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Taking quality advantage of CBN’s power sector intervention

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Nigeria is faced with inadequate electricity supply. This development not only affected the country’s Gross Domestic Product but for years has hampered improvement in the standard of living, economic development, industrial growth and reduction in poverty. Despite being privatized, the sector has failed to perform. Already caught in the web of financial crisis, without lifeline interventions from the Central Bank of Nigeria (CBN), the sector may have gone comatose. KINGSLEY JEREMIAH writes.

Electricity is critical to modern life either for household use like lighting, heating, cooling, and refrigerating or powering appliances, computers, electronics, machinery, and public transportation. For many Nigerians, access to this modern life is a mirage.

According to the International Energy Agency (IEA), about 77 million Nigerians are without access to electricity. For many, electricity is a luxury. Instead of relying on the erratic nature of the power sector, homes and industries settle for power generating sets, leaving a cascade of environmental and health crises for present and future generations.

The Operations Director/Executive Director, Selattyn Energy Plc, Effiong Okon had said at the 44th edition of the Society of Petroleum Engineers (SPE) Nigeria Annual International Conference and Exhibition (NAICE) that Nigeria has an estimated 22 million small generators serving alternative power to households and MSMEs.

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Embarrassed by the epileptic power supply, the Nigerian government had in 2013 allowed the private sector to take over the generation and distribution of electricity while holding on to transmission. But that development only revealed the depth of decay in the sector.

Apart from failing to perform, the power sector in Nigeria has been in a financial crisis, requiring perpetual intervention funds from the government. The sector is bogged down by a financial crisis hovering around N4 trillion. The French Agency for Development had stated that the financial crisis in the sector is growing at N474bn yearly.
CBN’s power sector intervention hits N1.5tr

To keep the sector afloat and ensure that the country continues to propel economic activities, the Central Bank of Nigeria (CBN) had in the past seven years pumped over N1.5 trillion to rescue the nation’s power sector from collapse.

Across the world, apex banks are business enablers. Section 31 of the CBN Act 2007 encourages the CBN to serve as a catalyst financing agent for the real sector of the Nigerian economy. Currently, there are about 23 interventions of the CBN across sectors of the nation’s economy. The interventions reportedly stand at about N4.23 trillion.

Captured in the CBN fourth-quarter economic report (4Q’2020), the power sector initiatives include, Power and Aviation Intervention Fund (PAIF), hovering at about N300 billion, Nigerian Electricity Market Stabilisation Facility (NEMSF), standing 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.

According to the apex bank, the interventions will fast-track the development of electric power projects, especially in the identified industrial clusters in the country, serve as a credit enhancement instrument to improve the financial position of the Deposit Money Banks (DMBs); improve power supply, generate employment, and enhance the living standard of the citizens through consistent power supply while providing leverage for additional private sector investments in the power and aviation sectors.

Considering that the country has over six million metering gaps, it is expected that the mass metering intervention would drastically address the lingering challenge of estimated billing, boost revenue collection in the electricity sector, boost local manufacturing of meters and equip capacity in the sector while ensuring a transparent billing system. Further, the development would reduce subsidy burden and reduce the financial liquidity in the sector.

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The interventions coming in the face of financial crisis was also necessitated by the inability of the sector to finance itself as tariff shortfall, regulatory lapses and acute infrastructure impede the growth of the industry.

Earlier this year, the CBN had disbursed N123.34 billion to DisCos to boost electricity supply in the country. This was disclosed by the apex bank in its Monetary Policy Committee Communique in March.

According to the document, CBN disbursed N33.45 billion to nine DisCos for the procurement of 605,852 meters, while N89.89 billion was disbursed under the Nigerian Electricity Market Stabilisation Facility (NEMSF 2) to 11 DisCos to improve the electricity supply in the country.

The communique stated: “Under the National Mass Metering Programme, N33.45 billion has been disbursed to 9 distribution companies for the procurement of 605,852 meters, while N89.89 billion has been disbursed under the Nigeria Electricity Market Stabilisation Facility (NEMSF 2) to 11 distribution companies to improve the electricity supply industry in Nigeria.”

President Muhammadu Buhari had approved the National Mass Metering Program (NMMP) implementation to close the metering gap, which is over 10 million and this comprises unmetered customers as well as customers with obsolete meters that need to be replaced.

The objectives of the initiative are to increase Nigeria’s metering rate, eliminate arbitrary estimated billing, strengthen the local meter value chain by increasing local meter manufacturing, assembly and deployment capacity and support Nigeria’s economic recovery by creating jobs in the local meter value chain.

Others are to reduce collection losses and increase financial flows to achieve 100% market remittance obligations of the DisCos, and Improve network monitoring capability and availability of data for market administration and investment decision making.

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The CBN had noted that some of the 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.

Industry experts, who noted that the apex bank deserves commendation on the interventions, especially the level of transparency on the initiatives, stated that repayment plan remained a critical issue as well as feasible impacts.

Recall that the apex bank had at some point escrowed the accounts of the DisCos, insisting the need to repay the loan as priority. The fourth quarter report of the bank had shown that repayment stood below 30 per cent.

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.”

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

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

An expert with PWC, Habeeb Jaiyeola said such interventions remained normal across the world especially if the government must catalyse economic development, noting that such a move would help in controlling cost of borrowing in developing sectors.

The need for a policy influencer in power sector
According to him, the CBN 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.

While some stakeholders had noted that the apex bank may need to influence policies in the sector to drive maximum value from the intervention, National President, Association for Public Policy Analysis (APPA), Princewill Okorie noted that the sector may not have taken proper advantage of the apex bank’s initiative.

Experts at Templar Law had noted that while CBN is not a sector regulator, in view of its exposure to the sector through its various interventions, it was critical for the apex bank to influence policies that would address the general market imbalance as only a viable market will ensure the recovery of its funds and preclude the need for any future interventions.

According to the experts, whilst some of these policies may be outside the CBN’s regulatory purview, there are some policies that are within the domain of the CBN that would have direct impact on the power sector market imbalance and liquidity challenges.

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The experts, in a document authored by the legal firm’s Partner, Dayo Okusami and Senior Associate, Moses Pila said: “Gas prices and other elements of the capex for the sector participants are dollar-denominated. With the electricity tariffs in Naira, there is a perennial mismatch between revenue earnings and the capex inputs.”

According to them, while the exchange rate in the tariff is usually fixed, the fluctuations in the general foreign exchange market makes it challenging for the players in the sector to procure foreign exchange at the rate stated in the tariff.

They advised that the CBN should either provide further capitalisation to NBET or some form of payment support to enable NBET to adequately meet its payment obligations under its power purchase agreements.

“This will in turn enable the generation companies to meet their payment obligations to their gas suppliers. The CBN may also choose to provide a special foreign exchange dispensation to the power sector to mitigate the challenges.

“Another area that the CBN could actively influence is the area of collection leakages at the DisCo level. Even where NBET has not been able to exert the required influence on the remittance level of the DisCos, the CBN can use its influence in the banking sector to act. For example, because every DisCo is guaranteed by a commercial bank, the CBN can exert regulatory influence over the conduct of the commercial banks regarding the DisCos’ revenues and ensure the sanctity of collections and the priority of the remittances to the electricity market,” the duo said.

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