Why we gave KAEDC 60 days notice to cancel its license -NERC

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    The Nigerian Electricity Regulatory Commission has given Kaduna Electricity Distribution Company Plc, 60 days notice after which the Disco’s license will be cancelled.

    This is contained in a notice signed by the Commissioner, Dafe  Akpeneye,  Dated this 15th Day of May 2023.

    “TAKE NOTE that pursuant to section 74 of the Electric Power Sector Reform Act (“EPSRA” or the “Act”) and the terms and conditions of Electricity Distribution License No: NERCA/LC/023 (the “Electricity Distribution License” or “EDL”) issued to Kaduna Electricity Distribution Plc (“KAEDC”) by Nigerian Electricity Regulatory Commission (herein referred to a “NERC” or the “Commission”) has reasonable cause to believe that KAEDC has breached the provisions of EPSRA and the terms and conditions of the Electricity Distribution License”, NERC said.

     

    “The commission considers KAEDC’s actions to be “manifest and flagrant breaches” of EPSRA and the terms and conditions of its Electricity Distribution License; 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 License should not be cancelled in accordance with section 74 of EPSRA”, NERC added.

     

    NERC listed statement of facts as follows: 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 13.83% of its minimum payment obligation to the Nigerian Bulk Electricity Trading Plc (“NBET”) and the Market Operator (“MO”) and recorded an average monthly market shortfall (underpayment) of NGN4.33billion as indicated in Table1.

     

    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 allowances (NGN25.33billion) an allowed operating expenses (NGN11.46billion).

     

    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 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 billon to NBET and MO. This is exclusive of the sum of NBN41.49 billon historical outstanding debts for the 2015-2021 owed to the NBET and MO as shown in Table 2.

     

    The commission has afforded KAEDC’s Management team several opportunities

    to develop and present a clear pathway toward recapitalization and improvement of operational efficiency, and sustainability of the utility, and they have been unable to present a credible plan that would yield the desire results.

     

    Following the failure 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: Africa Export Import Bank, Fidelity Bank Plc and Bureau of Public Enterprises.

     

    The notification of imminent regulatory intervention according the NERC 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 license cancellation procedures in accordance with the provisions of the Act. “In response, the Commission received letter dated 2 April 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 investors. 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”, NERC revealed.

     

    The Commission further stated that 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 Commission’s consideration which are listed to include: Implementation of 5 ongoing actions to reduce KAEDC’s  monthly market shortfall by about NGN1billon over a period of 1 year, the provision of a NGN2billon stabilization fund to further reduce KAEDC’s monthly market shortfall of NGN4.3bn by NGN250million in the short term and the pursuit of the definite term of sale with prospective invest for the acquisition of the core investor’s interest in KAEDC.

    Others are the presentation of a long-term funding strategy to the Commission where the sale is not finalized 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 and 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 systematic risk that it poses to the electricity market.

     

    The Commission has resolved to exercise power conferred by section 74(1)(d) of the act which empowers NERC o cancel a license 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 license”.

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