The recent moves by the Central Bank of Nigeria (CBN) to bailout the power sector is worrisome, some finance experts say.
The CBN, at the conclusion of its Monetary Policy Committee meeting last week Tuesday, resolved to raise a N500billion Special Fund to boost investments in the nation’s power sector.
Overreaching the bounds
Afrinvest, a finance firm, expressed concerns that the regulatory body may be overreaching. “The N500bn ($3.3bn) in quantitative easing specifically earmarked for “emergency power projects” is a step in the right direction, though inadequate for meeting the huge gaps arising from decades of neglect. It is necessary to highlight that the CBN may be seen to be overreaching itself with this move in our view, as we believe it remains the sole responsibility of Government (through the ministries of Power and Finance) to drive infrastructure development,” Afrinvest said in report released in Lagos last week.
Victor Ndukauba, a finance analyst with the firm, said that in the true sense of it, the Central Bank had its key responsibilities. “What the CBN is largely concerned with is monetary policy, markets rates, inflation, interest rates, exchange rates and the flow of money, among others. Those are their key responsibilities. But trying to lend directly to the Bank of Industry into the power sector to try and drive infrastructure development is more the responsibility of the government, since it is the government’s responsibility to drive the growth of infrastructure.”
Part of CBN’s responsibility
However, Sunday Salako, a member of the National Economic Management Team, said the Central Bank’s move is still in tandem with its responsibilities. “The Central Bank is the government’s banker. That’s why in some countries, it is called the National Bank and in some, the Federal Reserve, and in some, the Central Bank. The relationship between the Central Bank and the government goes beyond putting money there and withdrawing. They are supposed to provide advice that would govern its projects and businesses. They are also expected to give finance opportunities.”
Mr. Salako, also a banker of repute, explained that the N500 billion is deposit from different banks. “The Central Bank is paying two per cent to these banks daily on these funds. In order to discourage these banks from leaving these funds lying idle there, they would rather give it to people that have use of them. If these private plants pick up, and they start generating electricity, the economy will be boosted, and then the money would be paid back. It is because the CBN has not been playing its role in the economy before now that is why this move may sound strange to some people.”
He noted that it is better that the money is used than to be left idle, especially when it is used for infrastructure development. “This is part of what the CBN is expected to do, to create economic growth. They are the lenders of last resort. They are there to save situations. This is the ideal thing.,” he stressed.
Central Bank resolution
At its Policy Meeting, the Central Bank said it will continue its quantitative easing policy by providing N500 billion facility for investment in debentures issued by the Bank of Industry (BOI), in accordance with Section 31 of the CBN Act 2007, for investment in emergency power projects dedicated to industrial clusters.
The funds are expected to be lent to Deposit Money Banks (DMB) at a maximum interest rate of 1.0 per cent for disbursement of loans with a tenure of 10 – 15 years at concessionary interest rate of not more than 7.0 per cent. The committee also approved in principle the extension of this facility to DMBs for the purpose of refinancing/ restructuring existing portfolios to manufacturers. Membership of the committee comprises the CBN, the Bankers’ Committee Sub-committee on Economic Development, Bank of Industry, Manufacturers Association of Nigeria (MAN), and National Association of Small and Medium Enterprises (NASME). The African Finance Corporation (AFC) will serve as technical adviser on the power project.
Apart from the power projects covered under power fund, subject to their being restructured into commercially viable projects on which banks are willing to take credit risks, other power projects currently being financed by banks may also be refinanced from the fund. However, banks will be required to secure the funds drawn with eligible securities.