The impact of CBN’S recent interventions in the power sector

Background

The Central Bank of Nigeria ( CBN) has been an active participant in the power sector. Its intervention schemes started prior to the 2013 privatisation of the sector and has continued since then. Sources state that the current intervention of the CBN from 2014 till date stands at over N1.5 trillion. These interventions are largely through the Nigeria Bulk Electricity Trading Plc ( NBET) and other direct intervention to the sector participants.

While the CBN is not a power industry operator or regulator, it influences policy in various ways including through its Power and Aviation Intervention Fund (PAIF). The PAIF seeks to fast-track the development of electric power projects; improve power supply, generate employment, and enhance the living standard of the citizens through consistent power supply and provide leverage for additional private sector investments in the power sector.

Over the years, the CBN has granted various facilities to the power sector under the three different schemes it set up. The schemes include the Nigerian Electricity Market Stabilisation Facility (NEMSF) which was made to settle outstanding payment obligations due to market participants during the interim rules of the market as well as legacy debts owed by the Power Holding Company of Nigeria (PHCN) to gas suppliers; the Power and Aviation Intervention Fund (PAIF); and the Payment Assurance Facility (PAF) extended to the Nigerian Bulk Electricity Trading Plc (NBET) to settle invoices of generation companies ( Gencos) to a minimum level of 80 per cent.

Recently, the CBN commenced its policy on solar connection facility. The Solar Connection Intervention Facility is to complement the Federal Government’s effort of providing affordable electricity to rural dwellers through the provision of long-term lowinterest credit facilities to the Nigeria Electrification Project (NEP) pre-qualified home solar value chain players that include manufacturers and assemblers of solar components and offgrid energy retailers in the country. This will certainly increase the overall cumulative exposure of the CBN to the power sector.

Achievements of the Interventions and Thoughts on the Way Forward

The achievements of some of these interventions span the value chain of the power sector. For example, according to the CBN, the significant capital expenditure (CAPEX) of the NEMSF in the industry has led to recovery of generating capacity of more than 1,200MW in both hydro and thermal plants through the overhaul of turbines. In addition, the CBN reports that through the NEMSF implementation, most Discos have been able to carry out projected CAPEX through the issuance of letters of credit (LCS) for the purchase of over 704,928 meters; rehabilitation of over 332 kilometres ( km) of 11 kilovolts ( 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.

Whilst noting that the overarching objective of the CBN intervention has been to sustain liquidity in the power sector and ensure the optimal performance of the market, certain challenges still remain. These include the market liquidity issues arising out of collection and technical losses as well as the non-cost reflective tariff in the sector. The cumulative effect of these on the sector has resulted in the perennial shortfalls recorded in the market revenue thereby underscoring the need for more interventions in the future.

Although the CBN is not a sector regulator, in view of its exposure to the sector it must seek to influence policies that will address the general market imbalance. Whilst some of these policies may be outside the CBN’S regulatory purview, there are certain policies that are within the domain of the CBN that would have direct impact on the power sector market imbalance. The issue of tariff is one of them. Given that gas prices are dollar-denominated and power tariffs in Naira, electricity prices are escalated subject to the dollar-naira exchange rate which is within CBN’S monetary policy domain. The CBN’S policy in the foreign exchange market and the dollar-naira exchange will have a significant influence on one of the main escalating factors for electricity tariffs in Nigeria.

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 enhanced market remittances.

Article was written by Moses Pila, a Senior Associate at Templars