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The Federal Government is planning to inject N871bn into the power sector next year according to its 2018 – 2020 medium term expenditure framework and fiscal strategy paper but analysts are sceptical that it will resolve market shortfall without tariff review.
A breakdown of the figure indicates that Central Bank of Nigeria Financing facility will account for N310 billion will go into stabilisation of the Nigerian Electricity market by providing loans for Electricity Distribution Companies (DisCos) and Electricity Generation Companies (GenCos).
The sum of N61 billion would be contributed through the World Bank’s Program-for-Results, a financing scheme that links disbursement of funds to programme results. Part of these funds will go towards a performance based loan to enable the Nigeria Bulk Electricity Trader pay 100% of its wholesale invoices in full and on time.
The Federal Government will also make available budgetary provision in the sum of N194 billion which will go into funding expansion of transmission lines and the national grid undertaken by the Transmission Company of Nigeria.
A sum of N315 billion will go towards power assets ownership restructuring and settlement of DisCos debts were created on account of FG’s refusal to allow cost reflective tariff when the assumptions that fed into the tariff such as exchange rates, gas prices and the inflation went up.
“The prevailing Disco tariff today was model against variables that have been overtaken by time and events and therefore does not reflect the true pricing of electricity. MYTO 2015 for Discos were built on 196/$1, 8.3% inflation rate, certain available Capacity and therefore the final tariff was a product of this variables. You recall that from late 2015 there were changes in these variables which would require reciprocal adjustment of the tariff but the government did not allow NERC to increase the tariff to meet up with the current realities. The shortfall that the Discos could not account for becomes a debt for the market which the government is under obligation to pay since it is at their instance that the tariff was not increased,” said Chuks Nwani, an energy lawyer.
But even this will not totally resolve market shortfall of over N500bn attributed partly to DisCos inability to pay for all the power it takes and keeping more for itself than it pays others in the value chain.
The Federal Government says it is negotiating with the DisCos to cede some of their shares to so that those with financial and technical capacity can acquire some of them in settlement of their debts.
“We have now come to the point where investors in the power sector must come together and decide to cede some of their holdings to enable new investors with expertise come in to enable us grow the power sector at the pace Zainab Mohammed, minister of state for budget and national planning at the last Nigerian Economic Summit in Abuja we want. It involves negotiating with existing owners and also government,” said
On March 22, the Federal Executive Council approved the Power Sector Recovery Programme (PSRP) to restore the sector’s financial viability and establish a contract-based electricity market. The PSRP are a series of policy actions, operational, governance and financial interventions to be implemented by Federal Government of Nigeria (FGN) over the next five years. The key objective is to reset the Nigerian Electricity Supply Industry (NESI) for future growth.
“Some key issues to be addressed through the PRSP include: eliminating accumulated cash deficits in the sector; develop and implement an appropriate and sustainable electricity tariff that supports liquidity over time; enforce discipline and accountability by electricity distribution companies (DISCOs); ensure grid stability; promote sector transparency and an effective communication strategy; and, promote electricity access and renewable energy,” said the document.
