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PHCN: No going back on reforms, FG

By Yemie Adeoye
IF the power sector is to attract the necessary investments to bring about the needed growth required for Nigerians to realise their dreams of uninterrupted power supply, a total overhaul and reformation of the sector may be unavoidable afterall.

It is in view of this that the federal government decided that the reformation of the power utility company, PHCN, and the sector in general has become inevitable.

Aside from this, the federal government also seems to be uncomfortable with the current situation in the power utility company which boasts of a staff strength of about 50,000, a situation which is responsible for the stagnancy of the sector as about 90 percent of the company’s income goes into staff salaries.

Immediate past Minister of Power, Dr. Lanre Babalola dropped this hint during a breakfast meeting with energy correspondent in Lagos recently. According to him the focus of the federal government this year is to drive the reforms of the power sector amongst other things as this is the only panacea to the much needed private sector investment in the sector.

“A situation where the about 90 percent of PHCN’s monthly revenue is claimed by staff salaries and overhead costs makes it clear that no investor would be ready to come in”.

The Minister stated that the over 50,000 staff of the company is highly unnecessary as this is another avenue for wastage, especially as the company parades about 50,000 staff, most of whom may not be technical staff.
Dr. Babalola also used the opportunity to elaborate further on the N500 billion grant from the Central bank to revamp the ailing sector.

He siad that the establishment of a technical team 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.

“We 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 area”.

He said the visit was to commend the effort of the CBN and also present issues on power project development in practical perspective and more importantly; the Ministry of power’s readiness to play a pivotal role based on the series of studies and feasibilities on projects where the private sector players can be effectively engaged.

According 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 accompanied on the visit by the Minister of State Arc.

Nuhu Wya and top officials of the Ministry and Power Holding Company of Nigeria(PHCN) 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 of Economic Policy and Dr. Tunde Lemo who oversees 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 need 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 for as collaborative effort to boost power supply to Nigerians.

“This is the type of collaboration we have been looking for and I must commend CBN for this bold initiative” Wya said. In welcoming the delegation, Dr.Alade noted that the said fund would be channeled through the Africa Finance Corporation(AFC) since the institution has the expertise and global 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.

“We 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 to do a thorough job by incorporating all of this”
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 competent to manage the fund and any local bank that will participate in the scheme will have to meet AFC conditions for such business.


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