Tariffs may rise up, as FG prepares to invest $4.7 billion in power sector

Buhari signs June 12 bill
June 11, 2019
DEMOCRACY DAY PRIMER – I, By Wole Soyinka
June 12, 2019

Tariffs may rise up, as FG prepares to invest $4.7 billion in power sector

The Federal Government (FG) of Nigeria in partnership with some private investors are set to jointly raise $4.7 billion to recapitalise the electricity distribution companies (DisCos) as well as upgrade power distribution equipment in the country.

The Managing Director of the Transmission Company of Nigeria (TCN), Dr. Usman Gur Mohammed, disclosed this on Monday, in Abuja. According to Mohammed, the Federal Government is ready to inject $1.7 billion into the DisCos, while the private investors will pay up the balance that is proportional to their 60 percent equity in the companies.

“What we are saying is that to correct this thing, we have to recapitalize the DisCos. The recapitalization requires $4.7 billion, which means they have to bring the balance ($3 billion). What we are saying is that the government cannot be passive anymore… Government ownership should be represented by four directors just like proportional to the investment.

“Government should bring its own 40 percent capital. We have simulated the grid to examine the investment requirement by the DisCos. And we have come to $4.7 billion. Government is going to bring its 40 percent of $4.7 billion which is about $1.7billion.”

More Details: After the privatisation of the 11 Discos of the Nigeria Electricity Supply Industry (NESI) in 2013, the Federal Government retained 40 percent of the equity in the DisCos and divested 60 percent to private investors.

As a result, the power sector recapitalisation framework requires each of the DisCos to raise $500 million. The Nigerian Electricity Regulatory Commission (NERC) on the other hand is expected to make a declaration that all the procurement processes for the equipment shall be competitive.

Speaking further about the plan to recapitalise the power sector, Mohammed disclosed that the Federal Government has concluded plans on the investment portfolio to rescue the ailing power sector.

“This money can be raised. The government was about to collect $1 billion from the Word Bank for DisCos to finance the capitalization of the DisCos. AfD and others are talking about another $1billion for distribution expansion.

“NERC should do a regulation consistent with the declaration of ECOWAS directive that all procurement of DisCos and transmission should be done competitively so that this money that will come in, and it will not be squandered by people giving contracts to their cousins and wives.”

Tariffs may increase: In the meantime, Nigerians should brace up as electricity tariffs may skyrocket following the recapitalization process. According to the TCN boss, the private sector investors would not raise loans from commercial banks. As a result, they would need to earn their returns on investment by hiking tariffs.

“Private investors would not raise their loans from commercial banks, this money has a repayment period of about 20 years and a moratorium period of about five years. So, they (private investors) should bring the same type of money.”

“Tariff may go up as a result of the fact that there is going to be repayment of those capital and also payment of interest.”

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