Top power firms threaten to cut Nigeria off if not paid

chika ebuzor

August 11, 2016 8:40 AM

If the companies make good their threat, most industries and residential homes will be in darkness except for those that rely on expensive diesel generators.

Electricity pylons are seen near Arnot Power Station's cooling towers, east of Middelburg in Mpumalanga province, September 8 2015. REUTERS/Siphiwe Sibeko

Nigeria's largest electricity companies will shut down power supplies unless the government pays longstanding bills it owes them and improves gas supplies, a joint statement said on Wednesday.

In 2013, Nigeria -- famous for blackouts -- started selling parts of its moribund state electricity firm, in a privatization that was meant to improve power supplies and attract billions of dollars in new investments - neither of which happened.

Six power generating companies, known as Gencos, which had bought parts of the state firm, said they would shutdown electricity generation imminently if a debt of 156 billion naira ($485 million) owed from a government agency was not paid. They also said banks were recalling loans made to them.

Nigeria has paid arrears of 186.7 billion naira. The central bank has stepped in with a $213 billion loan to keep the system afloat and allow the power firms to access credit, but more is needed as the oil price slump pressures Nigeria's currency.

The companies, which include Transcorp's power subsidiary and Forte Oil's power unit, said they struggled to repair their networks because imports of spare parts had become too expensive due to naira devaluation.

"In 2013, exchange rate was 150 naira per dollar. Today it is 310. How can we repair, equip, acquire new turbines at this rate of 310 naira per dollar and yet still operate with an old tariff?," said the companies.

"(A) shutdown is indeed imminent," they said in a statement.

The naira has lost 40 percent of its value since Nigeria ditched its 16-month-old peg of 197 naira to the dollar in June in a bid to lure back foreign investors who fled both the equities and bond markets after the plunge in crude prices.

After the privatisation, the government pledged to review tariffs as more power is generated and upgrade the transmission network to give more people access to the grid. But tariff reviews have not kept pace with rising cost, worsened now by the naira devaluation, analysts say.

In February, the Nigerian Electricity Regulatory Commission (NERC) increased tariffs by 45 percent, triggering protest from consumers, already under pressure from rising inflation, which hit a 10-year high in June. But the tariff increase was not enough to cover their cost, generating companies say.

As of July, the generating firms have received only 28.6 percent of their April invoices, they said.

Chronic power shortages are one of the biggest constraints on investment and growth in Africa's largest economy. Producing less than 4,000 megawatts, Nigeria's requires ten times the amount it currently produces to guarantee power to its 170 million people.

However, the generating firms are holding off on expansion. Generating companies have around 5,000 megawatts of spare capacity which has no access to gas, they say.

chika ebuzor