CBN moves to ring-fence Disco collections

The Central Bank of Nigeria issued a circular dated August 21, 2020, authorising banks to ring-fence collection accounts of electricity distribution companies (DisCos) in Nigeria.

In a circular titled DMB Led Electricity Market Collections and addressed to “All Banks,” the apex bank instructed that all DisCo collections and remittances of the DisCos to both NBET and TCN will now be the responsibility of banks providing guarantees to DisCos.

Banks providing Bank Guarantees to Nigeria Bulk Electricity Trading (NBET) Plc and the Transmission Company of Nigeria (TCN) on behalf of DisCos, would take full responsibility for:

a. The collections of the concerned DisCos, and

b. The remittances of the DisCos to both NBET and TCN

For the avoidance of doubt, no DM is permitted to open or continue to maintain a collection account for a DisCo without the express no-objection of the DMB that guaranteed its exposure to NBET or TCN.

Other aspects of the circular also instruct the deposit money banks to warehouse all collections, whether energy or non-energy of the DisCos, in an account in the name of the DisCo. It also sets out guidelines for management inflows received through collection agents of the distribution companies.

The central bank provided funding to DisCos in 2015 through its Nigerian Electricity Market Stabilization Facility (“CBN-NEMSF”). The NEMSF was designed to fund market shortfalls arising for poor collections. The DisCos repay the central bank through monthly deductions from their collections.

This latest circular also suggests that the central bank, deposit money banks and NERC may have made this move in an attempt to guarantee that cash flows from DisCo Collections are available to pay down loans and other obligations to market stakeholders. By having visibility to their cash flows, future funding requirements can be better analysed.

What this means: Nairametrics understands that this circular is a move by the apex bank to ring-fence the collection of all DisCos by the banks providing bank guarantees to the distribution company.

  • The Nigerian Electricity Regulatory Commission (NERC) had issued minimum remittance orders for each DisCo in 2019 requiring DisCos to meet a minimum remittance to the market from collections received when customers pay for electricity.
  • The remittance is made to NBET and the Market Operators who then pay the GenCos and TCN respectively.
  • DisCos are required to provide bank guarantees for DisCos in the event that they fail to meet their minimum remittance obligations.
  • This CBN’s circular is an attempt by fund providers in the power sector to have clear visibility over collections of distribution companies and possibly control how the money is disbursed to all stakeholders.
  • It is, however, unclear how working capital requirements of DisCos will be catered for in the event of a shortfall.

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