THE new tariff regime will not produce desired result the way the Minister of Power; Mr. Babatunde Fashola has painted it.
The reasons are not too far-fetched, as they border on two main factors. One is the technical capacity of our indigenous companies as it were today. Two is the financial capacity of the indigenous companies to bring together necessary infrastructure that can guarantee steady supply of electricity in the country.
Does that suggest the power assets were sold to the investors without established expertise and capacities in the electricity industry?
Does that suggest the power assets were sold to the investors without established expertise and capacities in the electricity industry?
A bidding process was actually put in place at the pre-handover of these legacy assets. A bid was called, and on that basis, there are two factors the government will also look at. The technical and financial capacities are the basis for which every company will be rated or scored. But what we have in appraising the technical part is a situation, whereby an indigenous investor brings a technical partner. And then the government looks at the kind of partnership the technical partner has with the indigenous investor without much emphasis on financial wherewithal. From the beginning, we said it was not enough for indigenous companies to just bring technical partners. It would have been better for indigenous companies to bring the technical partners that would also bring equity into that partnership, which is lacking.
If the man brings equity, it means he is not just a contractor to the indigenous company, but also an investor. The indigenous company will now be able to leverage on two things: its technical competence and financial coverage. That was missing in this bid and now, we are where we are today. As far as this sector is concerned, we do not have a dominant foreign equity player.
If the foreign technical partners did not bring equity, how then did the indigenous investors manage to acquire the power assets?
We know power infrastructure development is probably the most financial intensive project in Nigeria. So, we need people with the deep pocket to handle it. In 2013, the Federal Government and Bureau of Private Enterprise (BPE) raked in a sum of $2.6b. I can say about 80 percent of the fund was provided by Nigerian banks. Ordinarily, it should not be that way because foreign investors are primarily supposed to bring majority of their own equities in terms of the capital mix, where you find investors bring at least 60 percent equity. In this situation, however, most of the funds were sourced from the banks. It is debt, which is now creating a little bit of pressure on our financial system.
We find a situation whereby the Nigerian banks are the major, if not the sole, financiers of the acquisition of the power assets. There are two factors with the Nigerian banks. One is the high-interest rate. Two is the tenure of their funds. These two factors cannot successfully finance the electricity industry. They can only act as working capital incentive. What we find today is that the Nigerian banks are financed in dollars-dominated terms. Already, interest rate has gone on the high side. Even, the value of dollar to naira has doubled over the space of two years. The resultant effect is that the accounts of our indigenous companies are not doing well in the banks, which means the companies’ ability will be stalled. Also, the ability of the indigenous companies to pay loans will be stalled. Finally, the ability of the indigenous companies to generate additional funding will be stalled. Continue Reading...
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