June 29, 2021 / 08:53 AM / By United Capital Research / Header Image
Credit: World Stage
Since Nigeria's Electricity Supply Industry (NESI) privatisation in 2013, a liquidity crisis has plagued the industry, leading the government to run subsidy programs continually. In Mar-2017, the Presidency approved a N701.0bn Payment Assurance Guarantee (PAG) to augment the Nigerian Electricity System Industry (NESI) market proceeds and solve the liquidity crisis Gencos faced within the value chain. The Payment Assurance Guarantee is a credit facility set aside by the FGN and managed by the CBN to make up for the shortfall in Nigerian Bulk Electricity Trading Plc (NBET) remittances from Disco payments to the Gencos. The payment allows Gencos to meet its financial obligations to gas and equipment suppliers, banks and other partners. The initial Payment Assurance Guarantee was for two years, aiming to guarantee NBET's payment obligations to Gencos until Dec-2018.
However, given the outbreak of Covid-19, the program was extended to prevent a further deepening of the liquidity crisis in the industry. Data from NERC shows this measure improved collections in 2020, although remittances remained low in 2020. Remittances from NBET to Gencos improved in 2020, to 29.8% (of total invoice), from 26.3% (of total invoice) in 2019. The growth in remittances stemmed from improved metering and higher tariffs in 2020. For comparison, the recognition of an N80.4bn PAG disbursement in Q1-2020 after the initial outbreak of Covid-19 improved the quality of Genco's remittances from NBET to 40.8% (of total invoice) in 2020 (vs. an initial 29.8% without PAG).
In the short term, we expect the liquidity crisis in the sector to persist, considering the low metering (which would have improved remittances to NBET from the Discos) and continued AT&C losses due to ailing infrastructure. However, in the longer term, considering the Presidential Power Initiative (PPI), which aims to strengthen transmission, metering, power availability, we remain cautiously optimistic about improving fortunes in the Industry.