'Private-sector investors are unlikely to commit their funds to power plants (or petroleum refineries) without cost-reflective tariffs'

WorldStage Newsonline-- Targets for electricity production and generation capacity set by the Federal Government within the Road map for Power Sector Reform launched on August 26, 2010 have been missed by a substantial margin, according to analysts.

According to analysts at FBN Capital, the investment banking subsidiary of First Bank it their review of the progress under the reforms for the power sector, on the surface, consumers may notice little change since the launch of the president’s roadmap.

“More recently, the power ministry has set revised production targets: 5,000 megawatts (MW) in January 2012, 6,000MW in December 2012 and 10,000MW in December 2013. Achievement of these targets hinges in good measure on improvements to the transmission capacity,” FBN Capital said.

The analysts acknowledged that government had taken some bold step to meet the roadmap targets since its launch, but that the steps amounted to little without a review of the electricity tariff

Among the step already taken include: the government has received 129 requests for proposals under its privatisation of the assets of the unbundled ex-Power Holding Company of Nigeria (PHCN), as well as $20,000 per request. It hopes to complete the exercise in Q2 2012; It has paid the monetisation benefits of the ex-PHCN employees, which had not been honoured for seven years, at a cost of N57 billion. It has also agreed to a 50 per cent pay increase for them, subject, we understand, to biometric tests; New commissioners have been appointed to the National Electricity Regulatory Commission (NERC), and a training institute has been established for new entrants to the sector; 14 independent power producers have been nominated for the World Bank’s evolving partial risk guarantee.

“NERC has indicated a substantial increase in the tariff, which the power ministry has described as cost-reflective, from this month. The government has palliatives in mind in the form of user subsidies amounting to N100bn in 2012 and N50 billion of each of the two following years,” the analysts.

“The government may defer the tariff review, given the opposition to the removal of the subsidy on PMS. Yet private-sector investors are unlikely to commit their funds to power plants (or petroleum refineries) without cost-reflective tariffs.”

Story by Ebenezer Ademola (ebeademola@gmail.com)