Why DISCOs need long term funding to achieve power stability

Dolapo Oni, Head of Energy Research, Ecobank Group among other concerned power sector stakeholders said that to achieve stability in the power sector, Distributions companies must have a long term funding plans.

Oni while speaking during a panel session at the just concluded sixth edition of Power Nigeria Exhibition in Lagos said the major problem in the power sector currently lies in the distribution end.

According to him, Nigeria has 6,500 megawatts of electricity that can be generated, the DISCOs can only take 3700mw, and they turn down over 2000mw on a daily basis”

In discussing the topic, what practices are good benchmarks for efficient financial management in the electricity value chain, Oni observed that Discos often feel they are going to lose a lot of money if they take the electricity that is being transmitted to them. They are also worried about customer paying for it, as well as how much they are going to lose in terms of their own distribution infrastructure.

“Funding of power as a structure in any country requires a long-term funding. The problem we are facing today as a nation is that we channel short term fund to the sector, like five to seven years funding, which is a mismatch.

When you combine the fact that you do not have the right kind of tariff in place that will give you back your expenditure, it becomes difficult for you to attract the kind of funding needed in the business”, Oni said.

Stakeholders in the power are of the opinion the inability of Distribution Companies, DISCOs to wheel 6500 megawatts (mw) of electricity transmitted to them while scuttle the Federal Government plans to double generation capacity from fossil-fuel sources to more than 20 Giga Watts.

They are worried that with the increased demand for electricity fueled by population growth and rising urbanisation in the country, plans to increase hydroelectricity generation capacity to 5.7 GW by 2020 from the current 1.9 GW may not materialise.

Analysts opine that it is imperative that core investors inject significant patient capital to address the challenges mentioned above. Short-term debt or borrowings will not suffice and only serve to exacerbate the financing and operational challenges.

They point that the entire electricity sector is faced with huge revenue shortfalls. The implementation of cost reflective tariffs, access to long-term debt capital and equity injection, will still not address the revenue shortfall to the system in the short term.

According to them, “Several millions of consumers use electricity without paying and this is adversely impacting on the revenues of Discos”.

Energy operators however argue that considering the importance of power as the fundamental ingredient for the growth of any economy and getting all the parts to work in sync is crucial. But, getting the distribution to function effectively is vital.

Industry close watchers further disclosed that Discos are faced with huge operational challenges, which are clearly visible in their operations and service delivery.

They however pointed out that the customer enumeration is a good avenue to be able to capture new power consumers and know the real number of the various locations, although it is capital intensive, adding that the enumeration would also assist the power firms in capture better revenue needed for the payment of energy being supplied to them by generation companies.

KELECHI EWUZIE