Fresh pressure on Tinubu as illiquid power sector nears collapse

Nigeria’s tottering energy sector, which has seen electrical energy technology fall to beneath the worst ranges below the Muhammadu Buhari administration, now faces an acute money scarcity, which consultants say might result in its imminent collapse and with it a brand new entrance of stress in opposition to the federal government of President Bola Tinubu.

Electrical energy provided to the nationwide grid is right this moment as little as 3,700 megawatts (MW) and if the export energy is excluded, meaning Nigerians are receiving lower than 3,000MW to their properties and workplaces, BusinessDay investigation has revealed.

Our investigation confirmed that the electrical energy market shortfall has now ballooned to a hefty N90 billion month-to-month or over N1 trillion a yr on account of the huge devaluation of the naira, which has led to an unprecedented surge within the worth of gasoline, a key power enter in Nigeria.

Nigerians who’re already hammered by rising petrol worth and a devalued naira with ensuing inflationary pressures plus an erosion of buying energy now get electrical energy much less and fewer recently, and shoppers might now be requested to pay as a lot as as N110 per kWh or a 50 p.c leap in a number of the premium bands to cowl for the market shortfall that has now emerged and for the sector to be cost-reflective.

It looks like déjà vu yet again as power subsidies, which created a nationwide disaster have reared their ugly head largely on the again of the huge devaluation and floating of the naira, in response to one power economist.

Gamers within the sector advised BusinessDay final evening that the electrical energy sector is dealing with a liquidity problem pushed initially by the six underperforming distribution corporations, which till the devaluation had been unable to satisfy their market obligations to the tune of about N30 billion per thirty days.

With the devaluation and floating of the naira, business estimates present that the shortfall might have reached N90 billion per thirty days, simply the very best shortfall within the historical past of the beleaguered market.

Senior electrical energy sector officers say the shortfall is principally pushed by the abrupt naira devaluation inflicting important hike within the gasoline pricing and the worth of technology contracts (like Azura) which might be pegged to the US greenback.

The state of affairs is all of the extra worrisome because the Buhari administration had decreased subsidies from a peak of virtually N600 billion in 2019 to only about N100 billion final yr, and on the present trajectory, electrical energy subsidies would hit N1.2 trillion yearly (one other document) in two years, officers stated.

“The extra urgent concern by market consultants is the truth that this new subsidy is unfunded and unplanned for by the administration,” one official stated. “It appears the Tinubu administration, which has but to nominate a cupboard six months after the February election, didn’t assess the total influence of the naira devaluation on the ability sector in any respect.”

He added: “The important thing drawback for presidency and the sector now’s how do you go on such a excessive price of electrical energy to shoppers which might be receiving the bottom quantity of power since privatisation in 2013.”

With the persistent liquidity points, technology and gasoline provide are grinding to a halt as technology corporations (GenCos), particularly these utilizing gasoline, are groaning below the load of mounting money owed. One of many duties the Nasir El-Rufai-led professional workforce had labored on was the way to arrange a sustainable resolution for tariff shortfalls that might enable the sector thrive whereas balancing the influence on Nigerian shoppers in an period of falling buying energy.

The workforce can be stated to have undertook a sturdy evaluate on the money owed owed to mills and gasoline suppliers, with an goal to enhance provide within the quick time period and resolve the longstanding liquidity points.

One professional advised our reporter that “with the mounting debt and the record-breaking unfunded shortfall, it is just a matter of time earlier than the market grinds to a whole halt. And that can be devastating.”

With the shortcoming of the federal government to modulate the pricing of petrol as incessantly as wanted due to the volatility of the naira, it’s feared that billions will now be spent to cowl the rising subsidy of petrol consumption.

Specialists communicate of an growing unfavourable investor sentiment on the Nigerian electrical energy provide business with out clear indication and uncertainty relating to who will lead the ability (or power) sector.

Growth finance establishments and Nigeria’s multilateral companions are additionally relooking on the commitments made to the sector, given the dearth of certainty in path and the reversal of trajectory on electrical energy subsidies (a key pre-condition for his or her assist).

One investor who requested to stay nameless stated: “The Nigerian electrical energy sector, because it stands now, is uninvestible attributable to legacy coverage failures and regulatory uncertainties plus the rising huge market money shortfall. The expectations of an El-Rufai-led reform with sturdy backing from Tinubu had appeared thrilling to us. However with that not occurring, we’re all on a wait-and-see mode.”

Present traders are additionally fairly involved. A GenCo investor advised our reporter: “At this charge, the money owed which might be mounting will make anybody assume twice about placing any new cash in Nigeria, for the mannequin we see is unsustainable. The progress made previously has now been worn out.”