Time to power the power sector

We bought our distribution company cash down for $82m in 2013; we are willing to take $72m in 24 hours and leave.” When one gets to know that the above excerpt was ascribed to Alh. Tukur Modibbo, chairman of Jos Electricity Distribution Company Plc., your heart might begin to pound.

This is the palpable tension the recent spat between the federal government through the Minister of Power, Works and Housing, Babatunde Fashola, and the owners of the electricity distribution companies has brought upon concerned members of the public, considering that these are the fellows we all have put our hope in for an efficient electricity sector that can power our dreams.

To start with, given the turn of events, one begins to wonder if the government ever went into any kind of understanding with the electricity distribution market operators before privatization was berthed. We need not search too far to find the 2013 Multi Year Tariff Order, MYTO, and its set out objectives, rules and agreements as the binding oath that formed the basis of the relationship between the government and the investors. It is clear enough that all parties went into the 2013 MYTO voluntarily and never had any qualms with its provisions.

It may surprise you to know that for a service that cost, N80 today, the GENCOs, TCN, NBET and the DISCOs have been restricted to charging N32. How will there ever be stability, not to mention growth in such a business setting? Are these philanthropic agencies or businesses? It is now no surprise why a N1.35trillion shortfall exists in that market today. This definitely can’t be sustained.

A major way out of the power sector underfunding and unending supply crisis is to immediately commence the implementation of the Power Sector Recovery Programme (PSRP), which stipulates that the market shortfall will be addressed through:

An annual federal government budget that will include provisions for totally financing historic and future sector deficit from 2017-2021;Establishment of cost reflective tariffs across the board over the next five years; A payment assurance facility to be established by the Central Bank of Nigeria (CBN), to support the Nigerian Bulk Electricity Trading (NBET) Plc, and other initiatives by the World Bank Group and its subsidiaries, including the International Finance Corporation (IFC), and Multilateral Investment Guarantee Agency (MIGA), with funding of up to $2.5 billion and $2.7 billion respectively.

With an investment of over N11 trillion so far, spent in buying assets unbundled from the defunct Power Holding Company of Nigeria (PHCN) in 2013, the DISCOs can’t be said not to have done enough neither can the GENCOs who paid a lot for acquisition and have since spent even more in rejigging the turbines be said to be lax.

Of a truth, the sincere argument of consumer affordability raised in some quarters in not to be jettisoned. However, killing the wheels of progress with an inappropriate tariff, as is presently the case, wouldn’t be the solution. To bridge the N1.35trillion shortfall, bring an end to the endless bickering in the sector and set the sector on the path of growth, the government in conjunction with the international financial agencies would have to put in place a regime of sustainable subsidies that would ensure the realization of the cost reflective policy as enshrined in the MYTO agreement. To be sure Nigeria will not be doing anything strange toeing this path. It is also imperative to point out that the New Delhi Tariff structure which the current (Nigeria) MYTO is modeled after has a very robust and strategic subsidy plan of which hovered around $US2billion yearly between 2007/08.

Unfortunately, here in Nigeria, the N100billion funding agreed upon between the government and the sector investors before privatization is still a mirage today, rather loans have been disbursed (as with the CBN Intervention fund) with its attendant spiraling interest rate and other charges in the face of a pegged tariff that is far below cost.

A peep into the financials of any of the successor companies across the electricity value chain shows huge pile of losses and debts. This has left the banking sector wary of the power sector, as honoring previous commitments by these investors has become a herculean task in the face of business plan gone awry in the face of wrong policy initiative by the authorities.

In such a case, only direct Institutional funding from the CBN and other foreign and local development banks backed up by guarantees by the CBN can generate the long term, low interest and seismic capital needed to stop the gory financial bleeding currently been experienced in the Industry. The time has come for all relevant stakeholders in the power sector to come to a round table and agree to a business model that will bring stable and sufficient electricity to meet Nigerians’ energy need. At the end of the day, we all are been affected by this spell of inefficiency. Femi-Jolayemi wrote from Lagos