Nigerians ‘need secure, sustainable and affordable’ power supply as their lifestyle is so configured that power is vital for their essential day-to-day services, without which they and their business can not function.
For instance. they need electricity for their lighting, cooking and industrial output. In addition to their basic needs, they also need it for pumping machines, washing machines, charging phones, computers, television, not to talk of welders, tailors, salon operators and millions of others that need energy for their livelihood.
However, making sure electricity is available in the country is an uphill task as the Federal Government continues to pump billions of scarce funds, to crank up power generation and distribution, has persistently failed to work.
That may be the reason a cross section of the populace is up in arms over another round of intervention, ongoing, and the purpose for it, which has not gone down well with the people.
Recall that not quite long, precisely in early August, just less than two weeks after the Socio-Economic Rights and Accountability Project (SERAP) came out with a report on how over N11 trillion went down the drain, under the facade of providing electricity, during the regimes of Obasanjo, Yar’Adua and Jonathan, the Federal Government dished out N39 billion bailout for Distribution Companies (Discos).
And just last week again, the Federal Executive Council (FEC) approved N25. HYPERLINK “tel:994” 994 billion for the Discos to offset some of the debts owed by Ministries, Departments and Agencies (MDAs).
The Federal Government would deduct the amount from the N HYPERLINK “tel:500” 500 billion debt , which the DISCOS owe the Nigerian Bulk Electricity Trader (NBET), a HYPERLINK “tel:100” 100 per cent federal government owned subsidiary company.
Commenting on the endless interventions, Yemi Oke, an associate Professor, Energy/Electricity Law, Faculty of Law, University of Lagos, said government has no business in the power sector other than regulation given the fact that government has been funding the power sector for strange reasons while the current regime has already spent N HYPERLINK “tel:740” 740 billion in power sector intervention without results to show for it.
‘‘Government could only galvanize investment into the sector by encouraging other private sector players to provide support for the Discos not government itself providing funds to the tune of N39 billion. This is not acceptable. What the Minister has not disclosed is whether this money has been there or they are just sourcing it or who is bringing the money? There are still a lot of questions that are not yet answered as far as this money is concerned. It is not fresh money to the best of my knowledge. It is a structured fund but i don’t want to say much. All I will want to say is that Nigerians should follow this closely because another N39 billion is about to be giving out again to private entity, after privatization to roll out meters. Metering that ordinarily and statutorily is there core responsibility’’.
On his part, Chairman, National Association of Small Scale Industrialists (NASSI), HYPERLINK “http://Mr.Tayo” Mr.Tayo Kuti-George, said the latest intervention of N39 billion to the Discos for metering plan has clearly shown that the privatization exercise was fundamentally wrong.
He said despite the investors shortchanging government on what they paid for (assets), releasing another funds for them when some other critical sectors of the economy were begging for attention is a slap on the face of Nigerians.
The NASSI boss said he was more than convinced that the agreement the Federal Government entered into with the power investors favours them more than the country, hence their ability to always wanting to hold the country to ransom with government equally falling in line with series of bailouts.
‘‘If there is nothing wrong with the contract papers signed with them, we shouldn’t continue to be at their mercy all the time. Government officials must have entered into that agreement in a compromised manner because the assets were bought cheap,’’.
He said any attempt by the Federal Government to terminate the agreement will cost the country a lot more, adding that, that is why government is always looking for a middle ground by providing these bailouts to them.
But, Partner, Bloomfield Law Practice, HYPERLINK “http://Mr.Ayodele” Mr.Ayodele Oni, explained that that the cost of providing meters should have been factored in at privatization, warning that continued government intervention in the sector can create moral hazard, as market participants continue to expect the government to bail them out.
But, he added: “It is pertinent to first acknowledge that metering has been at the forefront of collection losses, which has the knock-on effect of illiquidity in the electric power sector. This has also made many efforts being effected by both the private sector and the government fruitless. On the Discos’ part, we must also recognize that the currency issues of the last two years have meant that the cost of importing meters has dramatically risen. This is also coupled with the fact that the meters that are provided are frequently tampered with. As such a solution had to be found which in the extreme meant that the government had to intervene to prevent the total collapse of the sector which is almost now at a pariah status, internationally,’’ he said.
He maintained that the cost of providing meters should have been factored in at privatization, and continued government intervention in the sector can create moral hazard, as market participants continue to expect the government to bail them out.
He disclosed that it is clear that state intervention is required to ensure stability, suggesting that one solution may be for the government to request additional concessions from market participants for every intervention. This, he said will encourage market-led initiatives and reduce the appetite for government support.
‘‘Furthermore, government itself made several promises prior to and during the privatisation process which it failed to fulfill, possibly due to circumstances outside its own power. Thus, it is not an entirely bad idea for government to now bail out because issues such as tariff increases, enhancement of the grid; among other issues, were not satisfactorily attended to by the government for reasons including the political sensitivity of same. Consequently, a bailout may only be fair to all parties concerned,” he added.
Expressing her disappointment over the current power generation, the President of Lagos Chamber of Commerce and Industry (LCCI), Mrs Nike Akande, said for the power sector to survive and be sustained, it has to be driven by the private sector. She, therefore, called for the collaboration of all stakeholders in order to realise the goal of providing a more effective and efficient power supply in the country.
The LCCI boss then enjoined the government to provide the enabling environment for this to happen, adding that working and collaboration with the government is the way forward.
However, a development economist, Mr Odilim Enwegbara, was not surprised that such a large amount of money was given out to private organisations when elections are approaching.
According to him, the government intends to use the 10 per cent surcharge to finance elections and this is very unfortunate.
“A private entity should not enjoy federal patronage. They should go through other financing processes. If your business is viable, banks can finance you. Or you can go to other financiers. But as you know, you can say, because of the strategic importance of the sector, government should always intervene. But here is my understanding of my analyses of the whole thing. This was not started by APC. PDP did it when the election was forthcoming. The APC is repeating it because election is forthcoming. They gave out this N26 billion because of the 10 per cent they are going to get from it to finance election. It is unfortunate. FEC does not have such power to hand the public fund to whoever it pleases” he said.
Meanwhile, the Federal Government may have provided basis for its continuous funding of the Discos in its Power Sector Recovery Programme (PSRP).
According to the report, the DisCos face many challenges and constraints in terms of accessing funding for its capital expenditure (capex) which has suffered a shortfall of $ HYPERLINK “tel:198” 198million (N HYPERLINK “tel:71.2” 71.2billion) in the last three years.
According to the PSRP, there is lack of confidence in the Nigerian electricity industry by local and international lenders and investors, who see the sector as nascent, lacking in requisite mitigation arrangements required to meet their risk acceptance criteria.
“The financial performance of the DisCos has been poor. Most of Nigeria’s power companies are technically insolvent, and continue to operate using creative working capital management. In the event that the Market Operator or Nigeria Bulk Electricity Trading (NBET), were to call for full payment of their unpaid invoices, most DisCos would be forced to declare bankruptcy unless significant cash injections are made by their shareholders,” the government said in the report.
It explained: “Reluctance (and in some cases, inability) of local commercial banks to extend further credit to the power sector due to their high exposure to the power acquisition companies during the HYPERLINK “tel:2013” 2013 privatisation round.
“Most of the debt was provided by local commercial banks with limited experience and understanding of the power sector. This debt sits at the DisCos holding companies level, as it was intended that the operating companies could borrow to fund their capex plans. Some investors further leveraged their investment by also raising debt to fund the 30% equity requirement.
“This further limits the appetite of local commercial banks as some DisCos and GenCos leverage could be in excess of 90%. We note that some of the acquisition lenders also hold rights of first refusal on any additional debt at the operating companies, and, hold liens on the sponsors’ shares in the operating companies.”