NLC Shuts Ikeja Electricity Distribution Company Over Sack of 400 Workers

Power-plant (1)

The Group Managing Director of CFL Group of Companies, Mr. Lai Omotola, has canvassed the establishment of a finance development bank for the power sector to address the frequent changes in electricity tariffs.

He said the recently approved 45 percent increase in electricity tariff by the Federal Government not  not the  answer to the crisis in the power sector. Omotola attributed the increase to the failure of indigenous companies that bought the nation’s power assets to source for the technical partners that could bring in some equities.

Omotola in an interaction with reporters in Lagos, stated that Nigerian banks provided more than 80 per cent of $2.6 billion that was used to purchase the power assets in 2013 on short tenor loans.

He said: “It would have been the other way round and the sector would have been virile, had the investors been mandated to bring in foreign investors who would bring in their equities in terms of the capital mix, about 60 percent equity.”

He explained that most of the funds were sourced from the banks. It is debt, which is now creating a little bit of pressure on our financial system. We find a situation whereby the Nigerian banks are the major, if not the sole financiers of the acquisition of the power assets.

“There are two factors with the Nigerian banks. One is high interest rate. Two is the tenure of their funds. These factors mean that commercial banks by their very nature cannot finance the electricity industry. They can only serve to raise working capital incentive. What we find today is that the Nigerian banks are financed in dollar-dominated terms.

“Already, the interest rate has gone on the high side. Even, the value of dollar to naira had doubled over the space of two years. The resultant effect is that the accounts of our indigenous companies are not doing well with our banks.

“If their accounts are not doing well with the banks, the ability of the companies will be stalled. Also, the ability of the indigenous companies to pay loans will be stalled. Finally, the ability of the indigenous companies to generate additional funding will be stalled,” Omotola said.

He said the Nigerian banks could only finance projects for about two or three years after which the banks would want to see their funds coming back, so our banks are not suited to fund the power sector. He faulted a statement credited to the Minister of Power, Works and Housing, Mr. Babatunde Fashola that no bank would want to fund the power industry because of the low tariff, which makes it not bankable before the current controversial increase.

Omotola challenged Fashola to name the bank he was referring to, noting that if Fashola was referring “to Nigerian banks, the business model of the indigenous companies will not work. The interest rate and fund tenure will not make it work.”

He urged the Federal Government to set up a finance development bank that is strictly meant for development projects such as power projects. If our indigenous banks will play any role, it will be in the area of providing working capital. For these indigenous companies in power sector to survive, they need very low interest rate with very long-term loan, he said.

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