Are banks better off running electricity firms?

Jul 19, 2022|Yomi Ajayi

News of Fidelity Bank Plc taking over the boards of three electricity distribution companies (discos) should no longer be surprising. Yesterday’s story explained why the discos—including Fidelity’s Benin, Kano and Kaduna—couldn’t repay loans they acquired in 2013 to fund their privatisation.

This is just the latest in a string of disco takeovers. Before this news story broke, we had heard of UBA taking over Abuja’s disco in December last year and AMCON’s takeover of Ibadan disco earlier this year. As Noelle, Stears’ senior energy analyst, explained, the entire electricity value chain is plagued with various issues, but the most significant is the sector’s liquidity.

Key takeaways:

Fidelity Bank Plc took over the boards of three discos due to their inability to repay loans acquired in 2013 to fund their privatisation. This sort of takeover isn’t uncommon. They happened in 2017 with Access Bank Plc taking over Etisalat and Polaris bank (then Skye) taking over Lagos Intercontinental Hotel.
As we saw in 2016, an accumulation of bad debts left banks in a rather precarious position, with three banks being ordered to recapitalise or risk being liquidated.
Due to the fragile nature of the Nigerian economy and the risks associated with the looming global recession, Fidelity bank has decided to be more proactive in preserving asset quality, as it seeks to defend its balance sheet.

From metering issues to energy theft, the sector's lack of funds makes it nearly impossible to fix these issues. Given that the discos are the collection agents of the industry, their poor financial performance affects the rest of the value chain, including the transmission company of Nigeria (TCN) and the generation companies (Gencos).

Despite various government and CBN interventions, these have not been enough to lift the sector out of the trenches. Some interventions include the ₦213 billion Nigerian Electricity Market Stabilization Facility (NEMSF), ₦600 billion tariff shortfall (subsidy) intervention and the recently disbursed ₦120 billion intervention