Power Sector May Soon Collapse As Financial Crisis Hits N4 trillion

Barring swift intervention from government, the country’s power sector, which was privatised five years ago may soon collapse. No thanks to the N4t financial crisis that has pushed it to the brink of bankruptcy.

Details obtained from different players in the sector, including invoices published by the Nigeria Bulk Electricity Plc., (NBET), documents made available by power generation companies (GenCos), as well as distribution companies (DisCos) all mirror worsening financial state of the sector.

The current shortfall include, power generation companies’ outstanding for power supply of N1.2t (between 2015 to October 2018); shortfall of 20 per cent on gas guarantee payment of N701.9b for 24 months; unpaid available capacities of GenCos from February 2015 till date, deemed capacity payments accruing from the ramp up and down instructions from the systems operations after nominated capacity; interests payment on all outstandings, and payments on impacts of free governor mode operations due to operation outside grid specifications and grid collapses.

Others include, associated cost due to NBET’s efficiency model implemented on GenCos on a volatile grid of about $4.262b (about N1.549t), funding for new transformers, and injection substations.

While government is still in charge of transmission, the Electric Power Sector Reform Act of 2005, unbundled the national power company into a series of 18 successor companies; six generation companies and 12 distribution companies covering all 36 states. But the objectives of the reform have since remained elusive five years on.

Indeed, players in the Nigerian Electricity Supply Industry (NESI), including former Chairman of the Nigerian Electricity Regulation Commission (NERC), Dr. Sam Amadi; a leading energy expert, Dan Kunle; President of the Nigerian Association for Energy Economics, Prof. Wumi Iledare; Partner, Nextier Power, Emeka Okpukpara; Director of the Centre for Petroleum, Energy, Economics and Law (CPEEL), Prof. Adeola Adenikinju; Executive Secretary of Association of Power Generation Companies (APGC), Dr. Joy Ogaji; the Director, Research and Advocacy, Association of Nigerian Electricity Distributors, Sunday Oduntan; pioneer Managing Director of NBET Plc, Rumundaka Wonodi, as well as President, Nigeria Consumer Protection Network (NCPN) Kunle Olubiyo, jointly raised the alarm, maintaining that the sector could collapse if government fails to act urgently.

The experts equally maintained that growing challenges, particularly distribution and transmission, which led to the wastage of about 42, 160. 87 megawatts (MW) of electricity out of the 88, 566.43MW generated by (GenCOs) last year alone remained a critical barrier to the current administration’s campaign for incremental power.

Insisting on a critical review of extant laws as key leeway to addressing the current quagmire, the stakeholders expressed worry over the Federal Government’s 40 per cent stake in DisCos, as well as the continuous stay of staff of the Bureau of Public Enterprises (BPE) on the board of the 11 DisCos.

Similarly, while urging President Muhammadu Buhari to use his second term in office to address power sector challenges, they noted that the sector’s inability to meter millions of consumers remained unacceptable.

According to industry statistics, while about N2.9t worth of investment has been brought into the sector, losses caused by water, gas and transmission line constraints alone costs the sector about N1.5b monthly. The figure is estimated to be about N90b in the past five years.

Similarly, the sector has received bailout fund from several bodies, including Barack Obama’s Power Africa, and the USAID-Federal Government, through the Central Bank of Nigeria (CBN), provided the sum of N213b as Power Sector Market Stabilisation Fund at a concessionary single digit interest rate, and another N701b as gas assurance guarantee.

The Japanese government provided about $11m, the World Bank issued about $5.6b, as well as other funds from the African Development Bank.

While the $5.4b liability left after the selling off of power assets was described as a critical burden for the sector, last year, the GenCos dragged the Federal Government to court over debts in excess of N1t.

Lamenting that the sector could soon be declared bankrupt, Ogaji said investments made by operators, especially power generation firms, were being threatened.

In expressing concerns over the state of the sector, Amadi, ex-NERC boss noted that the privatisation model was unrealistic because it postulated too much on the private sector without a holistic government reform.

“For example, we expect that if we sell these assets, the private sector would come in. But challenges such as metering that would secure revenue was not dealt with. So, you expect them to come in, build a power plant for you, build distribution networks, provide all the meters for everybody and then wait till they make their money in the next 10 to 20 years? Clearly, some of the models were not realistic,” he said.

Leading energy expert Kunle noted that privatisation of the power sector was not completed before the new government came onboard, just as he alleged that in the last three years, the APC-led administration has done nothing about the sector, thereby escalating loopholes in the privatised entities.

He maintained that government’s inability to allow market mechanism to drive tariff would continue to worsen the sector’s financial crisis, saying “while paying subsidy for petrol, government has refused to pay the deficits for electricity tariff that it has disallowed from being reflected in daily charges.”

Without a cost reflective tariff, addressing of power theft and blatant estimated billing, Wonodi fears that the sector could collapse if nothing is urgently done.

Source: Guardian