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

  1. To minimize DisCos’ huge collection losses resulting from the refusal of Government’s MDAs and military units to pay their electricity bills, we advocate the  Government issue a policy that will move all MDAs and military units from the post-paid system to the pre-paid meter platform. This will ensure that these Government’s parastatals pay for the electricity they consume.   

    Embedded generation is another solution to the problem of collection losses and this should be encouraged. Under this option, GenCos are able to sell generated electricity directly to the DisCos or eligible customers (once declared), thus by-passing NBET.

  1. Lack of affordable long-term funding

    As already analyzed above, the strained liquidity situation in the Nigerian electricity market has stunted cash flow; whilst the capital required for medium to long-term investments in the power sector is grossly inadequate. Most players in the sector will be bold to opine that no lender will extend loan capital if they are unsure of the borrower’s capacity to remain in operations in the short-term. Certainly, the short-term cash flows must be first ascertained the value chain before new and cheaper capital can be inflowed.

    In our considered opinion, continuing efforts must be made to boost cash flow in the sector, address revenue shortfall as well as bridge the funding gap. “Putting together some form of guarantee that can allow the market issue bonds and create markets where cash flows are possible will guarantee the survival of the system”[1]. Without a doubt, the Federal Government’s intervention (through the Central Bank of Nigeria) is also needed in liquidating the toxic assets on the balance sheets of the banks that advanced credit facilities to the power companies during the privatization process.

    Lastly, the Federal Government should also consider providing tax holidays or extension of existing tax holidays to power sector investors in a bid to free up the cash flows of such companies while the restrictions placed on equity dilution in privatized power companies should be relaxed, so as to give room for more diversified sources of skills and capital to be attracted to the power sector.

 

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[15] Ibid


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