FG Mulls N300bn Treasury Bond to Improve Liquidity in Electricity Market

Eyes N5.3tn pension fund, NBET to manage bond
Chineme Okafor in Abuja
The federal government is looking at initiating a treasury bond to the tune of N300 billion to improve funding in Nigeria’s electricity market, THISDAY has learnt.
It was gathered from two industry sources who are conversant with the development that the proposed treasury bond would seek to address the prevalent operational challenges the 11 electricity distribution companies (Discos) face.

The Discos, the sources said, are not charging consumers cost-reflective rates for electricity supplied to them, and the government is also not willing to provide some sort of subsidy to cushion their revenue shortfalls as reportedly agreed with them during the power privatisation exercise.
This development they said means that they were under-paying the Gencos for power supplied to them, as well as contending with lots of challenges sourcing for good monies to invest in expansion of their networks.

They added that they are also unable to undertake other planned investments that may include sourcing for alternative power outside of the national grid for their customers, hence, the government’s decision to float the market driven bond.

Speaking further, the sources explained that the bond is expected to be captured in the government’s financial plan for 2016 and also guaranteed by it.
They explained that it would majorly target to have the country’s N5.3 trillion worth pension fund invest in it with established terms on returns.

Operators in the country’s pension industry had said the huge fund would not be deployed into the country’s power sector unless it has a structured product to consider. The sources noted that the bond would be one of such structured products that the fund could consider. They also said it would be open for other classes of subscribers.

Also, the Nigerian Bulk Electricity Trading Plc (NBET), an agency of the government which procures bulk electricity on behalf of the Discos is expected to manage the bond.
The Discos have reportedly failed to consistently pay to NBET 100 per cent value of the power they bought from generation companies (Gencos). The bond will in this regard help to bridge these gaps and also give them the opportunity to do their capital expenditures.

According to the sources, the decision to establish the bond was initially mulled by the executive arm of government who had considered the financial challenges of operators in the power sector and thought that it would be better to set up such long term bond where good funds could be pulled up for them and guaranteed by it.

One of them explained that the overriding motive was to keep the power sector from possible collapse that could arise from chronic illiquidity.
The other source noted that in guaranteeing the bond, the federal government would issue to prospective buyers redeemable treasury certificates for the length of time it would take to mature, while the Discos would gradually pay up with interest, monies given to them from the bond.
“You must realise that this is an executive programme, and it is hoped that when the budget is passed, the NBET can conclude plans on this. However, it may not be until July before it is launched,” the source said.

He further said: “The bond is meant to alleviate the operational pains of the Discos majorly, and galvanise for them the capital they need to meet up with their opex and capex. They have grossly underpaid the Gencos through the NBET and that is not a good development because the Gencos have to continue to operate.”

He also noted that the government in trying to hold the Discos accountable for default in the bond terms, will either take from them their shares certificate and distribute to subscribers or take over the companies to repay the subscribers.

“Meanwhile, the Transmission Company of Nigeria (TCN) has denied reports that there would be a likely blackout in the country following a lingering labour related issue at its Abuja headquarters.
TCN said in a statement from its General Manager, Public Affairs, Seun Olagunju that such report was not factual as the labour issue would not affect staff in its regional offices nationwide.

It said the regional office staff are responsible for the actual wheeling of bulk electricity and have being at their duty posts, ensuring that electricity generated by Gencos is seamlessly transmitted to distribution load centres nationwide.

TCN explained that the on-going labour issues affect administrative work only at its corporate headquarters and its ability to carry out its core duty of wheeling bulk electricity is not in any way hampered by the inability of staff at the corporate headquarters to temporarily gain access to their offices.

“Moreover, engineers whose core duty it is to ensure that electricity is efficiently wheeled through high tension transmission lines and substations located in various areas across the country, work in the regional offices and work centres.
“Presently, these engineers are at their duty posts, performing their duties assiduously. As such, the issue of imminent blackout does not arise,” said TCN in the statement.