Following findings in its open book review of accounting and financial records of the 11 privatised electricity distribution companies (Discos) of the defunct Power Holding Company of Nigeria (PHCN), the Nigerian Electricity Regulatory Commission (NERC) has directed the 11 Discos to remit approximately N19,328,280,638.62 to the Federal Inland Revenue Services (FIRS), Nigerian Electricity Liabilities Management Company (NELMCO) and Operator of the Nigerian Electricity Market (ONEM).
The amounts are for deductions Valued Added Tax (VAT) on electricity sold to consumers, net available balances as at take over and baseline electricity remittance owing.
NERC also requested from the Discos, comprehensive responses to its observations of inappropriate operating and capital expenditures valued at N9,965,723,480.47; which they had made since taking over the distribution assets from the government.
A detailed excerpt from the comprehensive audit report from NERC yesterday in Abuja also contained remarks on expenditures which the commission finds inappropriate and would not pass to electricity consumers in its review of electricity tariff within the Multi Year Tariff Order (MYTO) framework.
The audit came in company of a sample letter to the Discos by the commission, in which it directed that N14,380,582,590.05 due to NELMCO be remitted plus accrued interest of 13 per cent per annum starting from December 1, 2013, while accrued VAT worth N3,058,682,868.48 VAT collections in respect of sale of electricity to consumers be remitted to FIRS.
The commission also asked Enugu, Kano, Jos, Abuja, Eko, Port Harcourt and Yola Discos to remit N1,889,015,180.09 plus accrued interest at 13 per cent per annum with effect from December 1, 2013 to NELMCO/ONEM in respect of outstanding cash collected in November 2013 in line with the PHCN pre-transaction completion agreement.
The remittances, NERC said, are expected to be made with evidence of such presented to it before the close of business on October 17.
It stated however that failure to comply by such directive would attract a fine of N10,000 for every hour of default period until the remittances are eventually done.
The commission explained that the open book audit was conducted to ascertain the level of compliance of the distribution companies with the rules for the interim period of the market which was set up shortly before government’s handover of the PHCN assets to successful owners but amended in April this year.
The audit, it also explained, looked into the appropriateness of the expenditures embarked upon by the Discos during the period under review; its finding were however considered along with the responses of the Discos regarding the appropriateness of their operational and capital expenditures.
For instance, NERC in its remarks on the expenditure of Kaduna Disco, questioned the appropriateness of N17.8 million which the company expended in hosting members of the Senate Committee on Power during an oversight visit to them.
It explained that given the level of revenue collection performance of the Disco, the expenditure was inappropriately incurred and may not be considered to be passed on to consumers in the tariff.
Also questioned was Abuja Disco’s 48 different transactions worth over N1.3 billion, Benin’s six transactions worth over N546 million, Enugu’s 15 transactions worth over N208 million, Kano’s payment of N670 million to Northwest Power from its central collection account as well as N778 million and N453 million expended by Kano on 40 transactions and payment for management services.
Others whose expenditure were queried include Jos which its core investor, Aura Energy, introduced N800 million as loan to the Disco to be repaid with 20 per cent interest rate per annum; NERC said that the alleged borrowed fund has remained idle, while another N2 billion was placed in time deposit at an interest rate of 9.5 to 11 per cent.
NERC also said there was justification for Ikeja Disco to opaquely pay over N741 million for insurance premium on plants, technical and commercial advisory services amongst others; it explained further that Eko’s payment of over N1.3 billion to WPG Services Limited for operations and maintenance agreement fees between December 2013 and July 2014 was not justifiable, while Port Harcourt failed to provide an explanation of it’s over N310 million capital expenditure and N513 million paid to Income-Electrix Limited as fees for maintenance and operations agreement.
The audit stated that during the review, Yola paid over N131 million to Messrs Manila Electric Company as technical service fee but failed to provide the commission with a copy of the technical service agreement to ascertain its worth and content.
Of all the Discos audited, NERC observed that only Ibadan Disco has satisfactorily done well with its network and seems reasonably well prepared to move into the next stage of the market evolution which is the Transitional Electricity Market (TEM).
It noted that Ibadan has complied with the interim rules of the market but yet to appropriately inculcate best standard practices at its management and board level.
Chairman of NERC, Dr. Sam Amadi stated in his reaction to the audit that it was imperative for the commission to stress its resolve to instill strong corporate governance practice in the market going forward.
“Once again, it is imperative to stress our resolve to move the market towards string corporate governance practice and ensure strict adherence to best practices in the procurement of goods and services as well as prudent management of financial resources with a view to improving quality services to electricity consumers,” Amadi said.
Source: This Day