The Liquidity Challenge In The Nigerian Power Sector - Deal or No Deal?

  1. Central Bank of Nigeria (“CBN”), estimates the GenCos’ indebtedness to Nigerian banks as being about  N356 billion[6], as at the end of the first quarter of 2016;

  2. Commercial banks remain in discussions with the DisCos with respect to the N402 billion credit facilities advanced to their investor-owners for assets’ acquisition during the 2013 privatization process;

  3. Government failed to reinvest proceeds from the privatization in power infrastructure; and

  4. Government’s shrinking oil revenues, precipitated by the twin shocks of low oil prices and disrupted oil production due to militancy in the Delta region, have impacted Government’s ability to extend the much needed investments in TCN[7].

Undoubtedly, the above analysis of the state of the Nigerian power sector reveals that multiple factors are responsible for the credit crunch and distress in the sector. In our view, the most critical challenges impacting the sector are:

  1. Foreign exchange crisis;

  2. Cost of acquiring the privatized assets;

  3. Cost-unreflective tariff regime;

  4. Huge collection losses; and

  5. Lack of affordable long-time funding.

From an x-ray of the current state of the Nigerian power sector, it is clear that same requires urgent and effective intervention. In this article, we would analyze some of the identified challenges which could be deemed responsible for the liquidity imbroglio as well as portend policy options that could be considered as the panacea for dealing with same. In our considered opinion, the recommendations can revive the ailing

 

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[6] See “Fashola’s missteps in power sector”; The Punch editorial, December 7, 2016

[7] See “Darker days ahead as debts mount for Nigeria’s electricity firms”, supra.


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