Need to Preserve CBN-brokered Power Sector Agreement

James Emejo writes that the hard-earned power sector pact, which was brokered by the Central Bank of Nigeria should be preserved at all cost in the interest of the parties and economy in general

Tmovehere has been various interpretations to the resolve by the CBN and the federal government to escrow the bank accounts of 11 electricity distribution companies (discos) in recent times. While most of the arguments against the have been sentimental, it is important to xtray the factors that had led to the recent development. Following the handover of the Power Holding Company of Nigeria (PHCN) successor companies to the private participants 2013, the Nigerian Electricity Supply Industry (NESI) was confronted with liquidity challenges arising from insufficient gas supply among other problems.

Amidst the dire situation which could have far-reaching implications for the economy, the CBN, under the leadership of Mr. Godwin Emefiele, had indicated its desire to invest in the electricity sector and provide a facility known as the CBN-Nigerian Electricity Market Stabilisation Facility (CBN-NEMSF).

The facility aimed to settle outstanding payment obligations due to market participants, service providers, and gas suppliers which accrued during the Interim Rules Period (IRP Debts) as well as the legacy gas debts of the PHCN generating companies owed to gas suppliers and the Nigeria Gas Company Limited (GCL) which have been transferred to the Nigerian Electricity Liability Management Company Limited (NELMCO).

The overall objective of the apex bank was to return the electricity industry to the path of economic viability and sustainability.

It should also be noted that prior to the CBN intervention, the commercial banks were no longer willing to extend credit to the power sector as a result of backlog of unsettled debt.

The apex bank’s move which broke the seeming deadlock, by fresh injecting funds in the electricity industry was widely commended by stakeholders while parties to the agreement all pledged to abide by the terms and conditions.

CBN’S BOLD INITIATIVE

In December 2014, the CBN and the Nigerian Electricity Regulatory Commission (NERC) signed terms and conditions as well as participation agreements with all deposit money banks (DMBs) in the country to commence the disbursement of the CBN’s N213 billion power sector intervention faculty.

The signing was sequel to the apex bank’s earlier agreement with players in the power sector towards boosting the capacity in the sector as well as stimulating economic development in the country.

Under the initiative, all DMBs are expected to take part in the disbursement exercise.

According to Emefiele said,”We are taking this bold step at this stage to get the banks who are to act as channels through which these funds would be paid to the distribution and generation companies as well as gas suppliers to come in to also sign their MoU with NERC as well as the CBN.”

“This is clearly a bold step and demonstrates the banking sector commitment towards supporting government’s commitment in resolving the power problems that we have in the country.

“I must commend the Nigerian banks for having done an excellent job up to the time, having taken a bold step to fund the Gencos and discos last year in their assets acquisition project.

“I am aware that Nigerian banks are predominantly the creditors in the books of these institutions. This further demonstrates the comment of the banking industry to continue to support the growth of the power sector in Nigeria.”

Emefiele had expressed joy that issues bordering on legacy debts which had greatly limited the progress of the power sector had been resolved to give way to improved electricity generation.

He said:”What we are doing here today is to say now we are at a point where the Nigerian deposit money banks (DMBs) as well as the CBN are now ready to work together to disburse to clear the legacy debts and as we clear these debts, the entire chain becomes cleared and the business becomes commercially viable for existing investors to continue to do their business and for new investors who are interested in coming into this industry and boost our power and gas sector in Nigeria.”

He added, “I am pretty much optimistic that this would also encourage Nigerian banks to continue to give support because by clearing these debts naturally, and as the tariffs become commercially viable, the debts they are carrying and portfolios would be paid off and they can continue to d a lot more business.”

The then Chairman of NERC, Dr. Sam Amadi who said the objective of the facility and support was to ensure that the power sector was viable and reliable, also stressed NERC’s commitment to ensuring cost recovery both for the CBN and other investors in the upstream and downstream of the sector.

He said the facility would go a long way to help ensure that “while we continue to ensure that the tariff is cost reflective, it would not constitute a burden on consumers immediately.”

He, said, “For the avoidance of doubt, with this facility there would be no increase in tariff for residential consumers for at least six months until we begin to see improvement.

“We expect that with more gas coming to the power plants, because of this facility and other interventions, in the next two, three, four months, there would be increase in capacity, more reliability, and the metering plan that is ongoing would be able to ensure that consumers are much more comfortable to witness any increase.”

Furthermore, in 2014, the apex bank and key players in the power sector including gas suppliers, electricity distribution and generation companies among others also signed a N213 billion definitive agreement to begin the implementation of the CBN-Nigeria Electricity Market Stabilisation Facility (NEMSF).

This was followed by disbursement of funds and monitoring implementation of the agreements.

Emefiele had said the intervention would reset the economics of the power sector and address liquidity challenges occasioned by legacy debts and revenue shortfall in the sector.

He said all parties have had to make compromise in order to make progress in the interest of the country.

Under the initiative, the sum of N36.9 billion in legacy debt to the power sector had been settled through the CBN-led intervention scheme.

Mechanism was also put in place ensure that all claims are settled and ensuring that gas supply to the power sector is paid for.

The apex bank is collaboration with the Ministry of Petroleum Resource, Ministry of Power and NERC to intervene in NESI was to help resolve its liquids challenges through a Stabilisation fund aimed at settling certain outstanding debts as well as guarantee the take-off of the Transitional Electricity Market (TEM).

Among other things, the CBN stabilisation fund which was disbursed through the deposit money banks would be given at 10 per cent interest rate per annum with a tenor not more than 10 years.

On the other hand, under the agreement, gas supplier are to commit to assured gas supply at higher volumes while both distribution and generation firms would ensure that funds are utilised for equipment and infrastructure acquisition, refurbishment or upgrade as well as commit to repayment plans.

CBN’S BANK ACCOUNT ESCROW

No doubt, there had been smooth implementation of the power sector pact as well as marked results records along the way. The conscious move by the discos to reneged in remittances of revenues due to other stakeholders including gencos and gas suppliers by deliberately declaring meager collections as revenue from electricity consumption, elicited the apex bank’s action to save the situation as well as get the agreement going in the interest of all parties and the economy.

It is noteworthy that even though discos have complained of lack of access to funds to finance their operations, as a result of government’s escrowing of the accounts, the CBN and federal government have since realised huge revenue which is being raked into the discos vaults while had also been accountability entrenched.

Essentially, the move by the government to escrow and centralise their revenue accounts was basically as a result of poor market performance on their monthly remittances.

They said such move would be a nationalisation of the 11 Distribution Companies (DisCos), privatised just three years ago.

According to the Nigerian Bulk Electricity Trading Plc (NBET), discos had repeated remitted only 30 per cent of their monthly energy invoices as at 2017.

According to recent data from NERC the electricity sector illiquidity persisted as discos remitted only N265.03 billion of N519.77 billion invoices to NBET in six months.

Data showed that despite intermittent government intervention, liquidity in the sector had remained a major challenge.

For instance, in the first two quarters, of 2021 spanning January to June, the data showed that only about half of the total expected payments to NBET were made by the 11 Discos to NBET and the Market Operator (MO).

From January to March, the Discos received N260.07 billion invoices for energy they got from the bulk trader and for service charges by the MO, out of which only a sum of N134.92 billion was settled.

STAKEHOLDERS COMMEND CBN

However, stakeholders and analysts have commended the apex bank’s move to instil transparency and accountability in the transactions by discos.

Amadi, had to THISDAY that a key measure of the success of the policy would be when Nigerians can access more power supply.

He explained that the purpose of the escrow was to enable the CBN recover its fund so that it is not frittered or used by the discos to finance their investment.

He said the CBN intervention is a special funding to deal with the liquidity crisis and legacy debt in the sector adding that it is supposed to be repaid but through a convenient process that will not adversely affect discos’ investment plans.

Special Assistant to the President on Infrastructure, Ahmed Zakari said the measure had helped increased remittances, thereby aiding liquidity in the sector.

He explained that the visibility provided by the system had helped NERC’s regulatory oversight of the discos as well as providing independent data.

Also, former Managing Director of NBET, Rumundaka Wonodi, told THISDAY that while it is a temporary measure, the escrowing of discos’ accounts had helped in ensuring some level of transparency in the sector.

He said, “So far it had helped in increasing revenue in the sector. So many people have accused the Discos of poor remittances, the initiative will make everything open. But it needs to be widened.”

Also, supporting the measure, the Market Operator, Transmission Company of Nigeria (TCN) Edward Eje, said the development had made difficult for any discos to misappropriate their monthly revenue collection as the apex bank’s CBN’s Special Purpose Vehicles (SPVs), Meristem, monitors all the Discos’ commercial banks through which every Discos revenue is remitted.

He said, “This intervention has actually brought about a level of payment discipline in the market.”

Furthermore, a Director at PricewaterhouseCoopers, Habeeb Jaiyeola, had suggested that while the financial discipline had achieved stability in the sector, especially in strengthening the liquidity crisis, there was a need to keep improving collection in the sector.

Hr said, “One of the major measures that can further improve liquidity in the sector is to improve on collection. For that to happen, metering of consumer and capacity development is important.

“If there is the low collection, there will be low distribution and high collections will lead to high distribution. So, we need to urgently address those challenges affecting low collections in the sector. Until this is done, we may not have a sustainable solution to the liquidity issue.”

Analysts are of the view that given the laudable concept and positive impact which the CBN funding intervention had brought into the power sector, it is important for all parties in the agreement to strive at ensuring compliance for the benefit of the industry and economy.

No doubt, it took a great deal to secure the power sector financing deal.