By Adewale Sanyaolu
The Director/Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Mr. Muda Yusuf, has blamed the high interest rates by banks and liquidity constraints as some of the setbacks confronting electricity distribution companies (Discos) problems militating against the growth of electricity distribution companies (Discos).
Yusuf in his comments on the purported receivership of Ikeja Electricity Distribution Company said the development highlights the persistent challenges of the power sector, which has become a troubling conundrum.
He lamented that what is happening to the Discos is also partly a consequence of the prohibitive interest rate in the economy, given the high degree of leveraging of most of the DISCOs, saying It is very difficult for any long-term project to survive the current excruciating lending rate in the economy.
“These challenges stem from flawed privatisation processes, ageing equipment, limited technical and financial capacity of the power distribution firms, problematic pricing and tariff structures, coupled with affordability concerns among the citizenry and an unsustainable subsidy regime. The result has been an acute liquidity crisis in the sector.
There are additionally clear conflicts between the commercial objectives of private investors (DisCos and GenCos), the citizens’ desire for affordable electricity, the quest by industrialists for an investment-friendly electricity tariff, and a politically acceptable tariff regime,’’.
He added that the government’s obstruction and the citizens’ opposition to cost-reflective tariffs, despite demands from private investors in the sector, further complicates the situation.
This, he said, has created numerous contradictions and conflicts that require careful and painstaking strategic resolution.
He worried that it is quite curious and perturbing that Ikeja Electric, often touted as the best-performing electricity distribution company in the country with a prosperous customer base, has ended up in receivership.
“This development suggests a similar fate could await other distribution companies in the near term. Indeed, five others were already in receivership before this new development. They include; Abuja, Benin, Kaduna, Kano, and Ibadan Discos.
Given the power sector’s strategic importance, the government’s urgent intervention is imperative to prevent a complete collapse of the national power ecosystem. The power sector is not just a business; it is crucial for economic development, economic sustainability and economic security.
While a sustainable framework for power sector liquidity and subsidies is being developed, the government must take immediate steps to stabilize the sector.
Meanwhile, the worry now is that in a receivership, banks primarily seek to recover their funds, typically disregarding economic development, social, environmental or productivity objectives. The overriding objective would be debt recovery, even if it means liquidating the assets. The ultimate victims of a power sector collapse are citizens, industries and investors.”
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