Forex Threatens Power Production

forex-1

•Equipment cost soars by 90 per cent

The imbalance in the foreign exchange (forex) market has hindered smooth operation by the nation’s power sector as dollar exchanged for about N470 at the parallel market, The Nation has learnt.

Despite the implementation of the flexible exchange rate mechanism that allowed for sourcing of forex from multiple sources, operators in the sector are battling scarcity of dollars.

It was gathered that firms, on account of high exchange rates, are unable to repay the loans they took to buy the assets of the Power Holding Company of Nigeria (PHCN) in 2013.

Also, it is difficult for the firms to get enough dollars to import meters, transformers, and other materials needed to meet their obligations to customers.

Industry sources said operators may be forced to further prune down the cost of operation if naira continues its free fall amid the recession in the economy, by downsizing the workforce and reducing output.

The Group Leader Generation, Sahara Power Group, Micheal Uzoigwe, said the lopsidedness in the exchange rate was affecting activities in the industry.

According to him, the high cost of foreign exchange has resulted in price increase of spare parts by 90 per cent. He  added  that the issue was having ripple effects on the sector and the economy,  explaining that output in the value chain has reduced to an abysmal level due to high cost of obtaining dollar in Nigeria.

Uzoigwe said: “Getting enough dollars for transactions and achieving optimal capacity is a problem to electricity generation companies (GenCos). The reason is because the price of gas is denominated in dollar and that power generation companies are unable to get enough money to buy the product. He said firms were paying N165 per unit of gas two years and they are now paying between N460 to N470 for the same unit of gas in 2016, then there is a problem.

“Two things are likely to happen. First, the GenCos would not be able to get enough millions of cubit of gas for generation. Secondly, the firms would find it extremely difficult to break even in the industry.”

Uzoigwe said Sahara Power Group, bought Egbin power plant for $400million in 2013 when dollar exchanged for N165, adding that the Group now pays a lot to service the debt.

“We at (Sahara Group) bought Egbin Power Plant for $400million few years ago. The Group took loans from the banks to buy the plant. Now we are repaying the loan. Given the fact that the value of dollar has increased greatly, the Group is paying more money to service the debt. The additional money that is being paid on the debt would have been channelled to a more productive usage,” he added.

Also, the Chief Executive officer, MOMAS Nigeria Limited, Mr. Kola Balogun said operators across the value chain are struggling to survive in the face of bad economy.

He said the woes of the operators have been compounded by the rise in the value of dollar in recent times, adding that companies are not recording growth because Nigeria runs an import-dependent economy.

He said many operators in the sector rely on accessories imported from abroad for production, stressing that they spend a lot of money on production when cost of importation is factored in.

Balogun asked: “Are we to talk of gas that its price is denominated in dollar? Are we to talk of pre-paid meters, sub-station equipment and other tools that are imported? Are we to talk of money spent on seeking partners abroad by power firms?”

Balogun, whose firm manufactures meters said indigenous meter producers are having problems despite the fact that they are sourcing 60 per cent of their materials locally.

Source: The Nation

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