lliquidity: Experts Say CBN’s Interventions Saved Power Sector from Total Collapse

By Emmanuel Addeh

Eight years after the power sector was partially privatised, some experts have reviewed the state of the industry, highlighting that but for the intermittent interventions by the Central Bank of Nigeria (CBN), the sector would have been in a worse state today.

The electricity supply sector was unbundled in 2013, but has thereafter encountered several challenges, mainly due to what operators describe as the stark illiquidity in the system, put at about N4 trillion.

Some of the CBN interventions include the Power and Aviation Intervention Fund (PAIF), amounting to about N300 billion, the Nigerian Electricity Market Stabilisation Facility (NEMSF) amounting to about N213 billion and the N140 billion Solar Connection Intervention Facility.

In addition, over N600 billion tariff shortfall intervention was offset by the apex bank, plus a recent N120 billion intervention designed for mass metering, plus another N701 billion facility deployed in March 2017 as Power Assurance Guarantee (PAG).

In terms of policies that have impacted the sector, last year, the CBN directed deposit money banks to take charge of the collection of electricity bill payments to improve payment discipline in the Nigerian Electricity Supply Industry (NESI).

This has markedly impacted the sector since 2020 as consumers now pay over 78 per cent of their electricity bills to electricity Distribution Companies (Discos).

Stakeholders who bared their minds on the state of the sector, said that the over N2 trillion interventions in the sector by the federal government through the CBN saved the industry, but noted that as the industry grows, there would be the need for it to be self-sustaining.

An expert at PWC, Habeeb Jaiyeola noted that the interventions by government to keep the sector afloat remained necessary, adding that the move had yielded necessary benefits.
He said that the interventions are not unexpected for a growing industry, stressing that the situation remained the same in many developed countries in order to keep the country powered.

But he argued that there was the need for the industry to outgrow consistent support, insisting that this has to happen soon, so that more funds can be freed for the benefit of other sectors.

He said: “With the intervention, we are seeing more progress, there is expansion and Nigerians are getting to better understand what the intricacies are”, but added that the repayment timeline will have to be strictly adhered so that the funds can be used in other areas needing attention.

Also, the President, Nigeria Consumer Protection Network, Kunle Olubiyo had noted that given the level of illiquidity in the sector, support in terms of soft loans was necessary. However, he advocated an urgent review, especially with supporting policies that would drive holistic results from the programmes.

An Energy Lawyer, Mr Madaki Ameh, in his assessment, noted that continuous interventions could make it impossible for the privatisation of the power sector to take off effectively, noting that it was necessary to reorganise the sector for optimal productivity.

“The real issue is that the new owners of the Gencos and Discos have little or no experience in running the power sector and they have also not invested sufficiently in the sector to warrant being handed the companies to run.

“And because they are aware of the critical nature of power to the Nigerian economy, they are obviously blackmailing the government into providing them subsidies where none is required,” he argued.

Also, a former Chairman of the Nigerian Electricity Regulatory Commission (NERC), Sam Amadi, noted that though necessary in certain areas, there must be accountability and efficient deployment of the resources.

He said: “We are not hearing about all the monies from the regulator and that is worrisome. It is the regulator who should be speaking about funding for the sector because it has the capacity to regulate expenditure and ensure it goes to what is relevant and prudent.

“I support the funding for meters but I doubt if it will solve the problem because the Discos will use the fund to largely replace bad meters and control revenue loss. But the rebate of unmetered customers will remain high and undermine any movement to cost reflective tariff.”

The CBN had noted that apart from bridging the metering gap in the sector, the power interventions led to the recovery of power generation capacity of about 1,200 megawatts and allowed Discos to carry out projected capital expenditure through issuance of letters of credit (LCs) for the purchase of over 704,928 meters.

It further helped in the rehabilitation of over 332 kilometres (km) of 11 kilovolt (kV) lines and 130km of 0.45KV lines; 511 transformers purchased and installed and construction of 56 new distribution substations as well as acquisition of a mobile injection substation.