Nigeria’s Power Sector Reform Is Falling Apart - by Oludare Mayowa

In the last couple of days, the Governor of the Central Bank of Nigeria, Godwin Emefiele, has been meeting with bank chief executives to find a solution to a looming crisis that might cripple the entire economy, especially the banking industry and the energy sector.

Although, details of the meeting remained wrapped in secrecy, from fillers, it appears the power sector reforms, which translated to the privatisation of formerly state-owned Power Holding Company of Nigeria, are under threat.

The report has it that most of the Power Distribution and Generating Companies are struggling to meet their debt repayment obligations on both sides. Most of the financial institutions that provided the resources to finance the buy-over of the unbundled electricity entities are not getting back their money from the new owners and on the other hands, suppliers of gas to the power generating firms are also groaning under the weight of debt owed them by the Gencos.

Both ways, the stability of the financial sector is being threatened by a growing pool of non-performing loans to the power generation and distributions firms and gas producing companies.

The twin challenges poses a great danger to the banking sector, which just a few years down the lane was bailed out by the CBN because of the same issue of non-performing loans and fraudulent activities of some top bankers.

The role being played by the CBN was to facilitate the adoption of critical measures that could relieve it of the burden of another bailout in less than five years.

Already, the gas firms, which supply oxygen that keeps the power plants alive, are threatening to shut down supplies. If the threat is carried out, the whole nation might be plugged into a thick darkness with dire consequences to the entire economy.

Most of the banks are also cracking under the heavy burden of sustaining such level of nonperforming loan.

What are the issues; the power companies are claiming that they were not generating enough revenue to keep pace with their debt obligation. It was their submissions that the prevailing electricity tariff cannot sustain cost of generations and distribution let alone break even. They are suggesting an urgent upward review of tariff to enable them recoup cost, break even and then be able to meet their obligations to their creditors.

However, the major hindrance to the realisation of such a desire for a new tariff hike is the forthcoming 2015 general elections and the lack of a political will on the part of President Goodluck Jonathan to carry out the needed changes that could bring back on track his power sector reforms, currently facing a major threat.

Many observers believe that the prevailing electricity tariff is very low compared with the cost of generation and distribution, leaving little to sustain the operations of the Discos and Gencos.

Nonetheless, a tariff hike at this point in time poses a dire consequence to the political ambitions of President Jonathan. With the prevailing tariff, a number of consumers are complaining of excess charges despite the poor supply of electricity, which they consider inadequate and not commensurate with the level of supply.

Therefore, any sudden hike in electricity tariff now will generate a lot of ill-feelings towards the government of President Jonathan who is currently battling in many fronts to salvage his battered image over his inability to rein in growing insurgency in the northern part of the country.

One of the critical drawbacks on the privatised entities is the issue of persistent corruption despite the change of guards at the various Discos and Gencos. Leakages in terms of revenue collections still persist despite the change of ownership in the power generation and distribution chains. More consumers are not still paying for the energy consumed due to conspiracy with some of the marketing staff of the distribution companies. Illegal connection into the power supply chain remains another major drain on the revenue of the power companies.

It is obvious from the look of things that an urgent step is needed to be taken to rescue the power sector and avert major a setback with greater consequence of negatively impacting the banking sector.

In the alternative, the government could accept to guarantee the debts owed banks by the power companies and draw out a timetable for orderly liquidation of such debts. On the part of the gas companies, modalities for equity participation for the gas suppliers in the power generating companies could be worked out, if this will mean converting debt to equities for them. However, such an arrangement has to be acceptable to all parties concerned without prejudice to positions already being canvassed by the power companies.

Nigeria cannot not afford another banking crisis at this time in our history, especially coming less than five years after the last bailout, which impact still remains with us today. The “bad bank” Assets Management Company of Nigeria set up to resolve the crisis in the banking sector is still battling with huge losses from its activities in the industry. The CBN, as it is today, does not possess the financial capacity to carry out another bailout operations without causing enormous damage to the entire economy.

President Jonathan should take the bold step to reappraise the power sector reforms with a view to transforming the present travails in the sector to a positive gain for the entire economy. Should the President fail to do the right thing due to political exigency, he will go down in history as one who has the opportunity to make a lasting change and leave behind a legacy, but bungled it because of his selfish ambition to retain power at all cost.

Oludare Mayowa is a Lagos-based international financial journalist.