The N213bn power sector intervention fund

LATEST UPDATE: The N213bn power sector intervention fund

The search for a lasting solution to the nation’s power challenges has received a boost from the Central Bank of Nigeria (CBN) which recently put together an intervention facility for the sector. The N213 billion loan sourced from money deposit banks in the country is, among other things, to be used to improve the gas-producing as well as power-generating and distributing capacities of the private power companies unbundled from the Power Holding Company of Nigeria (PHCN) companies.

Although this is a welcome development, it is a strong indication that the problems of the power sector remain huge. This is in spite of previous interventions over the years that ran into billions of dollars. We had expected that with the unbundling of the PHCN and the sale of its successor companies to private concerns, there would be a remarkable improvement in the power supply situation in the country. Sadly, little has changed.

However, this latest intervention is better late than never. The idea behind it is sound and we welcome it in the hope that it will go a long way in resolving the problems confronting the power company owners. This financial stimulus, which comes under the CBN’s Nigerian Electricity Market Stabilisation Facility (NEMSF), has already been sealed with a Memorandum of Understanding (MoU) signed with the major stakeholders in the power sector. According to the terms of the agreement, disbursement of the funds and monitoring of the implementation of the MoU will follow shortly. Also under the agreement, FBN Capital (a subsidiary of First Bank Nigeria), has been appointed by the CBN as transaction advisor, while Meristem Securities will act as fund managers. CBN will act as an intermediary between the deposit banks and the electricity market players, in line with Section 31 of CBN Act 2007.

The beneficiary firms will use the funds for equipment acquisition, refurbishing and upgrade of transmission stations.

Instructively, the intervention fund is not free money. The facility is to be repaid over a period of ten years at 10 percent interest rate per annum. In addition, part of the fund will be used to settle the N36.9 billion debt reportedly owed gas suppliers by the defunct PHCN and to cover shortfalls in the Nigerian electricity market. These shortfalls were said to have been largely occasioned by technical losses recorded in the sector.

We hope the intervention fund will help reset the economics of the power sector and address the financial problems resulting from huge debts and revenue shortfall. It is also expected that this will guarantee the take-off of the much-anticipated Transitional Electricity Market (TEM).

It will be recalled that this is not the first time that the apex bank will be mobilising funds to enable the power sector play the role expected of it in the economy. In 2010, the CBN raised N300 billion for the power and aviation sectors with an interest of 7 percent under the bank’s Industry Revival Fund. The fund was meant for power generation, transmission, distribution and related services. Sadly, not much was heard about it after the initial announcement.

This latest effort is a significant step and the synergy among the power sector players is commendable. Nonetheless, the financial intervention will only yield the desired results if the fund is judiciously managed and utilised for the stated purposes. Considering the fact that previous intervention funds made little or no impact on the power sector, many Nigerians are likely to be pessimistic on the chances of the companies making a success of this initiative. The fear is that the N213bn fund could be another bazaar for power sector operators.

In the past, misapplication and outright misappropriation of intervention funds had militated against efforts at revamping power generation and distribution in the country. The latest intervention will, therefore, need close monitoring of its disbursement and use by the beneficiaries. It will also require regular feedback on the performance of the beneficiary Discos and Gencos. The objective of this fund will be defeated if proper monitoring is not ensured.

It is largely the lack of proper supervision that made the harvest of promises by successive governments on the power sector a mirage. Rather than improve, power supply in the country has deteriorated to such an abysmal level that the country is reportedly generating less than 2,500mw at present. Government’s efforts on the sector have left many unanswered questions and uncorrected failures. It is in this regard that the great optimism that attended the privatisation of PHCN and the emergence of new owners has apparently fizzled out.

Nigerians had thought that by now the new owners would have overcome the initial teething problems associated with the transition. But since then, they have often come up with one excuse or the other. Last year, the government said it would require $900bn (about N143 trillion) to fix the sector in the next 30 years. Also, the Transmission Company of Nigeria (TCN) had reportedly said that N1.2trn was needed to expand and improve electricity supply in the country within the next four years. From every indication, this sector has become the proverbial bottomless pit of fruitless investments.

We must not allow the latest intervention to end up as another sad story. It is hoped that with the N213bn, a significant mileage will be achieved in the power sector roadmap. Now is the time to walk the talk by translating every promise made into reality. Nigerians want to see a visible improvement in power supply.

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