Monday, January 11, 2016 9:16 AM / FBNQuest Research
The administration will be judged on the success of its fiscal adjustment in boosting capital spending (and non-oil revenue collection). The president appointed a “big-hitter” to deliver on the infrastructure; Babatunde Fashola as the federal minister for power, works and housing, for whom an important test looms over the tariff increase of up to 45% authorised by the Nigerian Electricity Regulatory Commission (NERC) with effect from 01 February.
The House of Representatives has called for the review to be delayed pending the completion of its report on the industry including the privatisation of generation and distribution.
The timing of the tariff revision is complicated by the fact that the terms of office of the chair of the NERC, along with several commissioners, have just expired. However, Fashola has identified the several interconnected weaknesses in the power industry and the tariff increase would resolve one of them. .
We have therefore the first of several challenges across sectors for the FGN to prevail in the face of opposition. The obstacle in this instance is a demand to re-examine past transactions. This pattern will surely be repeated.
It is no secret that some of the privatised companies are struggling. Egbin Power is better placed than most, and has started preliminary work to boost the capacity of its generating station, the largest in the country, from 1,320 megawatt (MW) to 2,670MW by 2019. Yet it went public in November on not being paid for power generated into the national grid.
Along with Egbin, we could cite Ibom Power as a successful generator. Owned by the state government of Akwa Ibom, the company received the go-ahead from the NERC in early November to increase its generation capacity from 190MW to 685MW.
However, the regulator noted at the time that the license for Ibom brought the total it had granted in ten years to 126, with combined notional supply of 35,310MW. It is obvious that the vast majority have not been developed.
The presidential task force on power, formed under the Jonathan presidency, shows peak power generated at 4,884 MW on 23 November (2015).
Although there are many estimates of notional consumption demand in circulation, up to a fanciful 160,000MW, it is obvious that Nigeria has a huge deficit and that Fashola has a full schedule for the power element of his ministry on top of the tariff review.