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Power: NERC issues disbursement terms for N213bn CBN Fund

By BusinessNews Staff on October 8, 2014

The Nigerian Electricity Regulatory Commission (NERC) has set fresh terms and conditions to be adhered to by operators in Nigeria’s electricity market that are eligible to benefit from the lately announced N213 billion loans from the Central Bank of Nigeria (CBN).

NERC said for any of the operators to benefit from the loans, such operator must be willing to meet with its demands as stipulated in the funds disbursement conditions.

It explained yesterday in Abuja that such was necessary to guarantee accountability and efficient disbursement of the CBN fund, adding that the commission would as part of the conditions sign a performance agreement with every party receiving the funds.

The Chairman of NERC, Dr. Sam Amadi, said in an explanatory note on the CBN intervention that in addition to the commission signing a performance agreement with the parties that would benefit from the fund, it has also developed a monitoring and evaluation mechanism that would include the inputs of electricity consumers across the country and the funds’ manager.

Amadi also said in disagreement with assertions that the country’s electricity market may be on the brink of collapse, hence the CBN intervention, that the market was stable but required such loan to help support its transition into a contract-based regime.

He said: “We are putting in place a performance agreement with every party receiving the funds. Before they receive the funds therefore, they will commit to certain performance standards which they must meet.

“For instance, gas suppliers would commit to supply agreed quantities of gas under a very clear and enforceable contract while GENCOs and DISCOs would commit to invest in relevant upgrades and improvements in areas like metering, transformer replacement and general change management.

“Secondly, NERC with the assistance of the fund managers and the Special Purpose Vehicle (SPV) being created for the project will closely monitor and regulate the disbursement and fund utilisation to ensure that the performance agreement is adhered to by all parties.

“The disbursement will be done in tranches so that if a party does not live up to the performance agreement, then it will not receive the next tranche of funds. But if it does, it will then be cleared by NERC to receive the next tranche. That way, there would be checks and balances that ensure compliance with the performance agreement.” He further noted that: “NERC is planning a novel approach where the Nigerian consumer will be allowed to be a part of this entire process. That is, NERC is working on a system that will enable the Nigerian consumer to contribute both to the content of the performance agreements and to the monitoring of the various parties.

“NERC wants to ensure that this entire process is not only transparent but also productive. NERC will soon be announcing the modalities for this novel consumer-centric monitoring system.”

Amadi also stated that the CBN intervention was not initiated in deference to the upcoming 2015 general election noting that it remains a market-based solution to a market problem.

“Government is not bailing out the power sector. This is not a bail out and NERC is against any bailout. A bailout suggests that the market is in terrible crisis and even the optimisation of market processes may not stave off a looming collapse. That is not the case of the Nigerian electricity market.

“This market is not about to collapse. We have conducted a stress test of this market and we can say its fundamentals are still robust. It is said that what does not kill you makes you stronger. We went through a crisis and survived hence we are stronger.

“What remains now is to enter into a stage of the market that is wholly based on bilateral contracts. The fact of the matter is that in making such transition, it is expected that there will be significant shortfalls in the revenue of the market.

“This happened when India privatised its electricity assets. It happened also in Chile and Mexico and the rest of the reforming electricity markets. So, an effective regulator will seek a way to redress the revenue shortfall in other to improve investment in the sector and enhance capacity and reliability. This is the idea of the intervention fund,” Amadi said.

He further explained: “This $213 billion is not coming from tax payer or from crude oil revenue. This is the CBN providing financial support to the electricity market through the deposit management banks with clear guarantee of full repayment.

“This facility will be used for two things, firstly, to pay debts owed gas suppliers and secondly, to pay for the revenue shortfall in the power industry.

“These are not government funds. These are private sector funds. So the lenders will do everything to ensure that it is well utilised and paid back. Furthermore, NERC and CBN are there to act as the regulators that facilitated the release of these funds and that will ensure they are paid back.
“Therefore, it is only fair and sensible that this initiative be judged entirely on its own merit.”

[This Day]

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