FG plans $7.6billion funding for ailing power sector

…World Bank, AfDB and sale of NIPPs as funding sources

The Federal Government plans to raise $7.6 billion funding over the next five years through loans from the World Bank Group, the African Development Bank (AfDB) and sale of National Integrated Power Plants (NIPPs) to rescue the ailing power sector and reverse an economic loss of $29.3 billion yearly.

This is contained in the Power Sector Recovery Implementation Programme (PSRIP) which will soon be launched by the Federal Government, seen by BusinessDay.

In the plan, the World Bank has proposed a $2.5bn support to Nigeria’s power sector. At least $1.0bn of it will go towards a performance based loan to enable the Nigerian Bulk Electricity Trader (NBET) pay 100 percent of its wholesale invoices in full and on time.

The AfDB is also proposing $3 to $4bn of support across different sectors of the Nigerian economy. Of this figure, the Federal Government will push for at least $1bn to go into supporting the NBET/MO (Market Operator) funding shortfall currently estimated at nearly N500bn.

A third option is through the sale of at least three NIPP GenCos, including Geregu, Calabar, Omothosho and Ihovbor but this plan is contingent on the Federal Government putting in place the requisite payment guarantees, similar to those offered to the new entrant IPPs.

“The sale of these assets would probably take at least a year to complete but could raise a further $2.1bn,” says the PSRIP.

The PSRIP is a response to stakeholders call for deep reforms after it became obvious that the huge expectations from the flawed 2013 power sector privatisation programme will remain illusory.

Flagrant indiscipline by operators in the electricity market, as seen in the fact that Nigeria’s 11 electricity distribution companies (DisCos) paid only 29 percent of their collections to NBET and market operators, though their collections rate was at 57 percent, indicating they kept more for themselves, has increased liquidity gap in the  electricity market.

This is worsened by a lack of cost reflective tariff which created a variance of N149.6 billion in collections, due to non-application of MYTO last year. Total tariff billed in 2016 was N390bn but the cost reflective tariff would have raised billings to N452.5bn.

This situation has killed investment appetite. “From being an investment destination sought after in 2013 – both at home and abroad, the Nigerian Electricity Supply Industry (NESI) has fallen out of favour,” says the PSRIP.

In 2013, the power sector attracted naira funding from the private sector, including domestic equity and debt investors, domestic money banks and the Central Bank of Nigeria.

It also attracted dollar funding from domestic money banks, foreign equity and debt investors, DIFs/MDB and even World Bank Group (WBG). Fast forward to 2017, only the CBN is providing naira investment, while only the World Bank still demonstrates a willingness to invest, highlighting how much goodwill was squandered.

Difficult macroeconomic conditions characterised by galloping inflation and disruptions in gas supply through the activities of militants who seem to blow up pipelines when they are bored, has crippled power plants that supply 85 percent of Nigeria’s power.

An incompetent regulator that offer excuses for abuse of market rules is only slightly more worrying than a broken transmission system which makes a mockery of further pretence at investments.

In the PSRIP, the Federal Minstry of Finance (FMoF), and NBET will pay all verified debts to discos, the Nigerian Electricity Regulatory Commission (NERC) will provide continuous monthly monitoring of GenCos’, DisCos’, and Service Providers’ market balances.

It proposes to adopt a cost reflective tariff over a five-year period, pursue aggressive ATC&C Loss reduction by incentivising DisCos adequately to reduce losses.

DisCos would be able to access cheap, long tenured loans from the World Bank for metering and transformers. They would be obligated to increase transparency on revenues and costs, starting with maximum demand customers.

The plan is hinged on enforcing market regulations on ATC&C loss reduction, power theft, metering; and penalties.

To further shore up generation, the plan proposes electrification of unserved and under-served areas with high economic potential, through rural mini grids and stand-alone home solutions. IPPs for federal universities and teaching hospitals are also planned, as are more investments to improve transmission and resolve gas supply challenges.

Analysts say it is a step in the right direction but they caution that government agencies should not manage the fund, and market challenges must be resolved first.

“An independent organisation like the International Financial Corporation (IFC) should be used to manage it,” says Chuks Nwani, energy lawyer and vice president of PowerHouse International, an energy consultancy.

“Government agencies will politicise the approval process which will stall critical investments,” Nwani said.

Taiwo Oyedele, head of Tax at PwC says government should first get the pricing issue right. “In dollar terms, the rate we pay in Nigeria is one of the lowest in the world, there are issues with policy and setup, legal issues and technical challenges need to be addressed first.

“There will not even be need to borrow money as GE, Siemens and other power companies will naturally come if you make the economies of power generation work,” says Oyedele.

 

ISAAC ANYAOGU