Banks, Others Skeptical Over Investments In Power Sector

Banks, Others Skeptical Over Investments In Power Sector

By Vanguard on April 14, 2014

There are strong indications that banks and other financial institutions are worried over the possibility of not being able to recoup their investment in the power sector.


Indications to this emerged at the just-concluded Seventh Lagos Economic Summit, tagged Ehingbeti 2014, where some chief executives of financial institutions expressed concern over the  revenue profile of the power companies, especially the recently privatized electricity distribution companies (Discos).

Consequently, they called for an increase in the electricity tariff and price of gas to boost the income generating capacity of the companies.

Speaking at a session tagged, ‘Funding the power sector – creating banking projects/companies,’  the executives explained that increasing electricity tariff, as well as the price of gas, will improve the fortunes of the power companies and make it possible for more investors to stake their funds in the sector.

Members of the panel included Mr. Rossie Turman, Partner, Skadden, Arps, Slate, Meagher & Flom LLP; Mr. Idris Mohammed, Partner, Development Partners International; Mrs. Sola David-Borha, Chief Executive Officer, Stanbic Holdings, Mr. Ayo Gbeleyi, Commissioner for Finance, Lagos State and Mr. Akin Ogunranti, General Manager, Power and Infrastructure, Zenith Bank Plc. Mr. Batchi Baldeh, Senior Vice President, Power, African Finance Corporation was the lead speaker, while Mr. Solomon Adegbie-Quaynor, Country Manager, International Finance Corporation, IFC, was session chair.

David-Borha explained that the problems bedevilling the power sector will be addressed with appropriate pricing and tariffs. She noted that the distribution companies’ ability to pay back their indebtedness will improve as their ability to generate more cash improves.

She maintained that pricing is key in the power sector as it will help ensure that the numbers add up. She added that if the pricing issue is addressed, everything else will fall in place.

“If we really want more investors to come and invest in the power sector, it is necessary that they should be given the right incentives and opportunities. We have to encourage investors by putting more money on the table; by ensuring the right tariffs are in place,” she said.

Also speaking, Ogunranti called for an increase in the tariffs, noting that a number of investors are waiting on the sidelines and will not hesitate to come in and invest in the sector once the pricing issue is tackled.

He said, “Increasing the tariff will encourage more investors to put in more money. If we did do not get the tariff issue right, we will not see the rapid improvement we desire in the power sector.

Adegbie-Quaynor pointed to the fact that what the masses are paying via the use generators is very high.

He said the fact is that the masses are paying life cycle power costs of US$0.40 (N64) to $0.50 (N80) per kilo watt hour, with small petrol or diesel generators.

He said that this makes it critical for private investors, regulators and the government to come together and discuss key issues that can make the power reforms successful so that the ordinary man and woman do not have to pay such large amounts for power.

The key issues, he noted, include reliability and availability of gas, which will require investment in gas supply and a pipeline network; strengthening and expansion of the power transmission network; investment in the power discos to reduce the Aggregate Technical, Commercial and Collection (ATC&C) losses, that may be as high as 60 per cent in some discos; and rehabilitate and expand the generation companies (Gencos) and the Independent Power Projects (IPPs)”.

He noted that resolution of these key issues requires significant investment, management and technical skills, adding that government, regulators and the private sector need to come together and reach a solution that will lead to the necessary investments, and at the same time not be adversely impactful on the common man or woman.

Continuing, he said, “The World Bank’s position is that government, regulators and the private sector owners of power assets should come together, deliberate, and find a fair and balanced solution so that Nigeria has reliable and affordable power to fuel inclusive growth and economic development.

“IFC, World Bank and Multilateral Investment Guarantee Agency (MIGA) are committed to supporting government, regulators and the private sector in making the power reforms successful through the World Bank Group’s Energy Business Plan which aims to support financing and risk mitigation for the addition of at least 1,500MW of additional generating capacity in the next 12 to 18 months.

We would also, “Support capital expenditure financing in two to four distribution companies; support development, investment and financing of Public-Private Partnerships (PPPs) in both power transmission and gas pipeline networks; support development and financing of affordable renewable energy solutions through solar lanterns and cook stoves, amongst other products, to the common man and woman, and also off-grid solar solutions to Small and Medium Scale Enterprises and critical centres like hospitals and schools using photovoltaic technology.

However, in a separate session at the summit, Nigerian Labour Congress, NLC represented by its General Secretary, Mr. Issa Aremu, warned that until the problems in the sector are resolved, any attempt to bring about increase in electricity tariffs will be seen as criminal and will be sternly resisted.

He said that tariffs should be commensurate with service delivery. “It is stealing if you increase tariffs without improved service”, he said.

He said Nigerians are actually looking for improved service delivery as regards power supply and will actually like to see what they are paying for before tariff increase is considered.

He noted that the nature of the power sector reforms and how they are carried out are critical, and also wondered why the reform process is being rushed, especially when the operators are of the view that a lot still have to be put in place to drive the process.

In other panel sessions at the three-day summit, the issue of revamping the power sector in the country took the centre stage, while improving electricity supply to Lagos was also given adequate attention.

For instance, Mr. Charles Momoh, Chairman, West Power and Gas, owner of the Eko Distribution Company, emphasized the need to revamp the country’s power infrastructure, saying that the country is still using power infrastructure in operation since 1896.

He blamed the epileptic power situation across the country on the non-availability of gas and the reduction of power supply to the distribution companies.

Specifically, he said that the total gas available for Lagos State, cannot power more than 500 mega watts of electricity, adding  that  the company  is currently receiving less than 200 mega watts, down from the 400 mega watts  promised when it took over the assets.

Momoh further blamed the Transmission Company of Nigeria, TCN, for the “blinking” power situation, saying, “The TCN introduced frequency relays to protect their equipment, which is at the expense of consumers’ appliances, because this relay is responsible for the two minutes on and off power situation in Lagos.”

He noted that Eko Distribution Company currently have the capacity to deliver 700 mega watts of electricity, but it is currently receiving only about 240 mega watts.

He however noted that Eko Distribution Company has commenced the process of increasing power supply by about 500 mega watts, adding that  it is talking to 45 companies interested in embedded generation and two other companies for captive power.

On his own part, Mr. Sola Adeshina, Managing Director, Sahara Power, owner of the Ikeja Distribution Company, also noted that unavailability of gas and a non-cost reflective tariff structure is hampering the effective delivery of power to consumers.

In addition, Mrs. Funke Osibodu, Chief Executive Officer, Benin Electricity Distribution Company, said that operators are aware that Nigerians are fed up with the power situation and want a change.

She however noted that what is lacking is the fact that a vast majority of Nigerians do not have the information that the change that is expected will require more from every one.

According to her, fixing the problems in the power sector is a long haul and it will take a long time for operators to achieve their goals.

“Nigerians should be aware that infrastructure is not power. The government and some politicians will donate transformers to a community and they will think their power problems are over.

“We should know that transformer is not power. Power has to be generated first before the transformer and other equipment can distribute.”

In his own view, Mr. Anil Sardana, Managing Director, Tata Power, who spoke via live webcast from India, said the reforms in the Nigerian power sector will not succeed unless there is  direct support and oversight from the government.

He noted that financial prudence in the transition process is key, adding that emphasis should be placed on the change management process, as well as in the valuation of the business.

He said customer satisfaction should be the key goal for the reforms process, adding that the reforms should also focus on working to reduce the cost of distribution.

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