FBN Capital advocates coordination in power policy

FBN Capital limited, a subsidiary of FBN Holding Plc, has said that the Nigeria’s power sector is in dire need of coordinated policy given the value of investment that has gone into it without substantial result.

The investment banking firm while noting this in its reports, said that steady power remains an important input for growth in Nigeria as elsewhere.

As such, the recent uptick in power generation to over 4,000 megawatts (MW) since July is a welcome development.

In addition to the well-documented limitations of the transmission grid infrastructure, the inadequacy of gas supplies for the generation companies (GENCOs) remain the weak link in the power value chain.

Industry experts estimate that about 50 per cent of gas produced is lost through pipeline vandalism.

The improvement observed since July can be linked to repairs to the vandalised Escravos- Lagos pipeline network by the Nigerian National Petroleum Corporation (NNPC).

The content of the report revealed that an increase in the electricity tariff (MYTO 2.1) was introduced earlier this year, pushing the average price payable to above N20 per kilowatt hour (kWh).

However, the tariff was reviewed downwards to N15/kWh for non-residential consumers by the National Electricity Regulatory Commission during the election campaign.

Then, the report remarked that following a push back by distribution companies (DISCOs), FBN said the firm anticipates an upward review in the next few months.

“We understand that this would require a federal government minister in place”; FBN Capital added.

The firm lamented that, on a per capita basis, Nigeria with population of about 180 million lags significantly behind other countries like India and South Africa which generate about 950,000MW and 40,000MW for their populations of 1.2 billion and 50 million respectively.

Analysts at Leverage Solutions said the gap is quite wide, and FBN Capital is right going by the content of the report.

There has been so much investment that went down through the drain.

It is an insult to a sovereign entity called Nigeria with this huge capacity, resources and ability to be unable to solve power sector riddles in the last 16 years.

FBN Capital however projected that in order to bridge the shortfall in power supply, Nigeria would need to spend $10 billion per year for several years.

It recalled that last year the Central Bank of Nigeria announced a N210 billion bailout facility to improve liquidity in the electricity industry and clear legacy debts owed to gas suppliers.

The third disbursement of the facility was made in June. It further reminds that nine companies consisting of both gas companies and companies created out of the old Power Holding Company of Nigeria (PHCN) received a total of N7 billion under this distribution. A total of N64.7 billion has now been disbursed from the bailout facility.

In July the EU earmarked N5.3 billion (€24.5m) to fund Nigeria’s energy efficiency and rural electrification programmes.

In the past there have been similar donors’ investment flows into the power sector, and we hope that this time the collective impact will be felt across the power value chain.

President Muhammadu Buhari has also said his administration is fully-aware of the inherent challenges that beset Nigeria’s power sector, saying his administration will give the fullest possible attention to boosting power supply in Nigeria.

However, given the state of the Nigeria economy which analysts and other industries stakeholders believe has slipped to high risk zone due to happenstances in the economy, it is unclear where needed investment funds for such capital expenditure would come from.

This is because of the fact that Federal Government revenue is constantly threatened because of glut in the oil market that is driving prices down.

Also, Federal Government budget is already on deficit side and the country is heavily indebted already.

At the current value of N12.12 trillion, increasing the debt value may call for sovereign investment downgrade.