Operators in the power sector have identified adverse macro-economic changes, in particular the devaluation of the Naira and inflation, as major challenges facing the sector.
They also blamed gas pipeline vandalism, limited gas supply, regulatory uncertainty, lack of respect for contract sanctity and government policy inconsistency, as critically affecting the new owners of the power assets from breaking even.
The operators cautiously observed that inefficiencies, corruption and limited information associated with the Power Holding Company of Nigeria (PHCN) is still a challenge to the privatisation.
But they however, cautioned against any attempt to tinker with the power sector reform that culminated into the privatisation of the sector, as such move would subject the nation to becoming an investment pariah particularly in this dire economic times, in which government is seeking Foreign Direct Investment (FDI).
Sunday Oduntan, executive director of Association of Nigeria Electricity Distributors (ANED), the umbrella body of power distribution companies, DISCOs, addressing the media on the sectors challenges said such move would send the signal that Nigerian government does not respect agreements.
Oduntan said, “Do we really want to send a message to the investment community, both local and international, that the Federal Government of Nigeria (FGN) does not respect its contract nor is it interested in building an enabling environment for private investment.
Furthermore, is the government prepared to, in these very difficult economic times, refund over $5 billion to the investors, as well as deal with the consequences of any resultant litigation and world-wide condemnation”.
The ANED said it did not believe that a reversal of the privatization is the solution to the current challenges of the sector.
Oduntan explained that as long as the same fundamental issues and challenges exist in the power sector, there are no miracles to seeking the turnaround that Nigerians desired.
“No investor will invest in a sector that returns, approximately, 50 kobo of every Naira of energy that is delivered.
While the FGN must be commended for pursuing the courageous direction of seeking to rehabilitate and revive a moribund sector of our economy, it must stay the course of this journey.
It is a journey that has the potential for resulting in the growth of our economy, for minimizing the huge drain on public coffers, for redirecting scarce public resources to improved social services and for cross sectoral job creation” he said.
However, he noted that n spite of these challenges, the DisCos have reduced Technical and Commercial losses (even with the limited capitalization), improved billing systems amd ICT and GIS infrastructure.
The Discos he futher revealed have set up call centres addressing over 2 million queries from customer and also reduced down time due to improved network maintenance and upgrades as well as recruited thousands skilled personnel, significant grid metering.
“Correspondingly, the GenCos have made significant capital investments towards capacity enhancements, with specific examples of Egbin, Geregu and Ughelli power plants, resulting in increased generation.
We readily acknowledge that a lot more needs to be done and we will continue to strive towards ensuring that we surpass the requirements of our performance agreements” he added.
Speaking on the sectors challenges, Oduntan said anyone who has followed the privatisation of the Nigerian Electricity Supply Industry (NESI) would recognise that the sector has been bedevilled by a number of challenges that would make the most hardened risk-seeking investor to run in the opposite direction.
The challenges he said included, the absence of a cost recovery regime (a fundamental pre-requisite for sustainability and development of NESI), egulatory uncertainty, Customer non-payment of their bills and Limited to no access to financing (a result of the limited cost recovery).
Others are Gas supply limitation, Gas pipeline vandalization, Neglected and aging power turbines and limited transmission capacity among others.
He argued that if the GenCo and DisCo investors are to be accused of anything, it is that they believed in their country and had a strong desire to put their money at risk, behind that belief, rather than those who may be considered nothing more than armchair experts, with a reluctance to dip their toes in the water.
On the issue of the lack of injection of adequate capital by the investors, he said most of the generation assets were sold outright, with the sale of the distribution assets structured on a 30%/70% equity and debt split;
Similarly, the tariff is also structured along the same lines, for DisCo operations, while the split between equity and debt follows conventional knowledge that it is cheaper to fund operations via debt than equity;
Given the highly regulated nature of the tariff, the approved return on equity would preclude the injection of such funding by the investors and in addition, the customers would, ultimately, have to bear the cost of the associated returns, he explained.
According to him, With a tariff that does not allow for a complete cost recovery, no lender will be willing to provide the required financing for the sector. And this is a problem that cascades along the electricity value chain.