WORRIED by huge debt overhang disrupting Nigeria’s ailing power sector, analysts have called on the Federal Government to convert such debts into equity to unlock investments in the industry.
Nigeria’s power sector is stymied by huge debts running into trillions of naira. It currently lives on N30 billion monthly subsidy.
This development not only disrupts efficient power supply but worsens liquidity concerns in the power sector.
The ICIR investigation, published in July 2021, showed that the federal, state and local governments, ministries, departments and agencies owe the DisCos N202 billion.
The Association of Nigerian Electricity Distribution (ANED), who reacted to the development, confirmed that the Federal Government had verified N48 billion as MDAs debts, while N61 billion was yet to be confirmed.
ANED further noted that the verification did not include estimated N93 billion owed by armed forces and security agencies.
Speaking on these concerns, analysts knowledgeable about the sector have called on the Federal Government to explore options of converting the debt into equity to attract investment to the sector.
“No silver bullet to the solution, the factor is that the power sector and the guys who bought it, bought a poisoned chalice,” said Chief Executive Officer of the Financial Derivative Company Bismarck Rewane in a monitored television interview on Arise Television.
” Total debts outstanding to the power sector should be in the neighbourhood of N2 trillion.
“What do we do? Give it out, and convert it to equity. In other words, if I am owing N10 billion, and I put forward N1 billion, my equity is now 10 percent.
“The N9bn which is now held by the government will now be sold at a discount to people who can buy so they can come in and take it off,” he suggested.
Rewane also noted that while the reforms would go on, the government should simultaneously adjust the tariff to be cost-reflective.
While offering a similar solution, energy lawyer and a power sector analyst Chuks Nwani told The ICIR that the debt, as a matter of urgency, should be converted into commercial paper.
This development, he said, would enable the distribution companies to approach the bank to enhance their financial status.
Nigeria’s power sector has been dragged down by massive debts, amid other numerous challenges confronting it
The government, in its bid to address liquidity concerns in the sector, has since been paying power subsidy to the tune of N30bn monthly subsidy.
Although the government has hinted of plans to withdraw the subsidy, developments in the power sector show government intervention in the sector is still inevitable.
The government is currently intervening through the National Mass Metering Programme.
This has seen the Federal Government intervene, through the Central Bank of Nigeria (CBN). The Nigerian Electricity Regulatory Commission (NERC) confirms this development in its website.
The regulator also notes that a total number of electricity consumers as at 31st November 2021 was 12. 848 million.
It also puts the total number of metered customers at 4. 667 million. Total number of unmetered customers is put at 8.181 million.