Government’s financial intervention has become imperative in order to save the power value chain from collapse.
The call was made at the first power roundtable organised by Sahara Power Group Ltd in Lagos on Thursday.
Examining the power sector challenges, the forum lamented the complexity of the present structure that builds an estimated monthly deficit of N30 billion, up on a long standing deficiency of N1.1 trillion.
The situation is said to have created a cycle of illiquidity and cash flow crisis that could run the system aground unless something is done urgently.
The role to provide a cushioning effect in the sector belongs to government, Mr. Kola Adesina, group managing director, Sahara Power Group, said at the forum.
The sector, he said, was inherited with many things wrong in its structure. “It was like government sending people out on a long and difficult journey without sufficient fuel in the tank.” Now that the system is running out of steam, only an external intervention by government can break the cycle that is presently putting operators out of business, he said.
From the point of view of power distribution companies, they are facing a situation where they are unable to recover the cost of product sold and therefore open their income statements with a gross loss. This is said to have made the distribution companies (DISCOs) no longer attractive to either banks or investors.
Mr. Aigbe Olotu, Chief Finance Officer, Sahara Power Group, said the deficit in the power sector could lead to a collapse of the system if actions are not taken.
He called on the government to step in to create the right investment climate, which now needed for the sector to survive.
Views differed widely on whether the existing tariff isn’t cost reflective and why the discos prefer estimated billing to metering customers. Mrs. Sola Salako, president, Consumer Advocacy Foundation of Nigeria, said the issue isn’t whether the discos are making losses but that customers don’t understand what is going on in the power sector.
“Don’t come and tell us how much you are losing because I’m not interested and an average consumer is not interested but they feel you’re over charging them. We have to bridge that deficit of trust as soon as we can. After this, we can work as partners because we don’t want the sector to collapse,” she said.
The discos, she stressed, need to bridge a communication gap between them and their customers to make the public aware of the challenges in the business and make customers partners in ensuring that people pay for the electricity they consume. She said customers appear not cooperative with the discos because they cannot understand why they should be made to pay for electric power they did not consume.
Also speaking at the forum, Mr. Olawale Olowu, Honourable Commissioner, Ministry of Energy and Mineral Resources, Lagos State, said the problem facing the discos stems from having no control over product pricing, which makes them unprofitable.
He explained that asset conversion cycle is broken between cash injection into the business and cash flow back into operation, which he said, has deprived them of balance sheets that can support bank lending. “If it was possible for them to meter all customers and upgrade facilities, they would have done so”, he said.
In view of new money needed to support the power sector and the state of government finances at the moment, Olowu called for further opening up of the sector to new investors to reduce government interests in the discos and in power transmission to draw in the funds.
The forum underscored the urgent need for new investments in power transmission to replace broken down infrastructures with those that can deliver power to the discos. Mr. Usman Gur Mohammed, managing director of Transmission Company of Nigeria, in his contribution at the forum, promised that his company is presently working hard to expand capacity for power distribution in the country.
On metering of customers, Adesina, said it is impossible to meter all customers in Nigeria, adding that estimated billing is a universal phenomenon and not limited to Nigeria. The problem however is lack of trust, which has brought the system to its present reality, he said.
He said the challenges have their roots in the historic background where government with its huge budget could not meter 30% of electricity consumers in its 53 years of running the utility. It is not possible to expect customer metering to happen suddenly just five years down the line, the Sahara Power Group’s boss said.
Speaking further on existing tariff, he said the exchange rate of the naira has dropped from N157 to the dollar at which the discos invested but the tariff has not changed in an industry that is largely foreign exchange exposed. He said the necessary fundamentals that make business economically feasible, bankable and sufficiently liquid to permit breakeven, isn’t yet in place.
Adesina pressed for greater understanding and cooperation of everyone in a vantage position to make the system work, saying that the essence of the forum is not to apportion blames. “We are not here to blame government; we are not here to lampoon anybody but simply here to beg for understanding,” he said.