The Liquidity Challenge In The Nigerian Power Sector – Deal or No Deal?

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More than three years after the Federal Government of Nigeria handed-over the successor companies[1] to private investors, the power sector remains in dire straits.

As at the end of December 2016, the revenue shortfall in the Nigerian electricity market had reportedly reached a staggering N1 trillion[2], whilst the sector’s huge indebtedness to commercial banks, as at the last quarter of 2016, stands at over US$12.52 billion[3]. Most of these debts to the commercial banks now appear in the banks’ balance sheets as non-performing loans (“NPLs”).

Given that the electric power sector is an unbroken interconnected chain of activities from generation to transmission to distribution to end users at homes, offices and factories, its alarming liquidity challenge certainly qualifies as a nation-wide crisis.

To date, the

  1. GenCos claim they are owed about N155 billion for electricity supplied;
  2. Gas companies assert that they have unpaid receipts of about N110 billion[4];
  3. DisCos are accusing Government’s ministries, departments and agencies (MDAs), including the military, of owing over N156 billion[5] and this excluded the several billions of Naira owed by private residential and commercial customers;
  1. Central Bank of Nigeria (“CBN”), estimates the GenCos’ indebtedness to Nigerian banks as being about  N356 billion[6], as at the end of the first quarter of 2016;
  2. Commercial banks remain in discussions with the DisCos with respect to the N402 billion credit facilities advanced to their investor-owners for assets’ acquisition during the 2013 privatization process;
  3. Government failed to reinvest proceeds from the privatization in power infrastructure; and
  4. Government’s shrinking oil revenues, precipitated by the twin shocks of low oil prices and disrupted oil production due to militancy in the Delta region, have impacted Government’s ability to extend the much needed investments in TCN[7].

Undoubtedly, the above analysis of the state of the Nigerian power sector reveals that multiple factors are responsible for the credit crunch and distress in the sector. In our view, the most critical challenges impacting the sector are:

  1. Foreign exchange crisis;
  2. Cost of acquiring the privatized assets;
  3. Cost-unreflective tariff regime;
  4. Huge collection losses; and
  5. Lack of affordable long-time funding.

From an x-ray of the current state of the Nigerian power sector, it is clear that same requires urgent and effective intervention. In this article, we would analyze some of the identified challenges which could be deemed responsible for the liquidity imbroglio as well as portend policy options that could be considered as the panacea for dealing with same. In our considered opinion, the recommendations can revive the ailing

Source: IWIN

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