Power sector analysts have called for the resetting of the market by the Federal Government to get liquidity back to the sector. This is given the balance sheet of the Gencos gas companies and key players in the value chain is all in negative, as they have individual debt that the market is owing them.
Despite the N701 billon power sector intervention fund of the Federal Government, the sector is still bridled with challenges post-privatisation, failing to deliver on efficient power supply to consumers, while piling up debts running into trillions for the electricity market.
On the heels of this development, experts are worried that Nigeria’s privatised power sector lacks capacity to make the much needed progress if the government does not take the bold step to re-structure a sector that has rarely made any convincing progress since the 2013 privatisation exercise.
“The debt profile is widening everyday, including the just finished N701 billion Federal Government’s intervention fund. Pointing fingers is not the option, since we need to get liquidity back to the sector. In so far as the sector is this way, the balance sheet of the Discos, Gencos, gas companies are all in negative, we cannot make any head way,” Chuks Nwani, an energy lawyer and power sector analyst, told BusinessDay.
The energy lawyer insisted that for the sector to make meaningful progress amid threatening negative balance sheet and poor delivery to consumers, the government must reset the power sector market to enable a level playing ground for industry players as well as open up the sector for increased investments.
“The Nigerian Electricity Regulatory Commission (NERC) has to take that bold initiative to tell the government of the need to reset the market. We can start all over for even the government is also in default”.
“When the investors bought off the assets, the government passed the MYTO – multi-year tariff order, which would guide energy pricing, but did not factor in change in cost of gas, general energy procurement, while also the Discos were not allowed to factor in inflation, general cost of procurement of power in the final tariff the consumers pay. These are areas the government defaulted, because they contributed to the Discos negative balance sheet,” he said.
Recall, the initial tariff was benchmarked at N196 per dollar, dollar moved to over N400. Gas pricing also changed, yet all these did not reflect in the consumer pricing. How is the market going to be sustained, that is why the government must start all over, and reset the market,” the energy lawyer said.
On the model of the reset, he said: “Government can set up the Nigeria Electricity Liability Management Company (NELMCO) just like it did before privatisation to assume the liabilities in the power sector, and then empower them to leverage on a pool money given them to source for additional money to sunk all the debt profile and liabilities in the sector so that the sector comes clean.”
Once that happens, he said, “The government should direct NERC to reset the tariff. Once the debt books are cleaned up, the government would further ensure that there is fund for servicing the debts by the consumers, as this would ensure that the market is clean and attractive to investors.”
Joy Ogaji, executive secretary of the Association of Power Generation Companies (APGC), told BusinessDay, “The Federal Government must have the political will to ensure the right things are done in the sector.
“What we lack is the political will. Now we have a new government, which is also the previous government. Let us assume that the first four years are more of learning the curve. They must do the right thing. The sector is running at lost, and there must be a new way forward,” she said.
Suggesting way to solve the liquidity constraints in the sector, she said, “The Discos must be made to be liquid enough to enable flow in the sector. Even if they say consumers are not paying cost reflective cost, the ones they are supposed to collect on the current approved rate of N35, they should pay the one they are collection 100%.”
Not just the Gencos, the Transmission Commission of Nigeria’s managing director, Mohammed Usman, said the TCN had continued to record frequent breakdown of its expensive transformers on account of the poor networks operated by the Discos.
“Out of the 731 interface between us and the Discos, only 421 are fully protected, the rest are not and those not fully protected are where we loose our transformers. The Discos have not invested in the upgrade of their network, and it is affecting us. That is why we are calling on the recapitalisation of the Discos,” he said.
It would be noted that the impacts of the current liquidity challenge on the Gencos had resulted in reduced income from power generated. Gencos cannot meet up obligations to shareholders and suppliers, reduced generation and supply to consumers and reduced incentives to deploy new capacities or maintain existing ones.
On the electricity market, the liquidity issue has led to reduced investments in gas production, supply, investments in power generation, less power, reduced investments in transmission network maintenance and expansion, increasing energy purchased from the wholesale market and that sold in the retail market.
Industry watchers say the Federal Government must step up efforts in reforming the sector, and resetting it to ensure proper efficiency, while addressing liquidity issues lingering in the sector.
