The Principal Partner and Chief
Executive Officer, Abe Lee Engineering Company Limited and former CEO,
Ikeja Electric, Mr. Abiodun Ajifowobaje, tells ’FEMI ASU that the
funding shortfall in the power sector needs to be urgently addressed
Has Nigeria seen considerable investments in the power sector as envisaged, three years after the privatisation of the sector?
The financial expectations from the
privatisation of the power sector were to raise funds for the government
from the divestment; encourage share ownership by members of the
public, leading to a more efficient mobilisation of savings within the
economy and act as a catalyst for the revitalisation of the capital
market. The privatisation was also aimed at attracting foreign capital
to the country and reducing government’s expenditure in the power
sector.
Almost three years after the handover of
the electricity generation and distribution companies, the power sector
deficit is about N25bn per month. The distribution companies are only
meeting an average of 55 per cent of invoices issued for energy received
from the national grid. All players in the supply chain, including gas
suppliers, generation companies, the Transmission Company of Nigeria,
market operator and the Nigerian Electricity Regulatory Commission, are
owed huge amounts in unpaid bills.
Investment in the sector has been very slow due to paucity of funds, with tariff not being stable and cost reflective.
What, in your view, are the implications of the funding gap in the sector for electricity supply?
It has affected gas availability and
development. The Gencos owed about N100bn to gas suppliers as of May 31,
2016. There is serious cash crunch on gas development and supply.
Gencos are owed about N225bn for power pumped to the grid, with reduced
expansion and maintenance plans by the Gencos.
There are also transmission bottlenecks.
Transmission is the weakest link in the supply chain as the network can
only wheel about 4,000 megawatts on a continuous basis.
Another effect is poor government
funding. The government is owed huge sum of money by the market,
contributing to the very slow expansion and maintenance regime.
I think the distribution network is
slightly better than the pre-privatisation era. With reduced collection
efficiency and payment obligation to the market; there are no funds to
pursue aggressive metering and network mordernisation.
The Central Bank of Nigeria
recently disbursed part of its intervention fund to some power firms; do
you think the fund has significantly helped the electricity market?
The sum of N213bn was put together by
the Central Bank of Nigeria under an intervention regime anchored by
NERC. This has not helped the market for certain reasons.
Firstly, the computations as per
shortfall due to each Disco were based on technical loss figures that
were derived from the ATC&C (aggregate technical, commercial and
collections) baseline studies hurriedly put together by the Discos. The
resultant figures were heavily disadvantageous to some Discos.
The disbursement of the fund was to be
carried out after the declaration of the Transitional Electricity Market
by NERC. But without meeting some of the conditions precedent, TEM was
declared by NERC.
NERC changed the baseline figures used
in computing the CBN funds by removing the collection loss figures from
the ATC&C, but the amount due to each of the Discos was not amended
to reflect the new ATC&C figures.
As of May 2016, only N120.2bn (about 56
per cent) of the fund had been disbursed by the CBN, over a year after
it was introduced.
Are you satisfied with the efforts made by the regulator in tackling the funding challenge in the sector?
NERC has tried to improve the funding in
the Nigerian Electricity Supply Industry through various adjustments to
the electricity tariff.
From November 1, 2013 to date, the
Discos have gone through three tariff changes, namely: Multi-Year Tariff
Order 2.1, MYTO 2.1 (amended) and MYTO 2015. These tariffs have not
helped the market for the following reasons: definition of what is
considered a cost-reflective tariff is still being debated; indices such
as exchange rate, rate of inflation, cost of gas, and power
availability for computing the tariff change almost on monthly basis and
sometimes, make nonsense of the tariff and frequent adjustments to the
tariffs – through major and minor reviews.
Other reasons are the lack of adequate
power to drive collection by the Discos; increase in tariff has often
led to poorer collection efficiency, and wide metering gap.
What solutions would you proffer in resolving the challenges in the sector?
We need to address the funding shortfall
in the Nigerian electricity supply industry. Machinery should be put in
place immediately for the investors and the government to raise money
from the capital market.
There is a need to reduce foreign
exchange flight. The technical partners brought in by the investors were
supposed to bring in some external funding apart from their
technological know-how. Almost all the investors are paying heavily in
dollars to retain the services of these so-called experts. Discos should
use partners that will not only bring in needed funds, but will not
take away the scarce available foreign currency.
There is hardly any country in the world
where government does not, in one way or another, provide incentives
for the power sector. The government should provide incentives; for
instance, bridging funds to assist the sector or institute a subsidy
regime. Forex for the purpose of investments in the power sector should
be pegged at the official rate.
There is a need to drastically reduce
capital expenditure and operating expenditure funds by allowing
favourable exchange rates for power equipment importation and
encouragement of local manufacturers. Currently, most of the power
assets are sourced from abroad. Discos should find other means of
getting more power to their customers through embedded and captive power
generation to raise additional funds.
I think it is necessary for the CBN
through the local banks to warehouse an intervention fund to be assessed
by the Gencos, the Discos and the TCN at very liberal rates to fund
expansion and operational projects.
Also, the three main players in the
industry should avail themselves of all the international funds for
infrastructural development, for example, from the Africa Development
Bank.
Local banks should embrace long-term
loans for power instead of the present short-term facilities that go
with heavy interest rates.
More generation is needed to drive the
improved tariff and thus generate more revenue to enable the Discos to
increase their remittances for energy used.
Enforcement of performance indicators by all players in the sector is also very important
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