Government Faces Liquidity Challenge, Appeals for Support to Clear Outstanding Debts and Enhance Sector Attractiveness
The Minister of Power, Mr. Adebayo Adelabu, said that Nigeria’s power sector is facing daunting financial hurdles, highlighting the critical need for sustained investment in the power sector to drive its revival.
He emphasized that while the government alone cannot foot the bill, it is imperative to attract private investors and lenders to inject much-needed capital into the sector.
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According to him, the Federal Government needs a staggering $10 billion annually over the next decade to invigorate the ailing industry and address its persistent liquidity challenges.
“For this sector to be revived, the government needs to spend nothing less than $10bn annually in the next 10 years,” stated Minister Adelabu, acknowledging the infrastructure requirements for sector stability.
However, Adelabu acknowledged the practical constraints posed by the country’s budgetary limitations in meeting such substantial financial commitments.
Adelabu’s statements came amidst deliberations aimed at halting the new electricity tariff increase proposed by the Nigerian Electricity Regulatory Commission (NERC) and slated for implementation by Distribution Companies (DisCos).
The investigative hearing, spearheaded by the Senate Committee on Power, provided a platform for robust discussions on the future trajectory of Nigeria’s power sector.
Adelabu said it is important to attract private investment to sustain the sector, emphasizing the need to create an attractive market environment for investors and lenders. He advocated for commercial pricing as a crucial step towards incentivizing investment, citing the recent tariff adjustments as a catalyst for investor interest.
“We must make this sector attractive to investors and to lenders,” he said.
“So for us to attract investors and investment, we must make the sector attractive, and the only way it can be made attractive is that there must be commercial pricing.
“If the value is still at N66 and the government is not paying subsidy, the investors will not come.
“But now that we have increased tariff for a Band, there is interest been shown by investors.”
The minister addressed the pressing issue of liquidity within the sector, attributing it to the absence of a cost-reflective tariff. He highlighted the accumulated liabilities owed to Generating Companies (GenCos) and Gas Companies, stressing the urgent need to clear outstanding N2.9 trillion debts to ensure the sector’s viability.
Adelabu appealed to lawmakers for support in addressing these financial obligations, emphasizing the importance of sustaining the sector’s operations.
Responding to concerns raised by committee members regarding the tariff increase, Adelabu clarified that the adjustment is contingent upon the provision of adequate power supply. He assured that customers who do not receive a minimum of 20 hours of power supply will not be subjected to the new tariff rates.
Throughout the hearing, committee members expressed dissatisfaction with the inefficiencies in the power sector despite previous reforms. They advocated for measures to protect vulnerable Nigerians from the impact of tariff increases and called for collaborative efforts to enhance liquidity and improve service delivery in the sector.
The proceedings also featured presentations from stakeholders including the Nigerian Electricity Regulatory Commission, Manufacturers Association of Nigeria, and associations representing power generation and distribution companies.
Early this month, NERC approved a tariff hike that has seen consumers under Band A paying N225 per kilowatt-hour, a substantial increase from the former rate of N66 per kilowatt-hour. Band A consumers, comprising 15% of the nation’s 12 million electricity consumers, are primarily urban consumers.
However, the increase has ignited a lot of backlash from consumers and stakeholders, due mainly to a poor power supply that does not justify the tariff. A growing number of Band A consumers are lamenting that get the required 20 hours per day electricity supply.
The hearing on the tariff underscored the urgent need for comprehensive reforms and collaborative interventions to address the longstanding challenges facing Nigeria’s power sector and ensure sustainable development for the nation.