Nigeria is unable to access $5.2 billion financing from the World Bank and its development partners two years after the funding was proposed because the country has been unable to meet conditions relating to corporate governance and creating better market conditions for the power sector, we learnt.
“The World Bank has not been able to release these funds because Nigeria has not met the conditions,” said Ayodele Oni, energy lawyer and partner at Bloomfield Law firm.
The biggest snag in accessing the loan is the inability to make the power market thrive through a cost-reflective tariff.
“The funds are loans and for Nigeria to be able to repay, the country must demonstrate it has the market that can recover the money. This it has failed to do,” Oni said.
According to the power sector plan, Nigeria would carry out tariff review at least three times to up to 50 percent between 2017 and 2021. The review would address accumulated deficit attributed to sculpting of the retail tariffs under Multi-Year Tariff Order (MYTO) 2015, such that DisCos are required to under-recover now by charging less than the cost-reflective tariff and are allowed to recover in the future. But this soon became the norm. The situation was worsened by high inflation rates and exchange rate instability.
The shortfalls were dimensioned to tariff arising from pricing power below cost of production, volumetric shock in energy supplied and the costs of interest on non-financed shortfalls through retail tariff sculpting. This led to a shortfall of N458 billion due to DisCos from customers. The market shortfall is due to non-payment of actual market operator and Nigerian Bulk Electricity Trading Company (NBET)’s invoices by the DisCos creating a shortfall of N473 billion due from DisCos to the market.
In view of this, the Federal Government agreed to review tariffs and conduct legal review of sector contracts including Performance Agreements, Vesting Contracts and PPAs to facilitate hitch-free contract activation. It also agreed through the Bureau of Public Enterprise (BPE)/National Electricity Regulatory Commission (NERC) to review DisCo investment/performance improvement plans.
Two years later, these shortfalls have risen to over N1.4 trillion, according to industry analysts, which has seen lenders become more circumspect lending to Nigeria.
We contacted the minster of Power, Works and Housing through Hakeem Bello, his special assistant, but there was no response as at the time of filing in this report. Nigeria was also obligated by the agreement to set up proper corporate governance structures including appointing boards to head agencies like NBET, Transmission Company of Nigeria (TCN), National Liabilities Managing Company (NELCOM), Niger Delta Power Holding Company (NDPHC), Rural Electrification Agency (REA) and BPE and appoint BPE professional directors on DisCo boards. Some of these board members are yet to be appointed.
The Federal Government was also obligated to ensure DisCos’ performance and implementation of credible business continuity plans, establish data-driven processes for decision making across the sector and put measures in place to guarantee a minimum of 4,000 MWH/H of average daily energy. It has only ensured a continuity plan for DisCos.
The plan to develop and implement a robust loss reduction plan in metering led to the creation of the Meter Asset Provider regulation, but Nigeria lags on ensuring MDAs’ debts are fully paid and implementing payment mechanism for future bills. There is still no FX policy for the sector and electricity contracts are not still effective.
Nigeria was supposed to have raised $2.5 billion support from the World Bank, of which $1.0 billion will go towards a performance-based loan to enable NBET to pay 100 percent of its wholesale invoices in full and on time with an additional $2.7 billion (IFC investment and MIGA support) for private investment.
The AfDB proposed $3 billion to $4 billion of support to Nigeria (which could also spread to other sectors). The Federal Government would push for at least $1 billion of this to go into supporting the NBET/MO funding shortfall. It will raise another $2.1 billion from the sale of NIPPs including Geregu, Calabar, Omotosho and Ihovbor, which could be sold for their bid prices provided the government put in place the requisite payment guarantees similar to Azura Edo IPP.
Source: By ISAAC ANYAOGU