Perennial Funding Challenges Haunt Power Sector


A view of Egbin power plant in Ikorodu, Lagos

As the nation continues to grapple with the quest to increase electricity supply, indications are beginning to emerge that the schedule of fund disbursement in the sector may be faltering, writes Chineme Okafor and Olaseni Durojaiye

A recent directive of the Central Bank of Nigeria (CBN) reiterating punitive measures to deposit money banks (DMBs), who failed to adhere to the terms and conditions of the Nigerian Electricity Market Stabilisation Facility (NEMSF) with regards to disbursement of funds to operators in the sector appear to underscore the CBN’s commitment to ensuring that the sector is not deprived of funds needed for capital expenditure.

The directive is coming on the heels of debate bordering on whether the improvement in power supply being witnessed in some parts of the country is traceable to the efforts of government or the weather condition. Some hold that the improvement was the result of the incremental power generation and supply strategic approach preached by the Minister of Power, Works and Housing, Mr. Babatunde Fashola. Others insists that the visible improvement, especially in many parts of Lagos was as a result of the cool weather which ensures that power generation and distribution facilities are not heated.

Besides, metering has also continued to generate heated discussion in the sector. While welcoming the improved power supply, many consumers are worried that they are unable to access the pre-paid meters months after they signed up and paid for the pre-paid meters. Even though pre-paid meters have been installed and in use in some parts of the country, at least four million Nigerians are still without it.

The Acting Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Anthony Aka, who disclosed so recently, had argued that the commission improved on metering system traced the shortage to the availability of meter manufacturing companies in Nigeria adding that the commission would sanction any electricity distribution company, which failed to comply with directives relating to the distribution of pre-paid meters.

Against the backdrop of the various issues bedevilling the sector, many see the directive as a welcome development. Sources in the know opined that the distribution companies (DISCOS) and generation companies (GENCOS) are presently facing funding challenges, which to a large extent negatively impact their ability to procure and install prepaid meters.
Interestingly, THISDAY gathered that the apex bank was preparing another round on financial intervention for the sector under the Nigerian Electricity Market Stabilisation Facility (NEMSF) initiative, thus the need to ensure that earlier disbursements were expended according to the dictates of NEMSF.

The CBN Directive
The CBN directive warned commercial banks who failed to comply with the terms and conditions in implementing the NEMSF and stated punitive measures that will be meted out to errant banks. The directive was contained in a circular signed by its Director of Financial Regulations Department, Mr. Kevin Amogu.

The N213 billion facilities were launched on 18 November 2014 and were expected to bring about improvements in power supply for the benefits of Nigerians. The CBN had, in collaboration with the Ministry of Petroleum Resources, Ministry of Power and the Nigerian Electricity Regulatory Commission (NERC), signed a memorandum of understanding (MoU) on the NEMSF with Chief Executive Officers of Deposit Money Banks

The beneficiary companies included three DISCOS and three GENCOS. The facility, which was part of the initiatives to support the reforms in the power sector, was to be repaid within a 10-year period to enable them address the challenges hampering power generation and distribution in the country. The six companies are located in Enugu, Ibadan, Kano, Ughelli, Egbin and Geregu.
In the list of sanctions, the CBN stated that if a collection bank and the principal collection bank fails to provide the refinancer/administrator with statement of account for the transaction account within five business days after the end of each month, the first sanction would be a warning letter to the bank, instructing that the infraction must be remedied within two working days.

Further infraction on the matter would involve a financial penalty of a minimum of N500, 000 daily on each account that such infraction is committed, until the infraction is remedied.
“If there is further infraction by the deposit money bank after the payment of the above financial penalty, the DMB’s participation as a Mandate Bank under the CBN-NEMSF shall be terminated,” it added.

Secondly, the circular stated that if a DMB fails to comply with the request by the refinancer/administrator to provide statement for any of the DISCOs’ accounts maintained by it and such other information relating to the transaction effected or to be effected on the transaction accounts within five business days from the date of such request, the bank would be served a warning letter at first.

“Failure to comply within two working days will attract a financial penalty of a minimum of N500,000 daily until the infraction is remedied. If there is further infraction by the DMB after payment of the above financial penalty, the DMB’s participation as a Mandate Bank under the CBN-NEMSF shall be terminated,” it added.

Thirdly, any DMB that does not comply with operational process document (circular) issued by the CBN to the accounts administration agreement, would also be issued a warning letter with other sanctions stated in the first and second infractions stated above.

Fourthly, if there is a closure of a transaction account by a DMB without prior written consent of the refinancer, the penalty, according to the CBN, would be N2 million and further sanction entails terminating the DMB’s participation as a Mandate Bank.

Funding Status
The total disbursement of funds to operators in Nigeria’s power sector from the N213 billion Nigerian Electricity Market Stabilisation Facility (NEMSF), which the CBN initiated, has reached N120.2 billion or 57 per cent of the total amount earmarked by the bank.

A status report of the disbursement of fund from the CBN, released in May indicated that about N92.8 billion was left to be disbursed by the bank in its next disbursement window as the funds are to be disbursed in tranches.
From the N102.2 billion so far disbursed, operators in the power sector have been able to procure up to 171,071 meters for deployment to their customers; upgrade their generation capacities to add another 905 megawatts to their pool; as well as provide bank guarantees to the Nigerian Electricity Bulk Trader (NEBT) for power transactions.

The first disbursement was done in February 12, 2015 to industry participants and after one year into it, the sum of N64 billion or 30 per cent of the facility was disbursed to 18 participants, which include five distribution companies – DISCOs (N41.06 billion); seven generating companies – GENCOs (N18.46 billion); and six gas companies (N5.24 billion).
The next tranche of the disbursement included the payment of N55.456 billion to 24 other industry participants – three DISCOs; 14 GENCOs including six NIPP plants; one service provider; and six gas companies.

Some new entrants into the scheme then were Benin and Jos Discos; Agip/Okpai and Shell IPPs; Alaoji, Geregu, Ihovbor, Olorunsogo-2, Omotosho-2 and Sapele-2 NIPP plants. So far, total disbursement to the DISCOs is N49.73 billion (91.7 per cent); GENCOs – N54.29 billion (62.5 per cent), gas companies – N15.73 billion (36.9 per cent) and service providers – N0.46 billion (1.7 per cent), bringing total disbursement under the initiative to N120.2 billion, representing 57 per cent of the total amount earmarked.

Stakeholders Keep Mute
The level of fund disbursement to the sector has however sparked concerns among observers who wondered why the fund was being withheld even as DISCOs and GENCOs continue to lament paucity of funds to either procure pre-paid meters or invest in other infrastructural equipment needed to scale up their services.

A source, who wished not to be named, told THISDAY that some of the banks were not keeping to the MoU entered into with the CBN, which necessitated the CBN directive.

According to him, “Some banks have not been faithful to the terms and conditions of the NEMSF; I suppose the CBN is aware of it and that was why they came out with the circular to remind them of what is expected of them and the sanction for default.
“One of the DISCOs is being denied access to the fund because it has not been able to come up with a clear revenue generation template,” he stated.

THISDAY could not get official reactions of players in the sector. Efforts to reach the Executive Secretary of Association of Nigerian Electricity Distributors (ANED), Barrister Sunday Oduntan, were futile. While calls to his mobile telephone lines failed to connect, response to an electronic mail to him was still being expected as at the time of going to press Friday night.

However, reaction of one of the stakeholders in the sector, who spoke anonymously indicated that he was not pleased with goings on in the sector, funding inclusive. He traced the problem in the sector, mainly, to absence of a duly constituted boards of National Council on Privatisation (NCP) and the National Electricity Regulatory Commission (NERC), lamenting that efforts of players in the sector have not yielded the desired result.

“All is not well within the power sector; nothing is done the way it is supposed to be done. The challenges are much and daunting; only insiders are abreast of how huge the challenges are. Part of the challenge is the absence of a dully constituted National Council on Privatisation (NCP) which is supposed to ensure smooth running of the activities in the privatization processes including in the power sector,” he stated.

According to him, the CBN was able to issue the circular because it has some measure of autonomy. Even though the CBN governor is a member of the NCP, the absence of the a duly constituted NCP will continue to haunt the power sector and hamper the performance of the DISCOs and GENCOs, he emphasised.