28 October 2016, Sweetcrude, Abuja — Mr. Adeola Adenikinju, a Professor of Economics and Director, Centre for Petroleum, Energy Economics and Law, University of Ibadan, has warned that the country’s financial sector is exposed to significant risks due to the huge indebtedness of power firms to the banking sector.
In a statement in Abuja, Adenikinju blamed the power sector indebtedness on the technical and economic losses that remain unacceptably high in the sector.
He added that many government agencies, powerful individuals and organisations are also indebted to the power companies, thereby, worsening the plight of the industry and limiting their ability to meet their obligations to the banks.
He said, “Most of these power companies are indebted to the banking sector, thereby exposing the financial system to high risks. A restructuring programme that could include a well-structured bail-out plan for the Discos should also not be ruled out.
“Technical and economic losses remain unacceptably high. Many government agencies and powerful individuals and organisations are also indebted to the power companies. The genuine concerns of the power companies must be addressed.”
To this end, Adenikinju also called for a review of the Electric Power Sector Reform Act of 2015, while he advised the Nigeria Electricity Regulatory Commission, NERC, to ensure that its policies are mutually beneficial to all stakeholders in the sector.
He said, “However, power companies must also be held to high standard of probity and compliance with the terms of restructuring plan, including mergers if necessary. The NERC should use more robust stakeholders’ approach to ensure that decisions and pronouncements of the regulatory agency are mutually beneficial to all the Stakeholders.
“I hold strongly the view that the extant enabling legislation in the industry the Electric Power Sector Reform Act of 2015 should be reviewed.”
Continuing, Adenikinju disclosed that the Niger Delta crisis had dealt a very significant blow on the Nigeria energy sector in particular and the economy in general.
According to him, apart from increasing the risk premium for petroleum companies working in the region, because of kidnapping incidence and the constant threat from the Militants, the actual attacks on the petroleum infrastructure in the region have led to significant reduction in petroleum production and exports with major impact on government revenue and capacity to operate the budget.
“However, more importantly is that the flow of gas to the power stations has been badly hit. Over 80 per cent of our power plants are based on thermal. Hence, regular fuel supply is important for their continuous operations” he noted.
Also commenting on the liquidity challenges in the power sector, Mr. Eze Onyekpere, Executive Director, Centre for Social Justice, CSJ, said, “There is no reason for there to be a liquidity crisis in the sector if all stakeholders play by the rules.
“If the electricity distribution companies (DISCOs) do not have the resources to provide appropriate metering infrastructure or to collect their debts, then they should open up to new investors or to the Nigerian public. The dog in the manger attitude of those who bought public companies is no longer acceptable.
“The story about indebtedness is funny. Every DISCO should be able to disconnect debtors; sue in court for recovery of money owed and for services rendered and ensure that pay before service metres are installed in every home, office or company.”