The Nigerian Electricity Regulatory Commission (NERC) has taken decisive steps to prioritize power availability to Nigerian consumers by ordering the capping of power supply to cross-border customers in Benin Republic, Niger, and Togo. 

This move aims to ensure that Nigerians have access to a more reliable and consistent power supply. The directive, outlined in an interim order titled ‘Interim Order on Transmission System Dispatch Operations, Cross-border Supply and Related Matters,‘ is set to last for six months initially.

NERC’s interim order, signed by the commission’s Chairman, Sanusi Garba, and Vice Chairman, Musiliu Oseni, comes into effect from May 1, 2024. It directs the System Operator (SO), a department within the Transmission Company of Nigeria (TCN), to limit power delivery to Nigeria’s neighbors to no more than six percent of total grid electricity at any given time.

The regulatory agency expressed concerns about sub-optimal grid dispatch operations that have compromised Distribution Companies (Discos) ability to meet their service obligations under the Service Based Tariff (SBT). It highlighted the need for a more equitable distribution of power allocation among various off-takers, including Discos, international customers, and eligible customers.

“The commission hereby orders as follows: The system operator shall develop and present to the commission for approval within seven days from the issuance of this order a pro-rata load-shedding scheme that ensures equitable adjustment to load allocation to all off-takers — Discos, international customers, and eligible customers — in the event of a drop in generation and other under-frequency related grid imbalances necessitating critical grid management.

“The system operator shall implement a framework to log and publish hourly readings and enforce necessary sanctions for violation of grid instructions and contracted nominations by off-takers in line with the grid code and market,” it stated.

Moreover, NERC emphasized the importance of transparency and accountability in grid operations, calling for the implementation of Standard Operating Procedures (SOPs) to improve the fairness and efficiency of service delivery. The commission instructed the system operator to develop a pro-rata load-shedding scheme to ensure equitable adjustments to load allocation during grid imbalances.

“The system operator shall ensure that the maximum load allocation to international off-takers in each trading hour shall not be more than six percent of the total available grid generation.

“The aggregate capacity that can be nominated by a generating plant to service international off-takers shall not be more than 10 percent of its available generation capacity unless in exceptional circumstances a derogation is granted by the commission.

“The system operator shall henceforth cease to recognise any capacity addition in bilateral transactions between a generator and an off-taker without the express approval of the commission,” it added.

Additionally, NERC mandated the installation of integrated Internet of Things (IoT) meters at off-take and delivery points to provide real-time visibility of aggregate power consumption. This measure aims to enhance the monitoring and enforcement of grid instructions and contractual obligations.

In a related development, the Minister of Power, Chief Adebayo Adelabu, revealed plans by the federal government and the Nigerian Sovereign Investment Authority (NSIA) to address the country’s significant electricity metering gap. With approximately seven million unmetered consumers, the government plans to inject N750 billion in capital annually, supplemented by N250 billion in debt financing from NSIA, to accelerate meter acquisition initiatives.

He said that out of nearly 13 million registered electricity consumers at present; slightly over five million of them are metered customers.

“The target that we have is that within four to five years, we should close the gap, which means that a minimum of two million meters must be installed under the Presidential Metering Initiatives every year,’’ Adelabu said on Saturday in Lagos during his visit to Femadec Group, a local electricity meter manufacturing company. Earlier that day, he inaugurated the 63MVA, 132/33kV Mobile Substation deployed to Ajah as part of Phase One of the Presidential Power Initiative (PPI).

These moves follow recent developments in Nigeria’s power sector, including increased generation capacity and tariff adjustments, said to have sparked renewed investor interest. The completion of projects like the Zungeru Hydro Electric Power Plant in Niger State has contributed to a rise in power generation, from 4,200MW to 4,800MW, signaling positive momentum for the sector.

A big one: “The Central Bank of Nigeria (CBN) has revealed a notable reduction in loans extended to the private sector, with credit dropping to N71.21 trillion in March. This figure reflects a significant month-on-month decline of 11.93 percent or N9.65 trillion compared to February’s record of N80.86 trillion.”

Let me defend banks here: they did not reduce their efforts to give loans to companies. What happened was many companies did not want to take loans due to the high interest rates, anchored on the prime rate which was set by the apex bank.

In our portfolio companies, three of our companies which were approached by a bank to give them credits, rejected the offers, because of the high interest rates (and nonsensical collaterals). The companies could not model how they could pay the rates while advancing their missions.

Good People, our high interest rates are partly driven by the Central Bank of Nigeria. If Nigeria’s prime lending rate is about 15% (see here), the least any bank could offer loans is at about 21% (unless the fund is coming from a development finance institution like AfDB). [A bank will add insurance, operation cost, profits, etc, and when all is done, you have at least a 23% interest rate for customers].

So, with lesser funds going into companies, production will drop, and if that happens, Supply of goods and services will drop to the market. When supply drops, and demand remains the same, ceteris paribus, price goes up. Hence, CBN’s mission to tame inflation will struggle since it is reducing Supply via its monetary policy which has negligible impacts on Demand, especially at the consumer side since few customers get credits in Nigeria. This is why Nigeria has struggled to achieve any positive inflation control for years! We must try new ideas!

One of those ideas could be to offer rebates to companies thereby making sure only companies doing productive things will see their interest rates reduced. That way, you do not reduce rates to scale consumption.

Banks’ loans to the private sector dropped by nearly N10tn in March – Central Bank of Nigeria (CBN)

The Central Bank of Nigeria (CBN) has revealed a notable reduction in loans extended to the private sector, with credit dropping to N71.21 trillion in March. 

This figure reflects a significant month-on-month decline of 11.93 percent or N9.65 trillion compared to February’s record of N80.86 trillion. Despite this decrease, credit to the private sector saw a substantial year-on-year increase of 65.57 percent from N43.01 trillion in March 2023.

In contrast, credit to the government also experienced a decline, dropping to N19.59 trillion in March from N33.93 trillion in February, representing a month-on-month decrease of 42 percent. However, on a year-on-year basis, credit to the government rose by 28.8 percent compared to N27.52 trillion recorded in March of the previous year.

These declines in credit to both the private sector and government are attributed to the CBN’s ongoing monetary tightening measures. The CBN has implemented ten consecutive interest rate hikes since May 2022 to curb inflation, with the Monetary Policy Rate (MPR) currently standing at 24.75%, up by 200 basis points from the previous rate of 22.75% set in February.

Furthermore, the CBN’s downward review of the loan-to-deposit ratio (LDR) from 65 percent to 50 percent in April is aligned with its monetary tightening stance. The LDR is a critical metric used to assess a bank’s liquidity by comparing its total loans to its total deposits. While increasing the LDR allows banks to extend more credit to businesses and individuals, a decrease in the ratio limits their ability to loan customers using depositors’ funds.

The Lagos Chamber of Commerce and Industry (LCCI) has voiced concerns over the adverse effects of high interest rates on the economy, particularly on the private sector. Dr. Chinyere Almona, the Director-General of LCCI, highlighted the impact of these rates on diverting funds away from business expansion and development, especially for Small and Medium Enterprises (SMEs). 

“The recent hikes in the MPR have directly translated into higher interest rates, making it more expensive for businesses to access credit for working capital, expansion, and sustainability.

“We have consistently advised that rate hikes alone will not curb inflation without resolving challenges of the real sector of the economy,” she said.

The CBN has been aggressively issuing Treasury bills since the first quarter, with interest rates ranging between 19% and 22%, nearly aligned with the Monetary Policy Rate (MPR) of 24.75%. This move was aimed at mopping up excess liquidity in the economy to curb inflation.

While recognizing the CBN’s efforts in controlling inflation and stabilizing the exchange rate, Dr. Almona emphasized the need to achieve these objectives without stifling private sector growth.

“The real sector has demonstrated the capacity to create more jobs, manufacture products for consumption and export, and sustain the industrial base of the economy.”

“While we understand that high-interest rates attract Foreign Portfolio Investments and local investors to treasury bills and bonds, we lament the drying up of funds away from the private sector to government treasuries,” she said.