Although not directly an operator in Nigeria’s struggling electricity supply industry, the Central Bank of Nigeria has intermittently interceded to resolve some knotty financing issues in the sector. In this report, Emmanuel Addeh examines how these interventions have impacted the country’s power sector
The power sector is not under the direct purview of the Central Bank of Nigeria (CBN), but being a critical economic driver, it is understandable why the country’s apex bank has always been a part time player, as it were, in the industry.
Usually, the bank bases its assistance in that regard on the need to catalyse financing of the real sector of the Nigerian economy, in accordance with Section 31 of the CBN Act 2007.
In several instances, including the recently approved N300 billion, to be jointly applied to power and airline projects, the bank said it would fast-track the development of electric power projects, especially in the identified industrial clusters in the country.
In addition, the CBN noted that the funds will improve power supply, generate employment, and enhance the living standard of the citizens through consistent power supply and provide leverage for additional private sector investments in the power sector.
Being managed by the Bank of Industry (BOI), the Power and Aviation Intervention Fund (PAIF) has the Africa Finance Corporation (AFC) as the technical adviser to the fund and is available to any corporate entity, duly registered in Nigeria, involved in electricity power supply value chain that includes power generation, transmission, distribution, gas-to-power projects and associated services.
To reduce the burden on beneficiaries, the fund allows for a moratorium in the loan repayment schedule of up to five years, but could enjoy additional moratorium period of 18 months to address the risk of completion delays.
However, in putting strong mechanisms to ensure that these funds do not end up being another bazaar, the CBN directed that a Technical Adviser (TA) must provide technical support to the programme, review projects to confirm eligibility and viability and build capacity of stakeholders.
Aside the recent PAIF, a number of other instances where the apex bank has assisted the industry include the Nigerian Electricity Market Stabilisation Facility (NEMSF) which was floated to settle outstanding payment obligations due to market participants during the interim rules period of the market.
Part of the intervention was also to resolve legacy debts owed by the Power Holding Company of Nigeria (PHCN) to gas suppliers and the Payment Assurance Facility (PAF) extended to Nigerian Bulk Electricity Trading (NBET) to settle invoices of generation companies (Gencos) to a minimum level of 80 per cent.
In addition, the CBN has established the Solar Connection Intervention Facility (SCIF) to complement the government’s effort of providing affordable electricity to rural dwellers through the provision of long-term low interest credit facilities to the Nigeria Electrification Project (NEP) pre-qualified home solar value chain players.
Although this will increase the overall cumulative exposure of the CBN to the power sector, it will largely promote the deployment of solar power solutions and mini-grids around the country, to drive economic growth.
Before recent interventions, several steps had been taken in the past to provide funds to the generation and distribution companies. Specifically, the federal government, on 2nd August 2014, extended a N213 billion facility to power generation companies for the purposes of settling certain legacy debts especially those incurred by suppliers of natural gas.
Added to that was the need to pay off monies owed to certain electricity market participants from November 1, 2013; and defraying costs incurred by virtue of infrastructural (especially metering) upgrade by distribution companies.
From the N213 billion set aside for this, N6 billion was preserved for meeting commitments to supply specific volumes of gas-for-power and to negotiate and execute bankable gas supply agreements with power plants.
The CBN also intervened in 2017 with the N702 billion Payment Assurance Facility (PAF) with a further extension totalling N1.695 billion to support payment for gas by the Generation Companies (Gencos).
Last year, CBN announced N140 billion support for the Solar Power Naija programme to expand access to power especially in off-grid areas as part of the COVID-19 economic stimulation package.
While the power sector remains arguably Nigeria’s biggest economic albatross, the achievements of a number of the CBN interventions have cut across the value chain of the power sector.
For example, according to the CBN, the significant capital expenditure (capex) of the NEMSF in the industry has led to recovery of generating capacity of more than 1,200MW in both hydro and thermal plants through the overhaul of turbines.
Through the NEMSF implementation, most Distribution Companies (Discos) have been able to carry out projected capex through issuance of letters of credit (LCs) for the purchase of over 704,928 meters; rehabilitation of over 332 kilometres (km) of 11 kilovolt (kV) lines and 130km of 0.45KV lines; 511 transformers purchased and installed and construction of 56 new distribution substations as well as acquisition of a mobile injection substation.
The major objective of the CBN interventions, it appears, has been to sustain liquidity in the power sector and ensure the optimal performance of the market.
It is estimated that from 2014, the CBN through various programmes has put in over N1.5 trillion into the sector, partly accounting for why the power sector has not totally collapsed.
Cleaning up Nigeria’s Messy Metering System
Years after the privatisation of the power sector, Nigeria’s electricity metering system remains messy and inefficient, despite several attempts by previous governments.
So, to support and grow revenue of the power sector, the CBN, recently disbursed about N3.6 billion for the procurement of prepaid meters to stabilise the billing system in electricity consumption in Nigeria as part of its N120.2 billion investments in the distribution companies for infrastructure capital expenditure.
With roughly 55.5 per cent of Nigeria’s 8.3 million electricity customers still without meters in the country, the ongoing CBN intervention, has been described as a game changer by industry players.
Nigerians have also been calling for a complete scrapping of the estimated billing system, which in its very nature has been described as fraudulent. The apex bank’s assistance in that part of the sector is likely to make a huge change.
This move has been lauded by industry experts, including PwC’s Associate Director, Energy, Utilities and Resources, Habeeb Jaiyeola, who described it as a right step given the fact that without such assistance activities in the sector will remain below par.
“Previous intervention funds have been utilised to settle collection challenges. The plan to use this intervention for infrastructure development is a step in the right direction,” he stated.
According to statistics from the Nigerian Electricity Regulatory Commission (NERC), over four million registered consumers do not have meters in their properties but were placed on the estimated billing system, a scheme that is largely opaque.
Discos’ Revenue Collection in Steady Rise
In January, a THISDAY report indicated that the directive by CBN to Nigeria’s deposit banks to take over the collection of revenues from the power distribution companies had begun to yield positive results.
An analysis of the data at the time showed that Discos posted a record N44.5 billion revenue collection in September 2020, the highest ever recorded by the power distributors, a month after the apex bank gave the directive.
Before the September record, in August 2020, the month the order was given, data released by the Discos in its third-quarter summary of Key Performance Indicators (KPIs), indicated that another record was posted, with the collection of just a little less than N44 billion, another record before September.
Last year, a circular signed by the CBN’s Director of Banking Supervision, Mr. Bello Hassan, stated that all electricity collections for services provided by Discos should henceforth be domiciled in deposit money banks.
“All energy and non-energy collections of Discos, whether cash or cashless shall only be performed by deposit money banks (DMBs),” the apex bank stated.
But while the argument was that the Discos were under-remitting, the Discos maintained that the invoices received from (NBET) for electricity supplied do not account for losses in transmission and were, therefore, taking that into consideration before remitting any funds.
With the action, the CBN hoped that that guarantor banks will take up continuous due diligence on the Discos they had guaranteed and give the monetary authority full visibility of the cash flow in the electricity supply industry.
The CBN said in the directive: “The payment or settlement of all NESI related goods or services shall be made through the Nigerian banking system. Consequently, all collections for the payments of NESI regulated goods and services provided by a Disco shall be paid into a designated account.
“This should be done such that collections arising from services rendered by the Disco shall be paid into an account in the sole name of the Disco; collections arising from services rendered by a third party/parties on behalf of the Disco shall be paid into an account in the joint name of the Disco and the third-party vendor(s).
“Any DMB found to be maintaining any account(s) for any entity collecting payments on behalf of any Disco without appropriate authorisation shall have regulatory actions imposed on it.”
Historical figures released by the Discos through their umbrella body, the Association of Electricity Distribution Companies (ANED), showed that in September 2016, the Discos only posted just over N25 billion, in September 2017, they recorded about N28 billion, the same period of 2018 was about N33 billion while for 2019, it was less than N36 billion.
While energy bill in the 12 months preceding September 2020 was N690 billion, the actual collection stood at N483 billion, with an outstanding N207 billion still being owed by various end-user customers.
Data from ANED showed that in all, the Discos posted N483 billion revenue between October 2019 and September 2020, a N17 billion increase in collection compared to the previous 12 months.
The average collection efficiency also rose to a record 76.28 per cent, for the Discos, including Ikeja, Eko, Abuja, Jos, Enugu, Benin, Kaduna, Kano, Ibadan and Port Harcourt.
Penultimate week, Vice President, Prof. Yemi Osinbajo, giving an update at the 14th annual conference of the Nigerian Association of Energy Economics (NAEE), disclosed that revenues collected by Discos had further increased by 63 per cent because of reforms carried out in the power sector.
The vice president said with increasing funding, the power sector would soon be fully financed by the market, rather than government subsidies.
“It is anticipated that all electricity market revenues will be obtained from the market with limited subsidies as reforms in metering and efficiency with the Discos continue to improve,” he stated.
Added to that, he noted that: “There is accelerated investment in transmission and distribution (over $3 billion) infrastructure that will put Nigeria on a path to 10GW+ and beyond through interventions with the CBN, the Siemens partnership, the World Bank, and African Development Bank” and other interventions.