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

power sector, if properly implemented and assure same gets on the path of profitability, bankability and sustainability.

1. Foreign Exchange Crisis

   In recent times, the scarcity of funds and the volatility of exchange rates have characterized the Nigerian foreign exchange (“FX”) market, and these factors have negatively affected the capacity of private investors who acquired privatized PHCN successor companies, to honour their loan payment obligations to the commercial banks.

   Indeed, at the time of negotiating the various terms of the loan agreements executed between the power companies and the banks, the CBN/official exchange rate was N197/$1. Since then, the single, market-determined FX rate has been replaced by multiple exchange rates following a seemingly liberalized, autonomous inter-bank market launched by the CBN on June 20, 2016. This has single-handled engendered and strengthened the unofficial (“parallel”) market and created a wide margin between the FX rates at the inter-bank market and the said parallel market.  Essentially, the volume of FX supply at the inter-bank market has continued to fall short of the FX demand, thereby causing illiquidity and volatility in the market.

   The necessary implication of this development has been that the foreign currency-denominated loans advanced to the power companies by banks have remained largely non-performing. The “devalued” Naira receipts, which accrue to the power companies from end users of electricity, can no longer effectively service the foreign currency denominated loans. Figures emanating from the Federal Ministry of Power indicate that DisCos have been making only 24.9% of their agreed monthly remittances to banks in recent times[8].

   Clearly, this is a great disincentive to foreign investors and lenders who ordinarily would have brought the needed capital into the sector.

   Recommendation:

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[8] See “Power: Discos Pay for Paltry 24% of Electricity Allocation”, THISDAY, March 4, 2017 – https://www.thisdaylive.com/index.php/2017/03/04/power-discos-pay-for-paltry-24-of-electricity-allocation/