Is Abuja DISCO Complying with NERC’s Regulation On Local Content? -By Olatunji Badmus

Neil Croucher, MD, Abuja DISCO

Despite the privatisation exercise of the power industry in 2013, many would agree that the expectations of significant improvements in power delivery in Nigeria has not materialised. As a result of this continuing poor performance, we are still a long way from the catalytic support role the sector could play in Nigeria’s economic development and prosperity. While some of the problems are external to the 18 combined generation and distribution companies, some of the blame could be traced to how some of these entities have been managed since the exercise.

One of such entities from which serious management problems are emerging is the Abuja Electricity Distribution Company (AEDC), acquired by the KANN consortium, a Joint Venture interest between Zambia’s Copper Belt Energy Corporation (CEC) and a local partner, Xerxes Global Ltd. The consortium has a 60 percent interest in the DISCO, while the Federal Government retains 40 percent. However, it has emerged that there are serious operational and managerial breaches of the laws of Nigeria and guidelines established by the Nigerian Electricity Regulatory Company (NERC).

The first of such breaches is that the majority of the top management of the power firm are from South Africa and Zambia, representing CEC. The existing local content regulation by NERC states that no power company should have more than five percent of its management staff as foreigners. Abuja DISCO has about 70 percent, including its CEO and Chief Financial Officer (CFO). This is a flagrant breach of the stipulation, and one can only hope that the authorities have not been compromised. Another point to be made is that, contrary to perhaps a widely held view, having foreign managers does not sometimes translate to improved performance. This is especially the case when two critical ingredients are missing.

The first of those missing ingredients stems from the fact that those representing CEC on the board come from the experience provided by Copperbelt Energy, which supplies power to about 15 to 30 large customers in the copper mines of Zambia. The management therefore does not have the experience of managing a utility firm of the size of Abuja DISCO, with millions of customers across the North Central States of Kogi, Niger, Nassarawa, Niger and the FCT. The lack of this experience is compounded by the absence of local knowledge on Nigeria. We thus have a team that is blind to the inner workings and culture of Nigeria. I would have expected the series of engagement between the Abuja DISCO and Nigeria’s regulatory authorities to put an end to its inadequacies and ensure that Nigerians that can do the jobs they are hired for.

The importance of local knowledge cannot be overemphasised, especially given the background of Abuja DISCO as a former government owned parastatal with a history of corruption, inefficiency, and nepotism. It is important because, so far, it appears that the purposes for privatisation have not been realised in this case for the same reasons that the firm did not thrive under the government’s management. What is required is the knowledge to drive the changes demanded by the necessity of privatisation.

If these matters are not enough to get the Nigerian authorities worried, then the possibility of complications that are emerging in the ownership of the Abuja DISCO should. While the 60 percent shares sold to the KANN consortium is equally shared by Xerxes (Nigerian partners) and CEC (foreign partner), sources say CEC in various ways has been positioning itself as a majority shareholder of Abuja DISCO, trying to circumvent its local partners who actually invited it in the first place. The motivation is obviously greed, following the realisation that Abuja DISCO could provide a serious long term cash flow and an expansive balance sheet for their African aspirations. CEC had recently, and cynically, published in their financial statements referring to Abuja DISCO as a subsidiary. That is essentially not right. And this should worry every Nigerian. One of the successes of the power sector privatisation was the fact that local investors played a big role. In the case of the KANN consortium, it was led by its Nigerian Chairman, Ambassador Shehu Malami, Nigeria’s former ambassador to South Africa and a respected elder statesman.

While internal share disputes in companies should normally not be the interest of the average Nigerian, this is different. The complications here have the capacity to derail the careful medium term aspirations of the regulatory authorities and Nigeria in the power industry in a very sensitive DISCO. Indeed, it has started to affect the performance of the firm in the delivery of power to Nigerians. The quick wins in operational improvements expected from the Abuja DISCO, given that it inherited the best infrastructure amongst all the DISCOs, has not materialised because the managers lack sufficient local knowledge and influence. This is made worse by them running this vast operation from the comfort of their offices in Abuja. Indeed, I learnt that in over two years since he became CEO, Neil Croucher, has never travelled outside Abuja.

CEC, not satisfied with the wrong insinuation that it owns Abuja DISCO, has started to invite potential investors for the purpose of selling its stock through an affiliate company. This effort was initially led by Mike Tarney, the MD of CEC Africa, but is now led by Siyanga Malumo, the CEC chairman in Nigeria. Sources have it on good authority that CEC has started to lobby Nigerian privatisation authorities, after the unfortunate filings for the joint venture with KANN they made at CAC was discovered, for which reason Mike Tarney was recalled to Zambia. This is most ironic: talking to Nigerians with the aim of denying them their commonwealth. Worse still, these are being done with Abuja DISCO funds, which they have control over.

What is missing in CEC’s strategy to take over the Abuja DISCO and sideline the Nigerian investors that invited them in the first place, is the failure to understand that Abuja DISCO is a strategic national company, and Nigerians will loathe having this solely in foreign hands. The authorities know that if this happens, it will be a complete licence for capital flight; something many believe is already happening, through transfer pricing, with the help of the South African Chief Financial officer, Andrew Atterbury. If it was accepted before, this is no longer under President Buhari.

What we are seeing here is the repeated mistakes many foreigners make, sometimes aided by our own authorities – taking Nigerians for granted because of our regulatory and legal lapses. The genesis of the problems was in allowing the Abuja DISCO more than the five percent foreign management quota, and this is time to correct the error, especially with the new NERC authorities assuming office about now. All the issues and problems can be traced to this singular error in the first place.

Some of the issues involved have serious implications for the focus of the management and for the operational delivery of Abuja DISCO. Could this be related to why there is a rising number of fatalities within the network due to electrocution and other related accidents, especially since the technical and safety directors, who are both Zambians, also work mainly from the comfort of their offices in Abuja only. Meanwhile, the succession plans agreed at the start of the private sector management of Abuja DISCO, that will see Nigerians take over from these foreigners have been discarded, and the Nigerian director agitating for that sacked, with the help of company insiders.

In concluding, my key findings and recommendation is that the issue of local content enforcement with regard to the top management staff in Abuja DISCO should be taken seriously by NERC and enforced accordingly. NCC has done a lot in this regard in the telecoms sector. NERC should do likewise in the power sector. There is a high rate of unemployment in Nigeria and highly skilled Nigerians should be considered in filling up strategic and sensitive national positions. The bill being proposed by the House of Reps and sponsored by Hon Femi Gbajabiamila is a step in the right direction. This bill, which will be passed soon, will ensure that foreigners are excluded from jobs that can be handled by Nigerians both at home and abroad. It will ensure that local content is backed by a national law. Hon Gbajabiamila should ensure that he uses the Abuja DISCO as a case study to support the speedy passage of his bill. This is best for CEC as credible Nigerians can run this company better due to superior local knowledge.

Olatunji Badmus writes from Turin, Italy.