CBN’s Stabilisation Facility Boosts Power Sector Programme

 Driven by the realisation of the role of infrastructure in economic transformation and the prevailing funding gaps in the nation’s power sector, the Central Bank of Nigeria, in partnership with other stakeholders in the nation’s power sector, recently initiated a N213billion Nigeria Electricity Market Stabilisation Facility (NEMSF), which promises to make the best out of the ongoing power reform programme, writes Festus Akanbi

The frustration of the Nigerian electricity consumers over the failure of the power sector operators to bring about the desired transformation which they promised one year after the celebrated handover of the sector to new investors has been part of the issues that come to mind anytime power sector is discussed in recent times.

Expectations were high when President Goodluck Jonathan’s administration handed over what was left of the assets of the defunct Power Holding Company of Nigeria (PHCN) to 10 successor companies, who emerged after a bidding process. The event of September 2013 was marked by elaborate ceremonies in Abuja, Benin, Enugu, Ibadan and Lagos.

Interactions with operators and information gathered from the media in the past one year however showed that the blame for the lack of improvement in the quantum of power that got to the end user in the past one year should not be heaped on the new power investors. The problem, essentially, is that of infrastructure and inadequate gas supply, among others.

The Challenges
But as far as the government circle is concerned, the country’s power sector reform is successfully being implemented with most of the milestones fully achieved. Presently, generation and distribution in the electricity industry in Nigeria is being managed by the private sector while the transmission network is government owned; under a management contract. The current challenge in the power reform process is the inability to achieve appreciable increase in electricity supply. This has been due to the following reasons: unattractive pricing of domestic gas and legacy debts that has inhibited investment in gas supply and infrastructure; anomalies in the tariff regime which meant it didn’t reflect the true cost of supplying electricity; and difficulties across the value chain in addressing capacity issues primarily due to a shortfall in revenues.

These issues are interconnected with the unexpectedly large revenue shortfalls in the industry being the evidence that something urgent needed to be done.

The Nigerian Electricity Market Stabilisation Facility (NEMSF)
It was in the midst of the frustration being expressed by the end users and the attendant strains on the economy that the Central Bank of Nigeria (CBN),  in what could be described as a necessary collaboration with the Ministry of Petroleum Resources, Ministry of Power and the Nigerian Electricity Regulatory Commission (NERC), opened a new vista in Nigeria’s power sector with the signing of Memoranda of Understanding (MoU) on the CBN-Nigeria Electricity Market Stabilisation Facility (NEMSF) on November 18.

The CBN and key players in the power sector, including gas suppliers, electricity distribution and generation companies, among others therefore signed a N213 billion definitive agreement to begin the implementation of the CBN-Nigeria Electricity Market Stabilisation Facility (NEMSF).

This is expected to be followed by disbursement of funds and monitoring of the implementation of the agreements.
In this respect, the apex bank has indicated its willingness to provide the Nigerian Electricity Market Stabilisation Facility aimed at settling certain outstanding debts in the Nigerian Electricity Supply Industry (NESI) amounting to 213 billion and guarantees the take-off of the Transitional Electricity Market (“TEM”).
In specific terms, the proposed facility will cover legacy gas debts and the shortfall in revenue during the Interim Rule period (IRP).

The thinking of the CBN leadership is once the infrastructure end of the current administration’s economic transformation is effectively tackled, it will have multiplier effects on all the sectors of the economy.
The issue of infrastructure has always topped the list of obstacles to the nation’s economic growth and there seems to be a consensus that once the power sector issues are fixed, Nigeria will return to the path of sustainability at all fronts.

Delivering Tangible Improvements in Power Supply
To show the seriousness of the initiative, Governor of the Central Bank, Mr. Godwin Emefiele, stated unequivocally that the facility would kick-start the electricity market in order to ensure that the power sector delivers tangible improvements in power supply for the benefit of all Nigerians.

In recognition of the problems at hand, the CBN governor said the apex bank, in partnership with Deposit Money Banks (DMBs) in Nigeria, would provide the facility to address shortfalls in power sector revenues caused by needed adjustments in electricity tariff basic gas debt and in the process reset the economics of the power sector. He added that the facility would be repaid in the life-time of the rest electricity tariff.

He therefore charged the beneficiary companies to ensure they repay the facility as and when due, even as he urged them to ensure that all input into the generation of power are ramped up in a consistent manner. He also stressed the need for them to invest the funds in generation plants maintenance, transmission upgrades and distribution networks.

Tackling Power Sector’s Liquidity Challenge
In order to resolve the sector’s liquidity challenge, Emefiele said the CBN was providing the facility aimed at settling legacy debts and shortfalls in revenue during the interim period and to also guarantee the take-off of the Transitional Electricity Market (TEM).

He disclosed that FBN Capital had been appointed by the CBN as transaction advisor for the intervention, while Meristem securities and Detail Solicitors and Stream Sowers & Kohn (SSK) had been appointed as fund managers and legal team, respectively.
He said the facilities would be administered through deposit money banks, while a special purpose vehicle that complies with Section 31 of CBN Act 2007 would serve as an intermediary between the banks and the electricity market players.

“NERC shall reset the Multi-Year Tariff Order (MYTO) to ensure that it provides for the loan repayment including the costs of setting up and operating the Nigerian Electricity Market Stabilisation Facility (NEMSF),” Emefiele said.
He added that other players in the value chain must commit to gas supply at higher volumes, while Gencos and Discos would commit to utilising the funds for equipment acquisition, refurbishment and upgrade.

The intervention fund is however expected to be repaid over a period of 10 years at a 10 per cent interest rate per annum; it will be used to settle the N36.9 billion legacy debt owed gas suppliers by the defunct Power Holding Company of Nigeria (PHCN) and cover shortfalls in the Nigerian electricity market. These shortfalls are majorly occasioned by technical losses recorded in the sector.
While commending President Goodluck Jonathan for his support for the process and other players in the sector for their commitment, he emphasised that more still needed to be done to ensure that the nation gets to the finish line of the process.

Also speaking at the occasion, the Minister of Petroleum Resources, Mrs. Dieziani Allison-Madueke, expressed delight that the interventions in the power sector were yielding the desired results. She particularly commended the CBN-led intervention in the sector, which had led to the settling of all legacy debts totaling N36.9 billion owed to gas suppliers by the PHCN.

Paying for the Gas Sold
Going forward, she said appropriate security mechanisms will be put in place to ensure that gas sold to the power sector is paid for. She said the gas suppliers, in reciprocating the gesture, had made a commitment to ensure that they supply enough gas to the power sector.
In his remarks, the Minister of Power, Professor Chinedu Nebo, while describing the process as tortuous and grueling, expressed gladness that the synergy among the major players had translated into the tremendous progress made in the power sector since the privatization process in 2013.

The representative of the Chairman Nigerian Electricity Regulatory Commission (NERC) Dr. Sam Amadi, Dr. Eyo Ekpo, lauded the collaborative effort among the key players in establishing a firm foundation for the Nigerian power sector.
According to him, through such collaboration, the power sector in Nigeria is now an enabler and not a disenabling sector.
Among other things, the CBN stabilisation fund which is to be disbursed through the deposit money banks would be given at 10 per cent interest rate per annum with a tenor not more than 10 years.

On the other hand, under the agreement, gas suppliers are to commit to assured gas supply at higher volumes while both distribution and generation firms would ensure that funds are utilised for equipment and infrastructure acquisition, refurbishment or upgrade.
Parties which participated in the signing included Chevron, Shell Petroleum, Pan-Ocean and Splat, as well as electricity generation and distribution companies among others.

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