The Association of Nigerian Electricity Distributors (ANED) says the N701 billion Power Intervention Fund by the Federal Government has the potential to worsen revenue shortfalls bedeviling the power industry.
The ANED Executive Director, Research and Advocacy, Mr Sunday Oduntan, said on Sunday in Lagos that the fund was a partial solution to the sector’s liquidity challenges.
On March 2, the Minister of Power, Works and Housing, Mr Raji Fashola, announced that the Federal Government had approved N701 billion as “Power Assurance Guarantee” for the Nigerian Bulk Electricity Trading.
According to the minister, this is to make payments to the Generating Companies (GENCOs) and gas suppliers for energy supplied and future supplies of gas and energy.
Oduntan said, though, the fund was a welcome development, it, however, had the potential of exacerbating the revenue shortfalls that the market was suffering from.
He said the fund would solve the N300bn energy supply liabilities, rehabilitate and replace faulty or old turbines and pay for the supply of gas.
“As commendable as this intervention fund is, we believe that it is a partial solution to the liquidity challenges of the sector.
“While an increase in electricity supply is everyone’s desired objective, such an increase without the requisite full recovery of costs via the appropriate pricing of power, means a resultant worsening of the market revenue gap,” the ANED director said.
He said that he believed that the approved intervention was not expected to be a subsidy to the market but the proposed funding would eventually be recovered from the Electricity Distribution Companies (DISCOs) customers.
According to Oduntan, funding the transmission network is imperative for the Federal Government’s proposed intervention to work.
“The Transmission Company of Nigeria (TCN) needs to have the required capacity to wheel the additional power being generated for such recovery to occur,
“Increased generation without commensurate wheeling capacity arising from a stable and robust transmission grid will result in stranded capacity and significant lost revenues.
“From the little details made available to us, the historical shortfall does not seem to have been addressed within this initiative.
“This is imperative as the DISCOs need to be able to make the necessary investments in network upgrades, improved customer service, billing and collections, metering, all of which have been major issues in the industry.
“Such investments will not happen unless the DISCOs make the projected annual revenue requirements, which enables access to finance for the required capital expenditure (Capex).
“Access to such financing is predicated on appropriate pricing of the retail tariff.
“The growing working capital debt on the DISCO’s books less any amount to be paid under the intervention, will also continue to impede DISCOs’ ability to fund retail distribution from Capex requirements,’’ he said.
The ANED chief said it was essential to use this period to appropriately allocate all the risks in the electricity value chain.
Oduntan said that regulatory certainty and consistency continued to be the foundation for enabling and promoting the commercial conditions that would ensure a viable and sustainable Nigerian Electricity Supply Industry (NESI).
He said that though ANED applauded the GENCOs/Gas Supplier-centred intervention, it believed that there was an urgent need for a holistic solution that comprehensively addressed the revenue requirements of the entire electricity value chain.
“We believe the achievement of the stated objectives of providing confidence to investors for increased supply of electricity with the provision of this intervention will happen at the expense of limited electricity distribution,’’ Oduntan said.