How CBN’s intervention saved power sector from collapse over liquidity crisis, by Experts

The timely intervention of the Central Bank of Nigeria (CBN) has saved the Nigerian power sector from collapse due to liquidity crisis, industry experts say.

While the sector clocked eight years on November 1st after being privatised in 2013, financial crisis lay siege to the industry as the sector failed to survive on its own.

In separate interviews to measure performance of the sector, stakeholders in the sector said that the over N2 trillion interventions pumped into the sector by the Federal Government and the CBN was the only saving grace for the industry.

Industry statistics put the financial liquidity in the power sector at around N4 trillion as the apex bank alongside the Federal Government had to initiate series of interventions to enable the sector evade imminent collapse tension and avert collapse of the 2013 electricity privatisation exercise.

The CBN had launched the Power and Aviation Intervention Fund (PAIF), hovering at about N300 billion, Nigerian Electricity Market Stabilisation Facility (NEMSF) at about N213 billion, N140 billion Solar Connection Intervention Facility, over N600 billion tariff shortfall intervention, as well as a recent N120 billion intervention designed for mass metering, among others.

The Federal Government had similarly released N600bn for the power sector to bridge shortfall in the payment of monthly invoices by key stakeholders in the sector. Another N701 billion CBN facility was deployed in March 2017 as Power Assurance Guarantee.

Last year, CBN directed Deposit Money Banks to take charge of the collection of electricity bill payments. A circular signed by Hassan Bello, director of banking supervision had linked the move to the recommendation of the Power Sector Coordination Working Group to improve payment discipline in the Nigerian Electricity Supply Industry (NESI).

The Nigerian Electricity Regulatory Commission (NERC) had noted that revenue to Nigeria’s power sector improved since late 2020, adding that consumers now pay over 78 percent of their electricity bills to electricity distribution companies.

Read also: Nigeria’s power sector reforms yielding more cash than electricity

The CBN had noted that apart from bridging the metering gap in the sector, the power interventions led to the recovery of power generation capacity of about 1,200 megawatts and allowed DisCos to carry out projected capex through issuance of letters of credit (LCs) for the purchase of over 704,928 meters; rehabilitation of over 332 kilometres (km) of 11 kilovolt (kV) lines and 130km of 0.45KV lines; 511 transformers purchased and installed and construction of 56 new distribution substations as well as acquisition of a mobile injection substation.

President, Nigeria Consumer Protection Network, Kunle Olubiyo had earlier noted that given the level of financial liquidity in the sector, support in terms of soft loans would provide leeway for the sector.

He noted that the schemes and financial interventions remained lauded but demand urgent review, especially with supporting policies that would drive holistic results from the programmes.

An expert at PWC, Habeeb Jaiyeola noted that the interventions by government to keep the sector afloat remained necessary, adding that the move has yielded necessary benefits.

According to him, the interventions are not unexpected for an industry that’s still growing, adding that the situation remained the same in most developed countries.

Jaiyeola however, said there was need for the industry to outgrow consistent support, stressing that the earlier that happen the better it is for government to pump resources into other critical sectors of the economy.

“With the intervention, we are seeing more progress, there is expansion and Nigerians are getting to better understand what the intricacies are,” Jaiyeola said.

According to him, the CBN’s intervention remains a positive tool for the development of the sector, adding that the payback has to be enforced to ensure the fund remains available for further critical interventions.

Former Chairman of Nigerian Electricity Regulatory Commission (NERC), Sam Amadi who said the intervention remained critical, noted that the commission was relevant to the success of the financial intervention.

“We are not hearing about all the monies from the regulator and that is worrisome. It is the regulator who should be speaking about funding for the sector because it has the capacity to regulate expenditure and ensure it goes to what is relevant and prudent,” Amadi said.

Speaking specifically on the intervention for metering, Amadi said: “I support the funding for meters but I doubt if it will solve the problem because the Discos will use the fund to largely replace bad meters and control revenue loss. But the rebate of unmetered customers will remain high and undermine any movement to cost reflective tariff.”

Some stakeholders however, warned that there was need to measure growth and determine if the sector must continue to rely on funding from government, insisting that government must not allow the sector to solely rely on aid instead of making efforts to remain viable.

Madaki Ameh, an energy lawyer, noted that continuous interventions could make it impossible for the privatisation of the power sector to take off effectively.

“The real issue is that the new owners of the Gencos and Discos have little or no experience in running the power sector and they have also not invested sufficiently in the sector to warrant being handed the companies to run. And because they are aware of the critical nature of power to the Nigerian economy, they are obviously blackmailing the government into providing them subsidies where none is required,” Madaki said.

According to him, the licenses of the Gencos and Discos must be reviewed on expiration with a view to bringing in those who have the capacity to effectively manage the sector, which is a cash cow, but is currently performing sub-optimally.