New electricity tariff: lifeline for the power sector amidst N100 billion non-performing loan

As concerns continue to grow over the implementation of the new electricity tariffs across the country, a report has shown that the Nigerian power sector is responsible for over N100 billion non-performing loans in the country.  

According to the data obtained from the National Bureau of Statistics (NBS), the power sector ranks among the sectors with the largest non-performing loans in the banking sector.  

The Breakdown: As at the end of April 2019, the total loan portfolio by domestic and foreign components was put at N15.4 trillion, while the Non-Performing Loans (NPFLs) stood at N1.67 trillion. This means NPFLs account for 10.3% of total loans.  

  • A close look into the data shows that in terms of the total loan obtained, the power sector ranks 7th, while the sector ranks 5th in terms of non-performing loans. 
  • Overall, the top 8 sectors with the biggest non-performing loans include oil and gas (N871.17 billion) general commerce (N166.86 billion), general (N151.12 billion) and manufacturing (N113.82 billion). 
  • Others are power and energy (N100.47 billion), information and communication (N75.98 billion), real estate activities (N65.87 billion) and construction (N59.73 billion). 

Non-Performing Loans (NPFLs): Non-performing loans constitute one of the most serious liquidity barriers facing the Nigerian banking sector. Bank loans are regarded as risk assets because the monies advanced as loans by the banks belong to depositors. The risk arises in the event of massive defaults. Depositors’ monies could become available on-demand. 

The huge amount of NPFLs in the economy has gained wide-spread criticism. This has also become a cause of concern for commercial banks whose stability in the face of reeling economic downturns is uncertain. 

Some developmentsRecently, President Muhammadu Buhari assented to a new Act that gives the Asset Management Corporation of Nigeria (AMCON) more power to enforce recovery of debt from prominent Nigerians and corporate organisations. 

  • Basically, AMCON was set-up by the Federal Government in 2010 to acquire non-performing loans from banks in order to ensure the viability of the country’s financial sector. 
  • AMCON has also concluded plans to release a TV documentary on prominent Nigerians who owe the larger part of the N5 trillion debt, stating that the debtors are top public office holders in the country. 

Electricity hike: On Thursday, the Federal Government through the Nigerian Electricity Regulatory Commission (NERC) announced an increase in tariffs payable by power consumers across the country with effect from 2020. While Nigerians have raised several concerns, the tariff review appears to be the only measure that will encourage investors to bring in the largely needed investments which have been lacking in the sector.  

According to various documents obtained from the NERC on Wednesday in Abuja, beginning from 2020, power consumers in Nigeria will have to pay an additional sum of between N8 and N14 for every kilowatt-hour of energy provided by their respective distribution companies (DisCos). 

While this has attracted wide criticisms from Nigerians, power sector stakeholders see this as unavoidable due to cash constraint and liquidity crises in the face of the huge non-performing loans. In a bid to make up for the shortfall experienced in the sector, the Federal Government on Wednesday, September 23, 2019, approved the disbursement of N600 billion intervention fund into the country’s electricity market. 

Stakeholders concerns: The Managing Director of the Transmission Company of Nigeria (TCN), Dr Usman Gur Mohammed earlier disclosed that electricity tariff might be increased as banks appear very reluctant to give further credit to the power sector because of inappropriate pricing of electricity tariff, liquidity challenge and inadequate capital especially among the distribution firms.

Reacting to the new electricity tariffsthe DirectorGeneral, Lagos Chamber of Commerce and Industry, LCCI, Mr Muda Yusuf, stated that the tariff review is clearly inevitable.  

“The reality is that private investments in the privatized power sector have severe liquidity challenges.  Practically, all assumptions that informed the investment in the first place have broken down. 

The current model of static tariffs in the face of escalating cost simply cannot work.  If the sector has to remain with the private sector, tariff review is clearly inevitable. This, however, does not diminish the fact that the private investors perhaps did not do proper due diligence before taking over the sector 

“There were financial and technical capacity issues.  For the end-users, if a steady supply of power can be guaranteed, paying more for power is a sacrifice worth making. It would still be cheaper than depending on diesel or petrol generators.  Besides, it would be better for the environment.” 

However, the Directo- General, Manufacturers Association of Nigeria (MAN), Segun Ajayi said, “The recent increase in electricity tariff is rather unfortunate, giving the circumstances private businesses are facing and the fact that there is no indication that, going by the enormity of the challenges confronting the privatized power sector, there would be commensurate improvements in quality and hours of supply.”

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