Power & Energy | |
Power & Energy | |
914 VIEWS | |
![]() |
Friday, August 16, 2019 /11:16AM / By CSL Research / Header Image Credit: 1stNews
Yesterday, Punch newspaper reported plans by the
government repossess 10 electricity distribution firms as one of the options to
rescue the nation's troubled electricity industry. According to the report, the
Federal Government would require up to US$2.4bn (N736bn) to repossess the
privatised distribution assets from the core investors if it finally decides to
do so during a final performance review expected to take place in December.
The 11 Discos
have been described by the ministry of Power as being ëtechnically insolventî
with an urgent need for recapitalisation. According to the ministry, the
inability of the Discos to improve customer service and meet operational costs
is a direct consequence of their inability to raise capital.
Though challenges
in the sector run across the entire electricity value chain, distribution
remains the weakest link. Five and a half years post privatisation, the discos
are still struggling with enormous operational challenges, such as insufficient
energy supply; old and obsolete networks; lack of maintenance of network
equipment; poor customer data; low meter penetration; and little or no
investments due to poor revenues, low tariffs, lack of external funding. Of all
of these issues, liquidity appears to be the most prominent.
We do
not believe the government has any plans to run the discos if they are
repossessed, so they will most likely be offered to a new set of investors. The
core investors paid over US$1.3bn for 60% equity in each of the 11
Discos. We struggle to see the possibility of attracting new investors to
the electricity distribution sector with the current structure and non-cost
reflective tariffs.
That
said, the Yola disco that was returned to the government in 2015 has seen
a few bids from interested investors. Whatever be the case, we retain our view
that there cannot be any meaningful progress in the supply of electricity
unless government takes the silver bullet- allow tariffs to be cost reflective.
If not, it then becomes for any new investor, a chicken and egg
situation. Should investments be made to improve electricity supply first and
then recouped from consumers via tariff hike or should tariffs be made cost
reflective first. Either way, we do not think the average Nigerian wants to pay
more for electricity especially under current economic conditions.
Related News
1.
Siemens
Agreement: Game Changer or Same Old Story?
2.
Senegal: 2 X
Solar PV Projects Totaling 60MW Reach Financial Close
3.
Eskom To Receive
Extra $4.2bn Allocation For Its Operations
4.
Kenya Launches
Africa’s Largest Wind Power Plant, Plans To Go 100% Green Energy by 2020
5.
Clean Energy,
Still Scratching The Surface
6.
Improving
Electricity Supply For Consumers in Nigeria - Babatunde Irukera, CEO FCCPC
7.
FCCPC Engages
Electricity Consumers in Maiden TownHall Meeting in Ikeja, Lagos
8.
FCCPC To Host
Town Hall Meetings With Electricity Consumers in Lagos
9.
Zenith Bank
Achieves Feat as First Nigerian Bank To Consecutively Audit Its Carbon
Emissions
10.
The Dirty Truth
About Silicon Solar Cells