CBN’s plan to terminate DFIs to power sector, others, sparks economic concerns

The Central Bank of Nigeria, CBN’s decision to terminate all development finance interventions (DFIs) including the Nigerian Electricity Market Stabilisation Facility and Anchor Borrowers Programme, worth nearly N10 trillion by the end of 2023, has been described by experts as disruptive and ill-advised, with concerns raised about its potential to lead to economic rancor in the short term.

In an interview with EnergyDay, energy and financial experts discussed the CBN’s decision to reduce its support for various projects, raising concerns about the potential impact on the Nigerian government’s direct fiscal intervention in the power sector.

Cardoso stated that the CBN’s new regulatory frameworks will be facilitated to unlock dormant capital in land and property, increase access to consumer credit, and expand financial inclusion to the masses.

The new CBN Governor had stated that the apex bank under his leadership, would end the over 1,358 projects that had benefited from the various fiscal interventions, insisting that beneficiaries would be forced to make repayment of the over trillion Naira given out as loans over the years.

Based on data obtained by the EnergyDay, some of the direct fiscal interventions of the CBN to the 100-for-100 Policy on Production and Productivity, the Nigerian Electricity Market Stabilisation Facility, N1.0 trillion Real Sector Facility, the Agribusiness/Small and Medium Enterprise Investment Scheme (AGSMEIS) and Micro, Small and Medium Enterprise Development Fund (MSMEDF) amongst others.

The CBN under the Nigerian Electricity Market Stabilisation Facility (NEMSF-2) for capital, and operational expenditure of the electricity distribution companies (DisCos), disbursed a total of N254.39 billion to ease liquidity constraints and support the recovery of legacy debt.

In 2021, the Central Bank of Nigeria (CBN) launched the National Mass Metering Programme (NMMP) with a budget of N120 billion, aiming to close the metering gap in the country, which is over 10 million.

Under the NMMP, the CBN has disbursed N41.06 billion to ten Distribution Companies (DisCos) for the procurement and installation of 759,748 electricity meters.

While the amount for Phase 1 was not made public, EnergyDay gathered that the CBN has allocated significant funds for the program, which according to the Nigerian Electricity Regulatory Commission (NERC), targets about 4 million prepaid meters, targeting up to 6 million electricity consumers. 

The CBN also disbursed N39.20 billion to six beneficiaries to improve gas-based infrastructure to support the Federal Government’s Auto-Gas Conversion Programme.

EXPERTS’ REACTION

The CBN’s decision to reduce its support for various projects has sparked concerns about its potential impact. Experts are urging caution as this move is expected to affect the Nigerian government’s direct fiscal intervention in the power sector.

Dr. Boniface Chizea, Chief Executive Officer, ‎BIC Consultancy Services, on his part, asked the Central Bank to explain what it meant by termination, insisting that there is ongoing exposure that the apex bank cannot recall abruptly.

He said, “So, what is uncertain is how the Central Bank intends to disengage these programmes. It will be disruptive and ill-advised to simply walk away from such exposures.

According to him, in the overall interest of the economy, the process must be sequential and intentional.

Dr Chizea said, “This announcement does not come as a surprise because the Governor has given notice that under his watch, development finance engagements will discontinue. But the fact that one of the core mandates of the Central Bank of Nigeria as enshrined in its Act is the provisions of Development Finance does not seem to count much in the Governor’s books.

The renowned economist and development consultant explained that the CBN Governor is going against CBN’s role to provide development finance dedicated to providing access to financial products to potential economic contributors who need such financing, which should be frowned upon.

Dr, Chizea further stated that Dr. Cardoso can quietly begin to deemphasise such support but to brazenly announce it the way that has just happened is impunity walking on four legs.

“If he is challenged in court, he will not win. And I think somebody should better convey this message to the Governor,” the CEO of ‎BIC Consultancy Services said.

Dr. Ayodele Oni, Commercial lawyer and Partner at Bloomfield Law Practice, in his comment, stated that the CBN’s decision to terminate the development finance initiatives, may in the short term cause some economic rancour.

According to him no doubt ending the policy will strengthen the economy in the long run.

The energy lawyer said, “With the recently passed Electricity Act, private investors will be even more encouraged to step into the stead of the CBN.

Dr. Oni, therefore, emphasised that termination of the policy would however not affect the CBN’s role in providing background financial advisory support.

AbdulWasiu Esuola, Commercial lawyer and licensed insolvency practitioner, in his comment, stated that the plan by the CBN to end intervention policy will affect metering and, by extension, collection which happens to be the biggest impediment to bankability in the power sector.

Esuola, “It is commendable that the CBN being a central bank of a developing economy like Nigeria has development financing of priority sectors as part of its mandates – and I believe that it may be too early to deviate from such mandate.

“After all, the role of development finance is to enable access to financial products by potential economic contributors who need such financing, and I do not think that we, as a nation, have significantly achieved that yet,” commercial lawyer said.