• Tuesday, June 18, 2024
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BusinessDay

The power sector’s looming crisis: A call for prudent action

Nigeria, others need $100bn annual investment to fix energy woes

The current state of Nigeria’s power sector is akin to a gathering storm, ominous and foreboding, casting a shadow of uncertainty over the nation’s future. It is not merely a matter of concern; it is a pressing crisis, a ticking time bomb demanding urgent intervention. Recent disclosures have lifted the veil of secrecy, revealing a maze of debt, poor management, and structural flaws that lie just beneath the surface.

Like a spider’s web, these issues entangle the sector, threatening to ensnare progress and prosperity in their sticky threads. Unless bold and decisive action is taken, Nigeria risks being plunged into darkness, not just metaphorically but quite literally.

Read also: FG to partner states to address power sector woes

At the heart of the issue lies the staggering debt burden weighing down twenty-five generation and distribution companies, collectively owing a jaw-dropping 1.493 trillion naira to nine Nigerian banks. This astronomical figure is not merely a product of economic misfortune but a consequence of fundamental flaws in the sector’s privatisation process.

Q: “Unless bold and decisive action is taken, Nigeria risks being plunged into darkness, not just metaphorically but quite literally.”

The Bureau of Public Enterprises failure to conduct thorough due diligence during the 2013 unbundling of the Power Holding Company of Nigeria (PHCN) paved the way for ill-equipped companies to secure licenses they were financially incapable of sustaining. Many of these entities, particularly those in the distribution sector, resorted to using their licenses as collateral for bank loans, a short-term solution that has now spiralled into a financial quagmire.

The depreciation and devaluation of the foreign exchange market exacerbated the situation, triggering monumental revaluation losses and rendering previously manageable loans untenable. What once seemed like reasonable interest rates have ballooned into exorbitant sums, crippling the financial viability of these companies.

Furthermore, the failure of distribution companies (Discos) to achieve a balanced equity-to-debt ratio has hindered crucial investments in distribution networks and prepaid metering, leaving a significant portion of the population without reliable access to electricity.

Compounding these issues is the government’s reliance on intervention funds, akin to applying band-aids to a gaping wound, in a desperate attempt to bridge revenue shortfalls. This short-term fix, while temporarily alleviating immediate pressures, serves only to obscure the deeper structural deficiencies plaguing the Nigeria Electricity Supply Industry (NESI).

It’s akin to putting a fresh coat of paint on a crumbling facade, hiding the cracks but failing to address the underlying decay. This reliance on stop-gap measures perpetuates a cycle of dependency, preventing meaningful reform and innovation from taking root. Unless the root causes of revenue shortfalls are addressed head-on, the sector will continue to languish in a state of perpetual crisis, depriving millions of Nigerians of a fundamental human need: reliable access to electricity.

Read also: What state electricity markets mean for Nigeria’s power sector

The Nigeria Governors Forum faces a herculean task in inheriting the sector, burdened by three categories of debt totalling trillions of naira. While the option of banks assuming control of Discos appears pragmatic in the short term, it merely addresses symptoms rather than underlying causes.

A more sustainable solution lies in the government’s commitment to reprivatization through transparent, competitive bidding processes. By attracting financially robust companies, the sector can regain its footing and embark on essential initiatives such as mass metering and infrastructure development.

However, such efforts must be accompanied by comprehensive reforms. This includes revoking licenses for underperforming discos and fostering a conducive regulatory environment that incentivizes investment and fosters competition.

Moreover, the government must confront uncomfortable truths, such as the counterproductive nature of artificially low gas prices. By aligning gas prices with global averages, the sector can incentivize uptime and ensure a reliable power supply for all Nigerians.

The road ahead is undeniably fraught with challenges, but within these challenges lies a golden opportunity for transformative change. Just as the telecoms sector underwent a remarkable overhaul two decades ago, so too can the power sector rise from its current state of disarray to become stronger and more resilient than ever before. However, this transformation will require more than mere rhetoric; it demands bold and decisive action from policymakers.

They must cast aside the allure of short-term fixes and instead focus on crafting sustainable solutions that prioritise the long-term interests of the nation.

By investing in robust infrastructure, fostering a competitive market environment, and implementing transparent regulatory frameworks, Nigeria can unlock its electrifying potential and usher in a new era of prosperity for all its citizens.

The time for action is now, and the stakes could not be higher.

Let us seize this moment and pave the way for a brighter, more electrified future for generations to come.