HOW UNSTABLE ELECTRICITY SUPPLY AFFECTS CREDIT BUSINESS.

Tuesday, 11th June 2024.

CreditEconomy News Interview

…Over 500,000 people read our news story, number still counting

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Dr. Tinuade Sanda, FICA,

Ex-Managing Director/CEO at EKO ELECTRICITY DISTRIBUTION PLC (EKEDC)

HOW UNSTABLE ELECTRICITY SUPPLY AFFECTS CREDIT BUSINESS.

 

DR. TINUADE SANDA, FICA, Ex-Managing Director/Chief Executive Officer (CEO), EKO ELECTRICITY DISTRIBUTION PLC (EKEDC), speaks on “HOW UNSTABLE ELECTRICITY SUPPLY AFFECTS CREDIT BUSINESS IN NIGERIA, in the National Institute of Credit Administration’s Credit Economy News.

Achieving a stable electricity supply in Nigeria involves multifaceted efforts addressing infrastructural, regulatory, and financial challenges. Increasing investment in renewable energy sources such as solar, wind, and hydroelectric power can significantly enhance the reliability and sustainability of electricity supply. Renewable energy projects can be decentralized, reducing the load on the national grid and providing more consistent power, especially in rural areas.

“Encouraging private sector investment and public-private partnerships in renewable energy will be essential. Upgrading and expanding the existing power infrastructure is crucial. This can be done by building new power plants, modernizing transmission and distribution networks, and incorporating advanced technologies like smart grids. Investment in infrastructure ensures that electricity generated reaches consumers efficiently and with minimal losses”.

Projects aimed at reducing technical and commercial losses will also contribute to a more stable supply. Strengthening the regulatory framework is vital for ensuring transparency, efficiency, and investor confidence.

This includes streamlining processes for licensing and approvals, enforcing strict compliance with regulations, and creating incentives for investment in the power sector. A stable regulatory environment will attract more private investment and foster a competitive market, leading to improved service delivery. Securing adequate financial resources and providing incentives for investment in the power sector are essential. This can be achieved through government funding, international loans, grants, and private investments. Offering tax breaks, subsidies, and low-interest loans for renewable energy projects and infrastructure development can stimulate growth in the sector.

“Financial mechanisms that support innovation and expansion will also be beneficial. Leveraging public-private partnerships can accelerate the development and implementation of power projects”.

PPPs bring together the expertise, efficiency, and capital of the private sector with the regulatory support and risk mitigation of the public sector. These partnerships can focus on large-scale infrastructure projects, renewable energy initiatives, and technology upgrades, providing a holistic approach to stabilizing electricity supply.

 

 When will the electricity supply become stable throughout Nigeria?

The stabilization of electricity supply in Nigeria has seen significant progress and continued efforts across the three main chains of electricity—generation, transmission, and distribution—indicating a promising trajectory towards achieving stability.

  1. Generation:

Nigeria’s generation capacity has shown remarkable improvement over the years. As of 2023, the installed generation capacity reached about 13,000 MW, compared to just 8,000 MW a decade ago (Source: Nigerian Electricity Regulatory Commission, NERC). Although the operational capacity often hovers around 4,000-5,000 MW due to gas supply issues and maintenance problems, ongoing investments in new power plants, particularly renewable energy sources, and efforts to improve the efficiency of existing plants are set to enhance generation capacity significantly. The Nigerian government and private sector have committed to increasing renewable energy contributions to the grid, aiming to add over 2,000 MW of solar power by 2025 (Source: Nigerian Renewable Energy Master Plan).

  1. Transmission (TCN)

The Transmission Company of Nigeria (TCN) has been a crucial focus area for upgrades and expansions. The transmission network, which once faced severe bottlenecks due to aging infrastructure, is now undergoing substantial investments. The Nigeria Electricity Transmission Access Project (NETAP) and the Transmission Rehabilitation and Expansion Program (TREP) are key initiatives designed to boost the network’s capacity and reliability. These projects have already led to the addition of over 1,000 km of new transmission lines and several new substations (Source: TCN Annual Report 2023). With ongoing and planned projects, the transmission network is expected to handle up to 7,000 MW of electricity reliably by 2025 (Source: World Bank NETAP Report).

  1. Distribution:

Distribution companies (Discos) play a vital role in delivering electricity to end consumers. Despite challenges such as outdated infrastructure, high levels of technical and commercial losses, and billing inefficiencies, significant strides are being made to modernize the distribution network. Initiatives like the Meter Asset Provider (MAP) scheme aim to address metering gaps by installing millions of smart meters across the country. Additionally, efforts to reduce energy theft and improve customer service are in full swing. These efforts are beginning to bear fruits, as technical losses have reduced by 5% over the past five years (Source: NERC Report on Distribution Performance 2023). With continued modernization and investment, the distribution network is expected to become significantly more reliable in years to come.

Overall, while challenges remain, the consistent improvements and strategic investments across generation, transmission and distribution chains provide a realistic path towards achieving stable electricity supply in Nigeria in the coming years.

 

How has the unstable supply of electricity impacted the credit business generally?

Unstable electricity supply has a profound impact on the credit business. It increases operational costs as businesses resort to alternative power sources like generators. Frequent power outages disrupt business operations, reduce productivity, and erode customer confidence. These factors contribute to inconsistent cash flows and elevate the risk of defaulting on credit obligations, making it more challenging for businesses to thrive and for credit institutions to maintain healthy portfolios.

 

What is the way out?

The path to stable electricity involves comprehensive infrastructural investments, regulatory reforms, and the promotion of private sector involvement. Increasing investment in renewable energy sources such as solar, wind, and hydroelectric power can significantly enhance the reliability and sustainability of electricity supply. Renewable energy projects can be decentralized, reducing the load on the national grid and providing more consistent power, especially in rural areas.

“Encouraging private sector investment and public-private partnerships in renewable energy will be essential. Upgrading and expanding the existing power infrastructure is crucial”.

This includes building new power plants, modernizing transmission and distribution networks, and incorporating advanced technologies like smart grids. Investment in infrastructure ensures that electricity generated reaches consumers efficiently and with minimal losses. Projects aimed at reducing technical and commercial losses will also contribute to a more stable supply. Strengthening the regulatory framework is vital for ensuring transparency, efficiency, and investor confidence. This includes streamlining processes for licensing and approvals, enforcing strict compliance with regulations, and creating incentives for investment in the power sector.

“A stable regulatory environment will attract more private investment and foster a competitive market, leading to improved service delivery. Securing adequate financial resources and providing incentives for investment in the power sector are essential. This can be achieved through government funding, international loans, grants, and private investments”.

Offering tax breaks, subsidies, and low-interest loans for renewable energy projects and infrastructure development can stimulate growth in the sector. Financial mechanisms that support innovation and expansion will also be beneficial.

Leveraging public-private partnerships can accelerate the development and implementation of power projects. PPPs bring together the expertise, efficiency, and capital of the private sector with the regulatory support and risk mitigation of the public sector. These partnerships can focus on large-scale infrastructure projects, renewable energy initiatives, and technology upgrades, providing a holistic approach to stabilizing electricity supply.

 

Do you grant credit to your own customers? If yes, how?

Yes, at EKEDC, we essentially grant credit to our customers through the postpaid billing system.

“Customers enjoy electricity before making payments, which means that we extend a form of credit by allowing them to use power services in advance. This system necessitates thorough credit assessments and robust monitoring to manage and mitigate risks effectively”.

Additionally, for pre-paid meter (PPM) customers, we offer credit through our collection partners. Some of these partners provide tokens now and allow customers to pay later, facilitating better access to electricity while managing financial flexibility.

 

What is your projection into the future of doing business on credit in Nigeria?

The future of doing business on credit in Nigeria is promising, provided key challenges like electricity instability are addressed. With improved economic conditions, better credit risk management practices, and supportive regulatory environments, the credit market can expand and thrive. Technological advancements, particularly in fintech, will likely streamline credit processes and reduce the risk of defaults, fostering a more dynamic and resilient credit ecosystem.

 

In what area do you think your organization and NICA can partner together to improve the type of credit that you extend to your customers?

EKEDC and NICA can collaborate in several areas to enhance credit offerings. Developing comprehensive credit risk assessment tools and advanced monitoring systems can improve credit management. Additionally, joint initiatives in financial literacy programs for customers and advocacy for better infrastructure and regulatory improvements can indirectly benefit the credit environment. This partnership can help stabilize electricity supply, thereby creating a more favorable business climate for extending credit

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