Power Sector: Govt’s N1.5trn Intervention Unsustainable, Ineffective – AfDB
Government’s intervention in Nigeria’s power sector has not only been ineffective but also unsustainable, the African Development Bank has said.
AfDB’s acting Vice President, Power, Energy, Climate Change and Green Growth, Mr Wale Shonibare, said this in an interview with our correspondent on the sidelines of the African Investment Forum which ended in Johannesburg recently.
Shonibare said sticking to the nation’s Power Reform Programme would deliver better results than the stop-gap measure which the Federal Government had been adopting.
In September, Economic Confidential reported that despite the privatisation of Nigeria’s power sector, the Federal Government’s financial intervention in the industry had risen to N1.5tn.
“The Federal Executive Council recently approved the third round of intervention funding for the sector, with a total of about N1.5tn in the last two years,” Osinbajo had stated at a power sector event.
The Federal Government had earlier approved and released N701bn and N213bn on separate occasions for the power sector.
It recently approved an additional N600bn for the sector but disbursement of the fund had yet to begin.
The AfDB helmsman also disclosed that the bank was planning a $400m facility to boost the country’s transmission infrastructure while another $200m had already been approved for a mini-grid solution.
He said, “The story of the Nigerian energy sector is very complicated. The government has instituted reforms since 2005. The reforms are good; unfortunately, it has been a story of five steps forward, two steps back.
“There has been a series of hiccups along the way, the most critical aspect being the liquidity in the sector. The country has been applying a bandage or temporary solutions that are not sustainable.
“The tariff formula itself; there is nothing wrong with it. It says that if you have a change in exchange rate, you have to factor it into the tariff. If you have change in inflation; you have to factor it into the tariff. So, the formula is there.”
Shonibare said the industry regulator needed to carry out six-monthly reviews of the tariff and make a proposal to the government in accordance with the reforms manual.
He lamented that the reviews had not happened when they were supposed to happen, adding that the last one was done in 2016.
He said, “We have had the Central Bank of Nigeria coming up with measures. These are not sustainable. There had been N701bn support; there is another N600bn being considered.
“Everybody understands that these are short-term measures. Obviously, you want the entire value chain to work because the end consumers have to pay the generation companies who have to pay the gas producers.”
Shonibare added, “If the government wants to subsidise the sector so that the Nigerian consumer can be eased there, the fact is those subsidies can be applied in intelligent ways that will make sure that the Discos get paid.
“We can deal with social issues. There are different ways government can do that. I am not advocating subsidies. What I am saying is that there is political decision to be taken about how much the consumers are going to pay. But ultimately, your tariff has to be cost-effective.
“In any business, you cannot be selling the product for less than cost recovery but there is an issue around efficiency, which I don’t disagree with, and we have to help these companies become more efficient.”
On the $400m proposed for transmission by the bank, Shonibare said it would help to strengthen transmission infrastructure in the South-South, North-East and North-West parts of the country.