Discos Fault Dangote over Call for Reversal of Power Sector Privatisation

Aliko-Dangote

As investors in the nation’s power sector mark the third anniversary of the power sector privatisation programme, the Association of Nigeria Electricity Distributors (ANED), has faulted the call by billionaire businessman, Alhaji Aliko Dangote, for a reversal of the programme.

Addressing the media in Lagos yesterday, Executive Director of Research and Advocacy (ANED), Mr. Sunday Oduntan, explained that anyone who has followed the privatisation of the Nigerian Electricity Supply Industry (NESI) would recognise that the sector has been bedevilled by a number of challenges that would make the most hardened risk-seeking investor to run in the opposite direction.

Dangote had, while delivering a lecture as a guest speaker at the Senior Executive Course 38 of the National Institute of Policy and Strategic Studies (NIPPS), Kuru, in Plateau State last week, said the power sector privatisation was done wrongly and suggested it should be reversed.

Africa’s richest man said unless the Federal Government quickly decides on taking back the assets and giving them to people who have the capacity to inject money, the country would not be able to deliver on power infrastructure.

But Oduntan, in defense of ANED members, said if the investors are to be accused of anything, it is that they believed in their country and had a strong desire to put their money at risk, rather than those who maybe considered nothing more than armchair experts with a reluctance to dip their toes in the water.
The ANED boss said the absence of a cost recovery regime (a fundamental pre-requisite for sustainability and development of NESI), regulatory uncertainty, non-payment of bills by customers, limited access to financing (a result of the limited cost recovery),  and gas supply limitation, are among the major constraints facing the investors.

Other challenges he listed include gas pipeline vandalism, neglected and ageing power turbines and limited transmission capacity which have all, on the back of approximately 63 years of a failed centralized public management, contributed to the failure of the power sector.

On the issue of the lack of injection of adequate capital by the investors, Oduntan pointed out that most  of the generation assets were sold outright, with the sale of the distribution assets structured on a 30 per cent/70 per cent equity and debt split, while  the tariff is also structured along the same lines, for Disco operations.

He explained further that the split between equity and debt follows conventional knowledge that it is cheaper to fund operations via debt than equity, adding that  given the highly regulated nature of the tariff, the approved return on equity would preclude the injection of such funding by the investors.

‘‘In addition, the customers would ultimately have to bear the cost of the associated returns, and with a tariff that does not allow for a complete cost recovery, no lender will be willing to provide the required financing for the sector. And this is a problem that cascades along the electricity value chain,’’ he said.
Oduntan equally said electricity market revenue shortfalls is projected at N809 billion by December 2016, saying this is a direct consequence of the non-cost recovery nature of the tariff.

Source: The Sun

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