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How CBN’s targeted financing is reviving Nigeria’s ailing power sector

The Central Bank of Nigeria (CBN) is restoring life to Nigeria’s beleaguered power sector via targeted intervention funding to the tune of N501 billion, and leading sector players now say the programme is beginning to bear tangible fruits. Total monthly collection by the distribution companies (DisCos) has risen to N65 billion at the last count.

A World Bank study found that the Nigerian economy loses over $29 billion every year due to epileptic power supply, and Nigeria’s apex bank is betting that this rash of intervention funding will give the sector a new lease of life and spark new investments.

Improved metering programme will strengthen the collections by DisCos, reduce losses, and could move the sector toward monthly N100 billion in collections by end of the year.

The apex bank is supporting the flow of badly needed credit to the power sector under a Special Purpose Vehicle (SPV) called the NESI-SSL Limited, and the facilities are extended through three different programmes covering metering, improving the ability of operators to ramp up capital and boosting operation expenses.

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This intervention by the apex bank is creating jobs, opening up new investment opportunities and positioning the power sector for growth, according to industry players.

The CBN is supporting the roll-out of the massive National Mass Metering Programme with an outlay of N120 billion. This facility is extended to DisCos and meter suppliers under the programme.

The first phase would cover the installation of up to 1 million meters for customers without cost to them and it is part of the government’s push to ensure that Nigerians pay only for the power they consume. A total of 6 million meters will be procured at the end of the programme with the World Bank funding the supply of 2 million meters.

Through new reforms, the government says it has ensured improved transparency and control of the flow of funds in the electricity sector in exchange for critical reforms on tariff and the clean-up of historical tariff shortfall debt on the DisCo balance sheets.

As part of the reforms, the DisCos submitted to bank account control and payment discipline waterfalls that ensure that market payments are transparently made to generation companies (Gencos), TCN, NBET, and gas providers and in return are able to access financing and loans facilitated by the CBN.

There is also a second facility under which DisCos are accessing up to N264 billion to support operating expenditure in the 11 DisCos.

For the first time in January, the DisCos recorded a 100 percent in their minimum remittance to the Bulk Trader.

The third funding is called the N117 billion CAPEX facility. Under this programme, the DisCos are able to embark on capital expenditure projects that will enable them to improve their ATC&C loss ratio based on their performance improvement plan approved by NERC for each DisCo.

According to a senior official of the central bank, “For the untrained eye or casual observer, the CBN’s sustained interest in the Power Sector may appear largely tangential to its core mandate of price stability and full employment. But contrary to this perception, adequate electricity generation and consumption are at the heart of every plan the country has for accelerated growth. Indeed, empirical studies have shown that a 1 percent increase in electricity consumption directly leads to a 1.72 percent increase in economic growth. Therein lies one of the key reasons for the bank’s investment into the sector.

“To buttress our commitment to the sector, it might be good to recall that this new funding is in addition to the N701 billion Payment Assurance Guarantee we provided to the sector in March 2017, which was part of a group of measures we put in place to solve the liquidity problems in the power sector. In total, we have invested about N2.1 trillion to the sector broken down into N214 billion (2014), N701 billion (2017 to NBET), N600 billion (2019 extra for NBET Payment Guarantee), and N120 billion (2020 for phase 0 and 1 Mass Metering Programme).”

According to the apex bank official, “We are currently discussing a Transmission Investment Facility. Essentially, this will involve lending money to the DisCos who will contract transmission projects in their own areas specifically geared towards adding more than 2,300mw to distributable power. In a sense, helping to localise the fixing of our transmission problems.”

All these loans are granted at a concessionary interest rate of 5 percent. At the expiration of the concessionary period, the facility becomes 9 percent fixed interest rate over the 10 year loan period. The loans also come with a two-year moratorium on the principal which means they will not be making any principal repayment for this first two years.

“Between October and November collections, there was a 10 percent uptick in collections and was seen again in December. There is also improvement in overall industry market obligations settlement to both NBET and MO,” a senior official of one DisCo said.

“The Federal Government appears to be making concerted efforts to boost the profitability of the DisCos, which should, in principle increase the likelihood of the repayment of the CBN facility,” said Wolemi Esan, energy lawyer and partner at Olaniwun Ajayi, a Lagos-based law firm.
Esan, however, cautions against “over-leveraging the DisCos.”

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