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

In our considered opinion, a mixed bag of incentives and economic policies; ranging from continuous and periodic injection of intervention funds to the adoption of a truly liberalized FX market[9], will certainly restore the confidence of foreign investors as well as attract the inflow of the much needed foreign investments into Nigeria in general and into the power sector in particular.

Pending the liberalization (“in the real sense”) of the FX market, the FX rate which is a major macro-economic variable in the NERC tariff regime, must be amended to reflect the current official rate in the approved MYTO. Additionally, electricity companies should be guaranteed privileged access, on a regular basis, to the official FX market.

However, it is comforting to note that the federal executive council (“FEC”), in its first meeting in March 2017, had given consideration to the need to inject new stream of intervention fund into the power sector and therefore had (at the meeting) approved a Power Assurance Guarantee for the Nigerian Bulk Electricity Trading Company (“NBET”), to the tune of N701 billion[10]. The fund is to be disbursed by the CBN as payment assurance guarantee to see that NBET continue to undertake its role of purchasing the power generated by GenCos and in turn, ensure that liquidity is provided for the GenCos to pay their gas suppliers.

Cost-unreflective tariff

Another major challenge, causing financial distress in the power sector, is the unrealistic tariff regime for the DisCos, which is not cost-reflective and therefore does not stimulate needed investments that will lead to adequate and stable electricity supply in the market. Whilst the Federal Government has ruled out any electricity tariff hike[11] this remains an option to be considered.

For purpose of emphasis, the Electric Power Sector Reform Act, 2005 (“EPSRA”), which is the principal legislation governing the power sector reform in Nigeria, states in Section 76(2)(a) that:

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[9] where the naira can find its market-determined equilibrium level

[10] “FG moves to boost power with N701bn gas supply guarantee”, BUSINESSDAY, March 2, 2017 http://www.businessdayonline.com/fg-moves-boost-power-supply-n701-bn-gas-guarantee/

[11] FG Rules Out Electricity Tariff Hike for Now by Chineme Okafor, ThisDay of January 10, 2017 http://www.thisdaylive.com/index.php/2017/01/10/fg-rules-out-electricity-tariff-hike-for-now/