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Power sector investors give conditions to end lull in investment

By BusinessNews Staff on July 28, 2014

The various power sector investors that bought into the Federal Government’s power privatisation programme last year may have given fresh conditions before they end the current lull in investment in the sector.

They were said to be asking for the gas sector’s fiscal regime to be improved before they proceed with investments of any significance.

Although the handover of power assets to the new owners by the Federal Government had been celebrated as the beginning of a robust power sector regime, with anticipated improvement in power generation and transmission, the reality is that output from the sector has been less than satisfactory.

A report by the international financial and investment advisory firm, Renaissance Capital, last week however said there were indications that the power sector investors may be considering to end the cycle of lull in investments in the sector.

Rencap in the report titled, ‘Nigeria: This Time May be Different – Revisiting our Forecasts’, said the investors were insisting on the improvement of gas sector’s fiscal regime as a condition for bringing in the needed funds to the sector.

The report, which was based on series of meetings with key policy makers in Nigeria by Rencap’s team, states that currently, power supply is less volatile but the fact remains that the sector’s new investors are not investing enough.

The report said, “Investors that acquired the power assets last year are reportedly struggling to service loans they took to acquire the assets. We were told that investors found the assets in a worse position than they had expected,” adding that the “generation companies are also challenged by inadequate gas production and vandalisation of gas pipelines,” adding that “Investors are asking for the gas sector’s fiscal regime to be improved before they proceed with investments of any significance.”

According to the Bureau of Public Enterprises, the power sector needs $35 billion over the next decade to revamp the sector. Rencap however said the “hiking of electricity tariffs to cost-recovery levels is expected by policy makers to slow as the election approaches. The gap between generation capacity of 3,0004,000MW and transmission capacity of 7,000MW remains,” the report said.

Meanwhile, the inability of power sector operators to pay up the over N30 billion they owe the Nigeria Gas Company, a subsidiary of the Nigerian National Petroleum Corporation (NNPC), is said to be posing a big challenge to the success of the power sector privatisation and slowing down the growth of the gas sector.

According to reports, the debt is crippling gas suppliers’ efforts to expand their operations and increase the volume of gas supply to the generating plants as well as undermining the ability of the generating plants to deliver sufficient electricity to the distribution companies.

The debt owed by the generating companies and the over N200 billion borrowed from banks by the new investors to purchase the power assets have slowed down the power sector growth post privatisation.

“One key disincentive to gas supply growth is the payment performance of the power sector broadly, whilst NIPP has had a relatively better performance in terms of paying for gas,” said Diezani Alison-Madueke, minister of petroleum resources.

But the new investors said they were currently more concerned with non-availability of gas than their debts to the banks. More gas will mean that they will be in business and therefore be able to service their loans, they point out.

[This Day]

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