Power sector crisis- Experts warn Nigerian Govt., CBN against further concessionary lending to players 

 Samuel Agbelusi

The experts’ observation is coming in reaction to the National Bureau of Statistics (NBS) second quarter, Q2,2022,  Gross Domestic Product(GDP) report, which showed that Nigeria’s electricity sector contracted by -11.48% year-on-year even more than it contracted in Q1 2022 by -11.2%,in real terms.

The GDP data showing that the electricity sector contracted by in Q2 2022, according to the experts, indicated that  the Government’s intervention to the power sector, since it was privatized in 2013, has yielded limited impact. They warned the CBN to tighten the monitoring of the performance of its concessionary lending to the DisCos.

EnergyDay gathered that the power sector (which recorded a negative growth rate of 11.48%, declining from the 78.16% growth it recorded in Q2, 2021, based on the NBS data), has been characterised with regular set backs, including failure by the 11 electricity distribution companies in Nigeria (DisCos) to fully pay for electricity allocated,  frequent national grid collapses, insufficient gas supply to electricity generation companies (GenCos),  amongst other critical constraints.

While the sector recorded aggregate GDP growth of 263.1% on a quarter-on-quarter basis, experts who spoke with EnergyDay warned the Federal Government to review it power sector policy framework. They noted that the sector needs the urgent intervention  from imminent collapse, which according to them is likely to have serious implications on Nigeria’s economy.

EnergyDay’s check showed that  CBN’s cumulative disbursement under the Nigeria Electricity Market Stabilization Facility Nigeria Electricity Market Stabilization Facility Phase 1 (NEMSF-1) and Phase 2 (NEMSF-2), currently stands at  N 213bn  and N254.46 bn respectively, while under the National Mass Metering Programme (NMMP), the Bank disbursed N47.82 bn for the procurement and installation of 865,956 meters across the country in 2022 alone.

The apex bank  is likely to retain its concessionary lending to the sector in its September, 2022, Monetary Policy Committee (MPC) meeting.

REACTIONS

Dr. Boniface Chizea, Managing Consultant, BIC Consultancy Services, in a conversation with EnergyDay noted that the CBN’s continued intervention in critical sectors like the power sector is a way of sustaining the performance and ensuring stability in the sector.

Dr. Boniface noted that the majority of the players in the private sector that benefited from the concessionary interventions have not been optimally utilising the funds into productive use. This according to him is evident in the contraction of the electricity as observed by the recent GDP Q2 report.

He said, “The Power sector is in a liquidity crisis as we are aware that the FG have taken over four Discos as a result of their non-performance which have caused and driven the sector to its current reality. When there is funds and it is not being used for the purposes it was granted then it means they were just spending without any work done.

He further stressed that the negative impact is that the consumers are the one bearing the brunt with the high price on tariff and the inconsistent distribution of power.

Dr. Boniface said, “In return, they set a high price of tariff for consumers to pay in order not to be affected by the ongoing crisis. The government decision of leaving one of the critical sectors in the hands of inexperienced ones is the cause of the continued contraction of electricity.

Muda Yusuf,Founder/CEO, Centre for the Promotion of Private Enterprise, CPPE in a conversation with EnergyDay noted that the power sector is faced with a lot of challenges which has limited its  performance.

The limitations according to him are responsible for continued deficit as reported in the GDP Quarterly report.

The CPPE CEO said, “The continued deficit experienced by the power sector is as result of its challenges and the current reality being faced, which has undermined the full performance of the sector.

Dr. Yusuf, expressed the view that the continued timely intervention of the apex bank in supporting the sector can not rescue the power sector from imminent collapse. This in his view is as a result of the enormous challenges interfacing the energy sector.

He said, “The support of the Federal Government, CBN, and International development banks for the power sector  have helped to sustain the sector for a while.

“The highly leveraged  DisCos, TCN and GenCos, are already distressed and have been struggling to maintain profitability, despite several concessionary backings,” the former DG of LCCI said.

Dr. Yusuf further revealed that the concessionary lending by the apex bank to the sector is no longer sustainable, due to the inability of the private sector to level-up with their exposure to the deposit banks.

He said, “The Commercial banks and government are currently on the verge of taking over the entire power sector value chain due to their high level of deficit and non-performance.

“The Asset Management Corporation of Nigeria (AMCON) are beginning to take over some of the DisCos as result of their inability to fulfil obligations to the terms of the loan received from  the deposit banks.

“The take over of some of the defaulting DisCos by the Bureau of Public Enterprises, BPE, Nigerian Electricity Regulatory Commission (NERC) and some of the banks showed that further lending to the operators can no longer be sustainable at the short, medium and long run.

“The only way out is for the Federal Government to pave  the way  for entrance of genuine investors within and outside the country. The real time players should be encouraged with a sustainable operating environment to help reduce the high debt faced by the sector, improved rate of tariff and metering to ensure quality delivery.

Dr. Muda further noted that the power sector reforms need a review to improve efficiency and productivity in the sector.

He said, “The challenges in the electricity supply chain need to be urgently addressed – gas to power, transmission, distribution, energy pricing, metering, and the capacity of the distribution companies.

Dr Yusuf suggested a deliberate policy framework to attract private funding and participation in the grid management system.