N701bn Power Intervention Funds Too Small to Resolve Power Problems
While a lot of people heaved a sigh of relief following FG recent intervention in the power sector, the Association of Nigerian Electricity Distributors (ANED) speaking on behalf of the 11 distribution companies has declared that the N701 billion intervention fund approved by the federal government for payments to Gencos has the potential to worsen the revenue shortfall currently in the power sector.
According to ANED’s Executive Director, Mr. Sunday Oduntan, the fund is just a partial solution to the liquidity challenges of the sector. For him, the fund would only solve N300 billion energy supply liabilities, rehabilitate and replace faulty or old turbines and pay for the supply of gas – for the thermal generating plants.
“However, as commendable as this intervention is, we believe that it is a partial solution to the liquidity challenges of the sector. More so, as it holds the potential for exacerbating the revenue shortfalls that the market is currently suffering from. While an increase in electricity supply is the desired objective of everyone, such an increase without the requisite full recovery of cost via the appropriate pricing of power, means a resultant worsening of the market revenue gap,”opined Oduntan.
He noted that since the approved intervention is not expected to be a subsidy to the market, the assumption is that the proposed funding would eventually be recovered from the customers of Electricity Distribution Companies (DisCos). For such recovery to be effected, he argued that the Transmission Company of Nigeria (TCN) needs to have the required capacity to wheel the additional power being generated.
“Funding the transmission network is therefore imperative, for the proposed FGN intervention to work. Increased generation without commensurate wheeling capacity arising from a stable and robust transmission grid will result in stranded capacity and significant lost revenues,” he added.
Oduntan said the intervention fund as announced by the Minister of Power, Works and Housing, Mr. Babatunde Fashola, is a welcome development. However, “from the little details made available to us, the historical shortfall doesn’t seem to have been addressed within this initiative”.
“This is imperative as DisCos need to be able to make the necessary investments in network upgrades, improved customer service, billing and collections, metering, etc., all of which have been major issues in the industry. Such investments will not happen unless the DisCos make the projected annual revenue requirements, which enables access to finance for the required capital expenditure (Capex). Access to such financing is predicated on appropriate pricing of the retail tariff. The growing working capital debt on the DisCos’ books, less any amounts to be paid under the intervention, will also continue to impede DisCos’ ability to fund retail distribution Capex requirements,” Oduntan said.
Oduntan called on the FG to address the issues of access to foreign exchange (as well as the mitigation of the challenges associated with its volatility through regular reviews as contemplated in the MYTO act) as well as the security of gas pipelines.
“Regulatory certainty and consistency continues to be the foundation for enabling and promoting the commercial conditions that will ensure a viable and sustainable Nigerian Electricity Supply Industry (NESI) and, ultimately, the evolution of NESI into the Transitional Electricity Market (TEM) phase.