The Nigerian Electricity Regulatory Commission (NERC) has dissolved the Kaduna Electricity Distribution Company’s board of directors over a N110 billion debt and underperformance.
The sum is the total amount owed to the Nigerian Bulk Electricity Trading Company (NBET) and Market Operator (MO) as of October 2023.
In an order issued on the regulatory intervention in KAEDC and jointly signed by NERC’s Chairman and Vice Chairman, respectively, Sanusi Garba and Musiliu Oseni, the Commission said the DisCo has consistently failed to meet its obligations to the market.
In a breakdown, between January and December 2022, DisCo was said to have accrued a total liability of N51.93 billion to NBET and MO.
This is exclusive of the sum of N41.49 billion in historical outstanding debts for 2015–2021 owed to the operator.
“The analysis indicates that KAEDC is currently experiencing severe liquidity challenges, and its commercial viability and continuation as a market participant are in doubt.
“The Commission noted that KAEDC’s management team had not been able to develop and present a clear pathway towards capital injection, operational efficiency, and sustainability despite the various regulatory initiatives of the Commission and other financial interventions of the government,” it stated.
The Commission said the development contravenes the provisions of the Electricity Act and the terms and conditions of its electricity distribution licence issued by the Commission.
In the order, the Commission said that in January 2023, it conducted a detailed review of the performance of the DisCo for the period January–December 2022.
According to NERC, the review confirmed that KAEDC only achieved a combined average of 13.85% of its minimum payment obligation to NBET and MO and also recorded an average monthly market shortfall (underpayment) of NGN4.33 billion.
It was noted that the evaluated level of underperformance indicates that the company 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-recovered its revenues to the tune of N88.75 billion, being the sum of its market shortfall, capital investment allowance (N25.33billion) and allowed operating expense (N11.46billion),” it said
Meanwhile, the management, board, and shareholders of KAEDC, according to the Commission, had been granted ample opportunities to address the utility’s failing performance at meetings with the Commission, adding that this has also failed.
“KAEDC was issued the statutory 60-day notice to show cause on May 15, 2023, and the management, board, and shareholders were unable to show cause in writing within the specified timeframe as to why the utility’s distribution licence should not be cancelled.
“The Commission granted a 30-day extension, with effect from July 20, 2023, to the management, board, and shareholders of KAEDC to provide justifiable cause in writing, and they have been unable to do so.
“The extent of non-performance was further reiterated by a letter dated July 31, 2023, from KAEDC’s Chief Finance Officer, where he confirmed unequivocally that the utility was not in a position to comply with the basic market requirement of providing a bank guarantee in favour of NBET in compliance with the Market Rules and subsisting orders,” the Order reads.
Also, the Commission said it met with Afrexim’s leadership following the expiration of the final 30-day extension, and “they confirmed that their transaction advisor would need 4-6 months to finalise the divestment process and that they could not provide the bank guarantees required to secure KAEDC’s market obligation.”
In view of this, we appointed Dr. Umar Abubakar Hashidu as administrator of the DisCo, according to Section 75 of the EA.
It said the administrator will be the de facto chief executive officer of KAEDC and be responsible for the management of the day-to-day affairs of the utility pending the finalisation of the sale of the undertaking by the new core investor.
“The administrator shall work with a team of special directors that shall constitute non-executive directors of the board for governance purposes.,” it added.
The former Managing Director of the company, Yusuf Yahaya, had earlier on Saturday announced his resignation from the DisCo.
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