‘Chronic Debts Impinging New Investments in Power Sector’

A former President of the Nigerian Society of Engineers (NSE), Mr. Mustafa Shehu, has said that new investments into Nigeria’s power sector may not come as soon as expected by the government and stakeholders because of the market’s huge debts.

Shehu, explained in a presentation he made at the October Lecture of the NSE in Abuja that the huge debt figures of the market were a setback to potential investors deciding on how and when to put their finances in the sector.

At the moment, records indicate the sector’s financial shortfalls comprising underrecoveries from the delay in implementing cost reflective tariffs, as well as gaps in energy remittances of electricity distribution companies (Discos) were over N800 billion.

He, however, said that despite the economic potential of the country which supported a good return on investment in the power sector, the poor financial state of the electricity market was a bad signal and a turnoff to investment finances looking for where to reside.

Shehu said: “The economic structure of most African countries is weak with a majority of the countries being monoeconomies with low income levels. Appropriate pricing of energy products and services delivered to the public usually makes them unaffordable to most of the population, as such, subsidies are provided by government for such services which usually turn out to be unsustainable.

“Lack of affordable credit in the continent also hampers investment as companies must either source for funds from outside the continent or raise the prices of the service being offered. In Nigeria, the privatisation exercise aimed to improve the expansion and operation of the sector has not yielded the desired result economically as the distribution companies do not remit payments for energy supplied to them. This sends a very bad signal to prospective investors as there is no business that can thrive and grow if services rendered are not paid for.”

In his presentation titled: “Energy situation in Africa: Opportunities and Challenges,” the former NSE boss listed the problems that have destabilised the growth of the continent’s and particularly Nigeria’s power market, adding that a mix of legislative, social and economic factors have contributed to keep the sector’s productivity very low.

“Failure of the Gencos to pay for fuel supply deny fuel suppliers the required funds to maintain their plants and expand their networks, failure to arrest these situations of Discos failing to pay remittances to the market operator and NBET and Gencos to pay fuel suppliers may also lead to a financial crisis including bank failures considering the volume of cash involved and the exposure of Nigerian banks to the sector. Most of the operators have delinquent credit exposures to banks,” he added