Links banking crisis, collapse of real sector to power chaos

A new report prepared for the Central Bank and the Committee of Bankers has offered a comprehensive insight into the hapless state of Nigeria’s public power sector which has become a drainpipe into which more than one Ntrillion has been sunk, and is now in a worse shape than it was ten years ago.

The report was prepared by Rupert de Borchgrave, special advisor from the CBN, Andrew Alli, CEO of African Finance Corporation, Onche Ugbade, Chief Strategy Officer of First Bank, and assisted by private consultants.

The report which has since been handed over to the Jonathan administration, also seeks, for the first time, to establish a linkage between the power sector mess and the failure of the real sector and the banking sector crisis.According to the report, a copy of which has been obtained by BusinessDay, “total on-grid generating capacity in Nigeria is 2,500 MW, of which only 500 MW is being generated by PHCN, with the remainder coming from AES, AGIP and Shell. Total private diesel generation by firms and individuals is estimated at 5000-6000 MW.”BusinessDay analysts say, globally, it costs about $1m to deliver one MW of power, except in Nigeria where the cost can be ten times more in the case where power is delivered at all, and the report blamed PHCN’s failure on mismanagement, poor quality service delivery, excessive spending to oil corruption, and the convoluted procurement processes; all of which have left the power sector technically bankrupt.

The authors of the report said the power network in Nigeria “suffers from unstable transmission and distribution, overloaded transformers, obsolete equipment and poor planning; all of these under the management of staff who are poorly trained and poorly motivated, with little interest in seeing improvements, but with a major interest in maintaining the status quo. Not surprisingly, PHCN does not have a credible programme of repair, maintenance and overhaul in place.In a blistering critique of the NIPP projects on which the government is placing hopes of improved power, the report said: “Generating capacity from the realizable NIPP projects (most of which are unlikely to come on stream before 2011) is estimated at circa 4,800 MW. None of these projects are near completion and the delivery dates keep shifting.”

In the absence of any radical reform of the sector, it said more than half this capacity will be lost from gas supply shortage and power losses over the collapsing transmission and distribution networks. Establishing a correlation between the power sector failure and banking sector crisis, the authors posited that “the banking sector crisis was largely caused by the inability of the real economy to absorb credit, thereby forcing banks to lend their freshly raised capital post-consolidation to the capital market, real estate and hydrocarbon sectors.”

“The inability of the banks to lend to the real economy is due to high overheads in the service sector resulting from the high cost of substitute energy, and the non-viability of manufacturing in the absence of constant power supply.”In addition, the report said the banking sector itself also suffers directly from high operating overheads resulting from the high cost of substitute energy, leading to high cost, income ratios, wide net interest margins, and lending rates in excess of 20 per cent.

The document’s authors argue that the long term economic growth and viability of the economy including the banking and financial sectors require falls in lending rates and the operating expenses of lenders and borrowers, neither of which is possible without fixing the power supply debacle.

netotse:

i hear we're now up to 3,700MW that beats the previous record. . .