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Endless Power Sector Battles For Loans

Nigeria’s liquidity crisis appears to be taking its toll on the power sector, as the Federal Government seek loans from lenders in developed economies to improve electricity supply and bring about positive change in the economy. But this is not without implications.

After several attempts to fix the power sector and improve supply to the over 200 million Nigerians, hope seems to be rising for better days as one of the efforts to boost the sector is paying off —a fund raiser by the Federal Government, which returned to the global financial markets to get money develop the sector.

The government had approached some notable financial institutions for long-term loans to actualise its dream of providing stable power supply. It was a huge success as it raised a lot of money from institutions, which included the World Bank Group, the African Development Bank (AfDB) and the International Monetary Fund (IMF).

The World Bank okayed about $3 billion for Nigeria to expand its transmission and distribution networks, with fixed repayment period; and the European Union (EU) has mapped out strategies to support the development of solar energy in the country with 600 million euros.This is aside the $468 million, which the World Bank approved for Nigeria last year, for the expansion and rehabilitation of transmission lines and sub-stations.

Earlier, the financial institutions and other Development Financial Institutions (DFIs) had offered grants and loans to improve the operation of the sector. Sadly, the efforts failed to produce positive changes, a development which may have informed the decision of the government to seek fresh loans from banks.

Expectedly, the idea had ignited reactions among stakeholders in the value chain. While some believe that the idea came at the right time, and that if vigorously pursued, it would end the twin- issue of irregular supply of electricity and gradual decline in production, others hold different views, saying the government’s plan to source additional loans for the sector would amount to a waste of time and resources.

To them, the government had misplaced its priority, by asking the World Bank to provide  it with $3 billion, to expand the distribution and transmission networks.

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The Managing Director, Zerena Consulting, Mr. Meka Olowola, said while it was instructive that the Federal Government is trying to resolve some of the issues besetting the sector, he, however, queried its intention  in asking for fresh funds since it failed (in his opinion) to properly invest similar loans in the past.

He admitted that liquidity was one of the problems hindering the growth of the sector, but urged the government to tread softly. He said the government has invested a lot  on the sector without getting returns commensurate with the investments.

Referring to the $16 billion allegedly spent on the sector by previous administrations, he said the sector had gulped a lot of money without yielding positive results. The sector, Olowola said, has neither improved its operation nor been accountable for the manner the huge cash was spent.

He said: “It is difficult to keep track of records of the amount invested in the sector in the last 20 years, precisely from 1999 to 2019. The amount is huge, as successive administrations invested a lot of money on the sector,without getting results that are proportionate to their investments. Yet, the government is asking for more loans.”

•Transmission line

The problems facing the sector, Olowola said, are not interminable, as they could be solved through ideas, and not specifically through loans. “There is ample empirical evidence that the problem facing the sector is not so much about resources or skills. Though resources, especially money, is needed to resolve the problems in the sector, the issue is more than that,” he added.

On the sector’s operation, he said the industry could generate enough megawatts (mw) for the country, once the shortage of gas and other equipment were resolved.

He said the power generation companies (GenCos) often produced beyond what DisCos  could distribute. Based on this, the country does not need extra spending to move the sector, arguing that the sector only needed to re-adjust its operations.

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Also, the Technical Director, Consistent Energy Limited, Mohammed Ettu, said the sector require overhauling, not external loans, which the government was trying to source. He pointed out that the $3 billion, which the Federal Government requested from World Bank could not provide immediate solution to the problems, if it was not first overhauled.

He said generation, distribution and transmission arms must be overhauled, if the industry must record growth. When this happens, each of the three key operators would be able to function optimally, Ettu said.

Attaining industry capacity of 13,000 megawatts (mw) of electricity, or surpassing it would be done with minimal efforts, once the sector is overhauled.

On recapitalisation, Ettu said the sector could not garner enough funds for growth, adding that neither the government nor the owners of the privatised energy firms had the required cash to shore up the capital base of the sector.

Ettu said: “Recapitalisation is a good thing, if the government or the owners of the privatised firms have money to beef up the operation of the sector. Unfortunately, there is no money to recapitalise the sector. Even if there is money to do that, the question that suffice is, who will manage the recapitalisated companies. No sane investors would do that. The best thing, which  the government can do is to buy new plants and other facilities to grow the sector.”

Implications for sector

The sector is yet to get its bearing, nearly six years after the assets of the Power Holding Company of Nigeria( PHCN) were un-bundled and sold to private investors. The sector is facing liquidity challenge, as evident by the inability of many of the firms to fund their operations. This implies that the sector would spend some years to finance some of the loans it took for operation.

According to Ettu, stakeholders, especially consumers, will be most affected, in the event that the sector is unable to meet its obligations to service the loans.

Source: The Nation

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