Expert wants CBN, Banks, NERC collaboration to reposition power sector

Michael Ajayi

Seasoned banker and Managing Director, Growth & Development Asset Management Limited (GDL), Mr Kola Ayeye has emphasised the need for the Central Bank of Nigeria (CBN) and commercial banks to collaborate with the Nigerian Electricity Regulatory Commission (NERC) to reposition the power sector for a quantum leap in performance.

He said it is time to admit the failure of the last power privatisation exercise, and recommended a new programme where NERC, CBN and banks should, on a competitive basis, invite a global player in the calibre of GE (General Electric) or such similar player to commit to generating, transmit and distribute a minimum of 20,000 MW daily within 5 years, increasing same to 30,000MW daily by the 10th year.

Ayeye speaking at an interactive forum in Lagos, said: “We will be contracting to pay for power successfully delivered to the consumer rather than contracting for the execution of power projects.

Execution of power projects has produced very poor results after huge investments in excess of $16bn. The nation has invested massively in power projects with poor results so we should change the model.

Rather than contracting to execute power projects, let’s contract best-in-class players to deliver power. It is not our business how they generate, transmit or distribute the power.

They are to deliver power. They will only get paid for the power they deliver to the consumers. Such big players exist and the size of the Nigerian power market is sufficient to attract them.”

He advocated that the contract with the new concessionaire will be backed with a10-year payment guarantee for power delivered to the consumer which will be provided either by AfDB, World Bank or first class international banks.

Ayeye added, “Let us find a partner who will take over available power assets across the entire value chain. But our commitment will be to pay for power delivered to the consumer.

This contract will be between $8-12bn, and is definitely of a sufficient scale to attract a global best-in-class operator.”

Mr Ayeye, a former Executive Director of Asset Management Corporation of Nigeria, AMCON, decried the level of the default of both electricity generation companies (GENCOS) and distribution companies(DISCOS) to the banks stated such entities should be put up for reconcessioning /reprivatisation either through voluntary collaboration with CBN/NERC/banks or through receivership where the operator refuses to cooperate.

All such GENCOs and DISCOs, together with TCN, he opined, will be concessioned to this new operator.The new program will require collaboration between CBN, the banks and NERC.

He said this radical reform in the power sector is necessary to address the abysmal performance of the present players who have failed to deliver constant power to users in Nigeria.

“Current operators should be compelled to either liquidate their debts or participate in a better managed program of ceding management and control to a best-in-class operator.

The debts provide a platform for inviting new operators through either voluntary negotiation with the existing owners or receivership. The hitherto privatised entities should not be renationalised.

However, the CBN, banks and NERC should initiate a programme of using these debts as a basis for re-concessioning underperforming operators to a world-class operator.

This operator will be responsible for the entire value chain covering feedstock production, generation, transmission, distribution and collection.”

Speaking on the country’s tariff structure, he said investors should not use the nation’s current tariff as an excuse for the underperformance of the sector.

His words: “Tariffs are no longer a big problem. The current tariffs are already close to international parity. Existing tariffs are very close to international averages.

Across the 11 Power Distribution Companies, if you add the estimated bills, they may, in fact, be billing paying customers more than international averages.”

Ayeye, however, lamented the failure of the power sector to deliver regular electricity for several years after privatisation.