The Federal Government has said that it will not approve a fresh electricity tariff hike at least for now, stating that it is still meeting with stakeholders in the country’s electricity sector, including the World Bank to provide some level of interventions to the market.
Speaking on Monday in a Channels TV Talk Show, Sunrise Daily, which was monitored in Abuja, the Minister of Power, Works and Housing, Mr. Babatunde Fashola, said the government was meeting with the World Bank to find solutions to the financial challenges of the power sector.
Fashola by this, confirmed a report in December 2016 that the government and the World Bank had initiated efforts to bail the country’s power sector from the existing liquidity challenges threatening its survival.
Also, the Nigerian Electricity Regulatory Commission (NERC) is expected to, this month, announce new cost-reflective electricity rates to reflect current operational indices in the industry. Statutorily, NERC undertakes periodic reviews of the tariff to factor in changes in operational indices like foreign exchange and inflation rates, price of gas for power, as well as changes in generation capacities.
Fashola, however, said that if the government’s deliberations with the World Bank on the financial challenges of the market end well, Nigerians would be protected from a possible electricity price hike.
He said: “Government still has to deal with how to stabilise the value of the naira to the dollar, and again that will be impacted by how much money we get from oil production, which is still our major foreign income earner. We have used our leverage in OPEC to get OPEC to agree to a production cut, which heralded a price rise but can we as a protagonist take advantage of this by stopping to fight?
“People must be clear that if government accepts the recommendations that we will make to intervene, it is not to give the Discos a golden parachute, but first to protect citizens from price hike in terms of power for now and also to keep the subsectors so that they don’t lose their businesses.”
Fashola provided an insight to the deliberations with the World Bank, saying: “You would have heard that there are liquidity issues in the power sector that came from the way the privatisation itself was structured, essentially through bank loans. Most of the people who bought them had very little if any skin in the game in terms of their own private equity.”
He said technically, the banks owned the power assets, explaining that that was part of the problems of the Discos because of their debt burden, which had made it difficult for them to get more money to expand their distribution assets, their transformers and to get meters.
The minister explained: “Now all of that underperformance is not necessarily only their faults, it is also the way the economy has played out. Assets they bought and loans they took at N197 to a dollar has certainly lost value. We had a tariff increase to cushion that effect but all of that was almost wiped out by the depreciation in the naira to the dollar.
“Gas as a component of power production is indexed in dollars but the collection is in naira, so the bills that you could pay if you need only N200 to pay, you now need N400 to pay and you can’t increase the tariff to deal with that and those are the liquidity gaps.”
He explained further: “What we have seen in many parts of the world where these things have taken place, [is that] there have been a transitional funding support and when we recommended it or proposed it to the World Bank, they looked in their books and saw very correlative historical precedents that government still needs to intervene but not necessarily by giving money to the Discos and this is not a concluded policy, but perhaps in a way in helping them manage their debts with certain conditions either in governance, diminution of shares, requiring them to recapitalise or take some technical expertise.”
Fashola also said that the Transmission Company of Nigeria (TCN) had increased its electricity wheeling capacity to 7200 megawatts (MW), claiming that the transmission network was no longer the weakest link in the sector as often stated by stakeholders.
According to him: “The generalisation about the grid not been able to carry what we generate is really an inaccurate reflection of realities. We have expanded the grid; additional projects are going on, and the Kudenda substation in Kaduna is part of the grid expansion.”