Obinna Chima examines the expected impact of the fourth batch of the Central Bank of Nigeria’s Nigerian Electricity Market Stabilisation Facility that was recently disbursed to electricity distribution and generation companies and other service providers in the power value chain
As part of efforts to address the worsening power situation in the country, the Central Bank of Nigeria (CBN) recent,y disbursed a total of N55,456,161,481 from its Nigerian Electricity Market Stabilisation Facility (NEMSF) to firms in the power. A breakdown of the amount showed that while all the distribution companies got N8,670,234,863.76; the generating companies – N35,834,536,939; gas suppliers N10,491,710,788.66; all the service providers in the power value chain were given a total of N459,678,889.55. The amount was the fourth batch from the N213 billion stabilisation that was designed by the central bank as part of development finance intervention in the economy.
It is believed that the epileptic power situation has contributed to the drop in the level of production of goods and services in the country. Electric power supply is generally recognised as the most important commodity for national development. With power, people are empowered to work from the domestic level and the cottage industries, through the small-scale and medium industries to employment in the large-scale manufacturing complexes.
According to reports, gas supplies to the drastic reduction in gas supply to the generating companies due to pipeline vandalism contributed to significant drop in power supply. Another reasons attributed to the drop in power supply was the bad transmission in the country as well as huge debt owed the power investors.
The Electricity Stabilisation Facility
The CBN had in collaboration with the Ministry of Petroleum Resources, Ministry of Power and the Nigerian Electricity Regulatory Commission (NERC) signed a Memoranda of Understanding (MoU) on the NEMSF. The N213 billion facility was launched in 2014.
The central bank had said the facility would kick-start the electricity market in order to ensure that the power sector delivers tangible improvements in power supply for the benefit of all Nigerians.
Under the partnership with banks, the central bank provided the facility to address shortfalls in power sector revenues caused by needed adjustments in electricity tariff basic gas debt and in the process reset the economics of the power sector. The funds was also mapped out to settle legacy gas debts and shortfalls in revenue for operators to boost power supply.
Meristem Wealth Management Limited is the administrator of the CBN-NEMSF.
In his review, the Managing Director of Meristem, Mr. Wole Abegunde explained that prior to the introduction of the facility, the Nigeria electricity industry was perceived to be not bankable by capital providers.
“This intervention has three objectives: Resolving debt overhang within the industry, bring about a contract-based market and to facilitate tangible short-term improvement in power. A stringent requirement of the facility is that all beneficiaries must utilise the amount received on projects that would enhance their performance.
“As administrator of the fund, we have continued to monitor utilisation and conducted site visitations to see equipment purchased with the facility,” he added.
The facility has a tenure of 10 years.
The CBN Governor, Mr. Godwin Ifeanyi Emefiele had said the challenge faced by power sector reforms could be linked to unattractive pricing of domestic gas and legacy debts that were inhibiting investment in gas supply and infrastructure. Also, affecting the sector was difficulties across the value chain in addressing capacity issues primarily due to a shortfall in revenues.
Boost for Power Supply
Speaking during the signing of the agreement for the disbursement of the fourth batch of the fund and presentation of cheques to the power sector investors in Lagos recently, Emefiele, said it marked a major milestone in the effort of the Bank in collaboration with the federal government to achieve a contract based electricity market.
This, according to him would activate Power Purchase Agreements (PPA) by the Nigerian Bulk Electricity Traders (NBET) and signal activation of industry contracts for power generation.
Emefiele added: “By the end of today, total disbursements to the Discos will be N49.73 billion (91.7%); gencos N54.29 billion (62.5%), gas companies N15.73 billion (36.9%) and service providers N0.46 billion (1.7%). With today’s event, the total disbursements under the initiative will be N120.2 billion, representing (57%) of the total amount earmarked.”
He explained that the CBN-NEMSF was initiated as part of the commitment it reached with stakeholders to address debts owed by generating companies to gas suppliers.
The first disbursement was effected on February 12, 2015 to industry participants. One year into the programme, the sum of N64billion or 30 per cent of the facility was disbursed to 18 participants.
The companies committed to using the funds to upgrade/refurbish their equipment and acquire new ones so as to improve service delivery. The facility was given at 10 per cent interest rate and repayment has commenced.
“Our review of the fund utilisation and reports of impact by beneficiaries revealed that the intervention resulted in the restoration of a total of 905MW of power into the grid as a result of facility turn around maintenance, contribution of over 25 of the annual capital expenditure budget for the sector.
“Specific reports from Generating Companies revealed that there was execution of capacity recovery programmes in three hydro power stations as follows: Intake under water repair project, overhaul of Unit four and compliant metering/supplementary protection at shiroro dam; overhaul of 2G6 at Jebba Hydro and rehabilitation of 3units at kainji Dam under permitted utilisations of the facility. A total of 300MW capacity increase was reported as a result of fund utilization towards rehabilitation of both plants.
“The Intervention has also enabled the Electricity Distribution Companies (DisCos) to provide bank guarantees to Nigerian Electricity Bulk Trader, purchase of over 171,071 units of meters comprising both maximum demand and single phase meters; for instance Kano, Electricity Distribution Company (KEDC) alone acquired 62,021energy meters with the facility within the period. Rehabilitation of over 332kms of 11KV lines and 130km of 0.45KV lines; 70,310 No 500 KVA transformers procurement and construction of 34 new distribution substations and acquisition of one mobile injection substation under confirmed permitted utilisation by the initiative,” Emefiele said.
Although the situation the power sector finds itself presently is not the desire of every Nigerian, Emefiele expressed optimism that as stakeholders continue to clear the hurdles in the sector, progress would be made.
He said the facility was also to encourage new investments into the sector. He urged the Discos to improve the penetration of metres in the country, which according to him would help improve their revenue.
Also, the Minister of Power, Works and Housing, Mr. Babatunde Raji Fashola, said there was need for all stakeholders in the power sector to continue to work as a team to end perennial supply in the country.
Fashola expressed optimism that the challenge faced in the power sector would be resolved.
“One of the problems we are having is gas. Some people have developed a mindset to continue to vandalise gas pipelines. Let me say it very clearly that it doesn’t help this country, it does not help their communities and it doesn’t help their people.
“Breaking oil pipelines increases pollution. So, let us be very clear about it. This is at a time that the federal government has embarked on a clear clean -up programme. This is perhaps the most inclusive programme and we must all support it. Whatever the grievances are, breaking up pipelines doesn’t add to the solution. Breaking up pipelines also means the government earns less revenues, which means less revenues to states and local government,” Fashola added.
But he pointed out that the solution to the challenge should be to deepen the country’s energy mix with more of hydro power.
“We are also working with the solar providers to enable them come quickly to the market. This provides an opportunity to members of the public to understand that although the ray of the sun comes to us cheap, the equipment that enables us to harness it to power is not free. But we are working hard to bring down the cost of solar power.
“But let me again reiterate that there are problems in the sector and one of it is financial stability. But the collaboration we have seen is the type that we need to stabilise the system. I am confident that this problem can be solved if everybody plays its part,” the minister added.