Power Firms’ Rising Debt

Blackout in Lagos, Ogun others as electricity grid collapses

Amid worsening electricity crisis, it has been revealed that some power distribution companies (Discos) were indebted to banks up to the tune of N861.14billion or 12.82 per cent as at the end of December 2021. According to the Central Bank of Nigeria (CBN), the cumulative debt of the Discos in the last eight years was put at N3.7trilion. The power firms increased their total debts to banks to N522.2billion in December, last year from N443.37billion in December, 2020. This is in addition to the debt of N338.94billion owed the banks by the Transmission Company of Nigeria (TCN).   

Despite the huge investment and bailouts by the Federal Government to the power sector since its privatization in November 2013, it is unfortunate that power supply to consumers is still epileptic. It raises doubt over the viability of the privatization exercise, which led to the establishment of six successor power generation companies (Gencos) and 11 Distribution companies (Discos) from the defunct Power Holding Company of Nigeria (PHCN).

During the exercise, the government reportedly realized $3.2billion from the sale; $1.7billion from Discos and $1.5billion from Gencos. However, the acquisition of these power companies by core investors was financed largely by loans procured from local banks. This will likely increase the Non-Performing Loans (NPLs) of these banks, and the likelihood of takeover of the power firms by the Assets Management Company of Nigeria (AMCON) in the event of any default in repayment of the debts.

In view of the worsening electricity crisis, we advise that the government and operators of the Discos and Gencos should think of the best way to reposition the sector for better performance and efficient service delivery. Without doubt, the privatization exercise was hurriedly executed and those with requisite technical knowhow jettisoned in place of others due to political reasons.

Last week, the Nigerian Electricity Regulatory Commission (NERC) gave approval to six Discos to hike tariff in spite of the fact that the power firms have failed to meet the expectations of consumers. Without fixing the power sector, the nation cannot witness the expected scientific and technological development. It will also not fare well in ease of doing business index. 

According to recent projection by the World Bank, businesses in Nigeria lost over N96.4trillion (about $232 billion in the last nine years due to erratic power supply since the sector was privatized. For power supply to improve significantly, the Transmission Company of Nigeria (TCN), the Nigerian Bulk Electricity Trading Company (NBET) and the Discos should stop the blame game and work as a team.  Sadly, businesses lose about $29billion yearly due to unreliable electricity. Data from the Manufacturers Association of Nigeria (MAN) showed that about 320 firms were shut down between 2019 and 2020 due to poor power supply, while many others relocated to neighboring West African countries. Also, Small and Medium Enterprises (SMEs) that depend so much on diesel for power supply are struggling to survive. 

With frequent collapse of the national grid, power generation in the country is yet to reach the installed capacity of 13,014 MW, as energy generation to the national grid as at last week was less than 3,000MW.

Recent data from NBET revealed that in eight years, electricity consumers spent about N5.7trillion on tariffs. This represents an average of N720 billion worth of electricity, with some subsidy from the Federal Government. The CBN has provided intervention funds of over N1.5trillion to the sector, while the Federal Government has spent about N1.7 trillion on the sector, with plans to spend additional $3bilion.

Though liberated from state bureaucracy, the power sector still contends with numerous challenges. These include shortage of gas supply, inadequate metering, unpaid electricity bills and ailing transmission network. The rising cost of electricity has already raised the prices of other goods and services.

To resolve the power sector challenges, there is need to review the privatization exercise and provide stiffer sanctions against Discos that are not meeting their obligations. No investor will put his money where power supply is erratic. Strick measures should also be devised to arrest the practice of electricity users nit paying their bill, including government agencies.

We urge the banks and the electricity supply companies to reach agreement on how the outstanding loans can be repaid. Perhaps rescheduling the repayment tenor and interest charges will be a good option. Without adequate power supply, the economy is bound to suffer and investment inflow will be minimal.

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