THE Minister of PowerÂ Dr.Lanre BalalolaÂ at the weekend told the Management of the Central Bank of Nigeria(CBN) that a technical team be set up between his Ministry and theÂ countryâ€™s apex bankÂ for a holisticÂ and effective application of the N500bn set aside to boost development in the power sector.
The establishment of a technical team Babalola said was necessary because investment in power must take cognisance of the transmission, distribution and fuel supply if we are to avoid building white elephants or plants that will only work part of the time.
â€œWe need to adopt a holistic approach on this issue by addressing all variables in a technical manner and the viability of such projects in the identified areaâ€.
He said the visit was to commend the effort of the CBN and also present issues on power project developmentÂ in practical perspective and more importantly;Â the Ministry of power’s readiness to play a pivotal role based on the series of studies and feasibilitiesÂ on projects where the private sector players can be effectively engaged.
AccordingÂ to him not only is significant funding required in generation but also in transmission, distribution and fuel supply to effectively produce and deliver power to Nigerians for domestic and economic use.
The Minister who was accompaniedÂ on the visit by the Minister of State Arc. Nuhu WyaÂ and top officials of the Ministry and Power Holding Company of Nigeria(PHCN)Â told the CBN team that there was the need to avoid the mistake of the past in citing and executing power projects where all the variables required for a functional and viable projects are not properly considered before rushing into their development.
The CBN team was led by two Deputy Governors, Dr Sarah Alade who is in charge ofÂ Economic Policy and Dr. Tunde LemoÂ who overseesÂ operations at the bank. The former acted for the Governor who was out of the country at the time of the visit.
The Minister specifically stated that in addition to providing debt finance, CBN could further facilitate private sector investment and participation by playing a prominent role in the provision of guarantees and securitization, which are critical for ensuring long-term sustainability of power plants. He further stressed that this is the type of structure used worldwide to promote private sector in the development of power projects. Even in Africa, Ghana, Cote d’Ivoire and Algeria have used this structure to good effect.
The Minister listed other conditions that CBN should consider for effective utilisation of the facility and development of the power sector including, Establishment of a fund for the sector that provides credit support for IPPs.
*A more central role to be played by CBN in the provision of guarantees and securitization arrangement
* Assistance with hedging of foreign exchange rates,
Other alternative suggested by the Minister include, the needÂ for wider consultation with the Ministry of Power, NERC, PHCN, TCN playing critical role in the development of the power system. There should be awareness that solutions require a holistic approach which is not just generation focused but include not just transmission and distribution also the reform and deregulation of the sector.
Minister of state in his contribution commended the CBN for this step adding that this is the type of cooperation the Ministry has long be waiting forÂ as collaborative effort to boost power supply to Nigerians.
â€œThis is the type of collaboration we have been looking for and I must commend CBN for this bold initiativeâ€ Wya said.
In welcoming the delegation,Dr.AladeÂ noted thatÂ the said fund would be channeled through the Africa Finance Corporation(AFC) since the institution has the expertise andÂ globalÂ network to grow the fund and attract other facilities for investors in the power sector.
According to her it is expected that this fund will act as catalyst for the sector and through the participating banks more facilities could be attracted pointing out that the apex bank was worried over the low performance of the real sector of the economy which gave rise to many investors rushing to the capital markets few years ago.
â€œWe felt that we need to push this fund into a sector that will encourage development and growth of the real sector and that was why we are looking at Power and industrial cluster areas but now that we know from your presentation what other requirements are, CBN will look at this fund will have toÂ do a thorough job by incorporating all of thisâ€
Also speaking Lemo cautioned on the need to avoid debt overhang and added that CBN statement was meant to provoke discussion so that the very best will come out of this scheme and for the benefit of all.
According to him, based on the financing needs of the power sector, the N500bn is a small amount but that it has a signal effects because the AFC that will be adviser on the fund would be able to attract more fund from abroad for this cause.
He said AFC has qualified competence to manage the fund and any local bank that will participate in the scheme will have to meet AFC conditions for such business.