The Federal Government has given reason for the N701 billion loan given to the power sector.
The Minister of Power, Works and Housing, Babatunde Fashola, SAN, said the loan was given to save the sector from collapse under heavy debts.
The aim was to assist Bulk Electricity Trading Plc (NBET) to meet its debt obligations to power generation companies (GenCos) and by extension the gas suppliers and the financing banks.
Fashola in an exclusive interview with The Nation, explained why government took the decision it did. He said: “The N701 billion is not a loan to the privatised power sector. It is a loan by government to one of its own agencies – Nigerian Bulk Electricity Trading Plc (NBET).
“When the power sector was privatised in 2013, one of the companies created was NBET to buy bulk power from the generation companies (GenCos) in order to create a market situation. NBET entered into power purchase agreement (PPA) with any GenCo that puts power into the national grid. NBET uses the Transmission Company of Nigeria (TCN) to transport that power to the distribution companies to sell under another contract called “vesting contracts.” Go and do this retail business.
“DisCos are supposed to make a profit of about 30 per cent, return the bulk money to NBET just like any retail business – you buy wholesale, retail and send the money back to the manufacturer. So there are two contracts here – a contract by NBET with the power producers, and a contract with DisCos to vend the power. The assumption was that NBET will pay from what it collects from the DisCos in order to discharge its contract with the GenCos. But some many things happened.
“The economy tumbled and tariff increase was halted in court. There was a big gap in collection. So from collections of about 56-58 per cent dropped to about 25-29 per cent and NBET became a debtor to the GenCos. The GenCos, the thermal power plants that use gas, were owing their gas suppliers and their gas suppliers were owing their banks. In this situation, we said to the government “you are the debtor here because NBET is a 100 per cent government owned company.”
“ Before the N701 billion, NBET had tried to raise a bond of N301 billion when parliament stopped it. That was why government got the N701 billion and said to NBET go and discharge your contract. The decision was taken for many reasons, one it was a contractual obligation and NBET is a 100 per cent government company, so you must pay. This is one of the liquidity issues in the sector, so if government defaults, there will be no power sector. Secondly, don’t let this debt spiral the gas and banking sectors, otherwise, it will spiral into the entire economy. Because it was critical, Federal Executive Council approved it because it is a no-go-area. That doesn’t mean you write-off the debts owed by the DisCos because they are two separate contracts.