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Abuja Electricity Distribution Company (AEDC) Plc has posted its first profit in eight years even as a confluence of challenges have plunged the electricity sector into a liquidity crisis.
For the year ended December 2019, Abuja Disco posted net income of N124.29 billion as against a loss of N85.71 billion as at December 2018, according to analysis of the Discos financials by MoneyCentral.
The company recorded loses in 2017, (N75.97 billion); 2016, (N47.44 billion); 2015, (N41.97 billion; 2014, (N25.97 billion); 2013, (N13.78 billion), and 2012, (N20.21 billion).
Revenue surged by 211.30 percent to N255.98 billion in December 2020 from N82.22 billion the previous year.
Drilling down the financial statement shows the grandiose performance is largely driven by a N164.90 billion tariff short falls awarded to Abuja Disco by the Nigerian Electrical Regulatory Commission (NERC).
“These Orders award the Company a sum of N 102.22 billion to the Company as the computed tariff shortfall for the years 2015 to 2018 and NGN 62.69 billion as the tariff shortfall for 2019,” said the company.
“In line with the orders, the awarded tariff shortfalls are netted off the Company’s payables to Nigerian Bulk Electricity Transmission (NBET),” summed the company.
The tariff windfall helped settle most short-term obligations, reduce total liability, bolster solvency position, and underpin the going concern of the business.
Total payables were down by 48.19 percent to N136.25 billion in the period under review from N263 billion the previous year.
The electricity company can pay interest on outstanding debt, and the residues are enough to absorb exceptional items such as foreign exchange loss and loss on significant investment.
Interest coverage ratio is 4.44 times operating income of N107.60 billion, and the ratio is higher than the 1.50 generally acceptable international benchmark.
Finance cost reduced by 74.14 percent to N6.04 billion as at December 2019 from N24.41 billion the previous year.
Revenue is growing faster than acceleration in cost of sales, which means the company is efficient in using its resources to drive top line (sales) growth.
Abuja Disco’s operating profit otherwise known as earnings before interest and taxation (EBIT) increased by N107.60 billion as at December 2019.
Despite the strong growth in profit, the company’s shareholders will not be paid dividend because of accumulated losses or negative retained earnings of N48.54 billion.
The law prohibits entities from rewarding their owners from losses, and moreover, Abuja Disco is technically insolvent as it has a negative shareholders’ fund of N4.57 billion.
Abuja Disco and peer rivals are grappling with a liquidity crunch brought on by lack of cost-reflective tariff, low revenue collection, poor metering infrastructure, archaic transmission facilities, power theft, regulatory stranglehold.
As a result, there has not been significant improvement in electricity supply even after the power sector was privatized over a decade ago.
The recent mass metering of electricity consumers across the country coupled with a possible hike in electricity tariff should keep the power sector in tune with market realities and drive efficiency, according to analysts at CSL Stockbrokers Limited.
“However, another attempt to increase tariffs again will be met with stiff resistance from the populace given the pandemic-induced shocks which many consumers are yet to recover from,” said the analysts.
Inflationary pressures and rising unemployment rates have stolen workers’ wages while rising unemployment rendered more people poorer.
Available data from the Association of Nigerian Electricity Distributors (ANED) shows an improvement in revenue collection by the DisCos as they reached a new record of N483 billion as of Q3 2020, representing a 3.6% y/y increase.
“Nevertheless, without cost-reflective tariffs, no meaningful progress in the power value chain can be achieved. As such, for the sector to receive a new lease of life, consumers will at some point have to come to terms with an increase in tariffs,” summed analysts at CSL Stockbrokers.