposal on KAEDC’s financial sustainability for Commissions consideration-
a. Implementation of 5 ongoing actions to reduce KAEDC’s monthly market shortfall by about NGN1billion over a period of 1 year.
b. The provision of a NGN2billion stabilisation fund to further reduce KAEDC’s monthly market shortfall of NGN4.3bn by NGN250million in the short term
c.The pursuit of the definite terms of sale with prospective investors for the acquisition of the core investor’s interest in KAEDC
d. The presentation of a long-term funding strategy to the Commission where the sale is not finalised in a prolonged period.
Further to the meeting. KAEDC’s management and the core investors made a formal submission of the proposed action plan to the Commission dated 17 April 2023. The Commission has reviewed the core investor’s proposal and notes that the initiatives contained therein fail to address concerns about KAEDC’s financial sustainability and the
The Commission has resolved to exercise powers conferred by section 74(1)(d) of the Act which empowers NERC to cancel a licence issued to a licensee where “the financial position of the licensee is such that he is unable to fully and efficiently discharge the duties and obligations imposed by the licence.
TAKE NOTE that KAEDCO is hereby given 60 days from the date of this NOTICE to “SHOW CAUSE” why the Electricity Distribution Licence should not be cancelled in accordance with section 74 of EPSRA.
Dated this 15th Day of May 2023
Dafe C. Akpeneye
Commissioner
