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.

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.

There will be few dominant companies. The power of the state will fade because collective tax revenue will drop to handle many projects. That is typical when GDP growth stalls even as population increases. The evolving Russia in the collapsing USSR comes to mind. Yes, a time when enterprises controlled by some become super-eminent. 

When a Sokoto businessman buys petrol at N2,000/liter and another businessman in Lagos spends N600 for the same product, you can see that Nigeria is evolving and emerging at a scale not many understand. If that playbook continues, you  will have many things decoupled across regional lines.

We expect inflation to stay up as the government prints money to make up for corporate tax revenue shortfalls.   The question for you as a business leader is this: what are your plans? Do you need to change your business model?

Nigeria will print money because it needs to find ways to make up for these corporate losses, and as it prints the money, it will also offset the apex bank’s monetary policy of rate hike which is done to tame the economy, hoping to cool inflation. But with Ways and Means (flooding the economy with magic money) it will cancel out the impact of those hikes by the Central Bank of Nigeria with one result: inflation stays high and misery scales in the land.

Yes, despite everything happening, Nigeria presents GREAT opportunities. But to unlock the opportunities, builders must invent new business models. OPay is now bigger than three of Nigeria’s largest banks combined on market cap, according to Techcabal; “In early 2023, its stake increased to 9.4% after it sold Nanobank, its Asian fintech subsidiary, to OPay in return for equity in the company. Following the transaction, Opera told investors its 9.4% stake in the fintech was valued at $253 million, according to an April 24 filing with the US Securities and Exchange Commission (SEC). It implies OPay has a valuation of $2.7 billion, compared to its previous funding round which valued the startup at $2 billion.”

What is your NEW business model for a changed Nigeria?

LinkedIn Summary

Nigeria has changed and is also changing as I write. The next few quarters will be a season of new business models. Most of the things we have been doing have expired. Yes, with no petroleum equalization fund, be aware that many regions are now disconnected and disparate at scale. If a factory buys petrol at N2,000/liter in Sokoto, and another pays N600/liter in Lagos for the same product, you will agree that many vectors have moved.  

Hello, regional autonomy is already loading before any legislation! Why? If petrol costs controlled by the center could be non-unicorn, across states, many other things will follow.

This era will produce few dominant companies, and if you understand how to build, opportunities remain.

Comment 1: I’ll speak solely on the “valuation” of the banks since it’s my area of expertise. Now when it comes to Fintechs you should know since you’re in the ecosystem that with venture capital or private equity investments, they are now a valuation game based highly on raised capital and certain metrics not used by traditional banks. With that being said, Opay being worth what it is against traditional banks is nothing new. Even in the UK, Revolut is worth £30b same as Barclays. Revolut was founded in 2015, Barclays 1690. This will keep happening, Monzo is ‘valued” at £5bn and they are even younger. This isn’t some new model, it’s certainly not limited to Nigeria. This was expected and will continue to happen.

My Response: You made the point. If you want alpha, make something new, just as OPay did in the fintech space. In other words, it may seem there is no opportunity, but if you invent new business models, you can create value. That is the message.