Tuesday, 9th July 2024.

CreditEconomy News Interview

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Alfred-Egberipou Doutimiye, FICA, Finance Manager, First Independent Power Limited


Alfred-Egberipou Doutimiye, FICA, Finance Manager, First Independent Power Limited, a Fellow of the National Institute of Credit Administration, speaks onNIGERIA’S ELECTRICITY SUPPLY: A BRIGHTER FUTURE BECKONS”, in the National Institute of Credit Administration’s Credit Economy News.


When will the electricity supply becomes supportive of Business Growth in Nigeria?

Nigeria has embarked on a determined journey to illuminate its path forward by addressing long-standing energy supply challenges. While the road ahead holds further progress, significant milestones have already been achieved, laying a strong foundation for a more secure and prosperous future.


Shifting Gears: Diversification

While Nigeria’s role as a major oil and gas producer remains important, the nation is strategically moving towards a more diversified energy mix. This reduces dependence on a single fuel source and fosters a more resilient energy sector. The focus is on maximizing the potential of indigenous resources like natural gas for power generation. This not only leverages a readily available domestic fuel source but also aids in the transition towards a cleaner-burning alternative to traditional fuels.


Financial Spark: Improved Liquidity and Enabling Legislation

A crucial aspect of tackling Nigeria’s energy woes is ensuring improved liquidity within the power sector. The government, in collaboration with the private sector, has actively worked towards this goal through initiatives like the Payment Assurance Programme (PAP).  Such programs have fostered greater confidence among investors and lenders by guaranteeing revenue streams for power generation companies.

However, financial solutions are just one piece of the puzzle. The Nigerian Electricity Act 2023 establishes a more comprehensive framework for achieving stable electricity supply.

A key initiative towards the attainment of stable & sustainable power is the focus on electricity from renewable sources making up a significant proportion of Nigeria’s energy mix in line with Nigeria’s COP28 commitments. This incentivizes diversification away from a reliance on fossil fuels and fosters the development of clean energy solutions like solar, biomass and wind power to enhance power accessibility for underserved areas across Northern and Southern parts of Nigeria. 

The Electricity Act 2023 also promotes mini-grids and off-grid solutions, acknowledging the need for decentralized power generation, transmission and distribution in underserved communities. Additionally, the Act strengthens the regulatory framework, promoting a more transparent and efficient market localized within the core area of operation. These combined efforts – financial reform, a focus on renewables, and a strengthened regulatory environment – pave the way for a more stable and sustainable electricity sector in Nigeria.


Building Trust: Credit Management and Collaboration

The nation has taken a proactive approach to manage credit risks within the power sector. Stricter creditworthiness assessments, migration to prepaid billing systems and improved collection practices are being implemented to ensure a more sustainable financial ecosystem. This fosters trust among stakeholders and reduces the burden of unpaid debts on the entire system. Additionally, a collaborative approach involving the government, private sector participants, and regulatory bodies is paving the way for a more transparent and efficient energy market.


Investing in Infrastructure: The Power Grid Gets an Upgrade

Investing in and overhauling the national power grid is another critical step. The government has committed to modernizing transmission and distribution infrastructure to minimize energy losses and ensure efficient delivery of electricity. A key example is the ongoing Siemens infrastructure upgrade project under the Presidential Power Initiative (PPI) signed in 2019 which will go a long way in expanding grid capacity & stability. This not only improves access to power for homes and businesses but also paves the way for integrating future generation sources seamlessly into the national grid.


A Brighter Future Beckons

The journey towards a secure and reliable energy future for Nigeria is ongoing, but the positive momentum is undeniable. By focusing on a diversified energy mix, improved liquidity within the sector, robust legislation, responsible credit management, and critical infrastructure upgrades, Nigeria is well on its way to illuminating a brighter future. This future promises not only stable power supplies for homes and businesses but also a more robust foundation for economic growth and development. With continued commitment and collaboration, Nigeria can ensure that the lights stay on, illuminating a path towards a brighter, more prosperous future.


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

Inconsistent power disrupts production schedules and raises operational costs for businesses. This can make it difficult for companies to consistently generate revenue, potentially impacting their ability to meet electricity payment obligations.

Revenue shortfalls can hinder the Nigerian Electricity Supply Industry’s (NESI) capacity to invest in critical infrastructure upgrades. This, in turn, can contribute to a cycle where unreliable power leads to lower revenue collection, creating a strain on the entire system.


What is the way out?

Nigeria’s electricity sector is poised for a positive transformation. Due to ongoing efforts to address key challenges such as adequate investment in expanding generating capacity, gas supply predictability, improvement of transmission infrastructure, metering & billing, credit management, reduction of energy theft and other strategic solutions, the nation can illuminate a path towards stable power supply and a more robust electricity market.


Financial Lifeline: Injecting Liquidity & Ensuring Commercial Viability

A crucial step is injecting liquidity into the Nigerian Electricity Supply Industry (NESI) across the entire value chain. Initiatives like the Payment Assurance Programme (PAP) provide a safety net for generation companies, fostering confidence among investors and lenders. Cost reflective tariffs to ensure commercial viability for all players in the value chain from DISCOs down to GENCOs are also a crucial component in achieving stable electricity supply. Additionally, due to the exposure to U.S.-Dollar-denominated gas feedstock, GENCOs are exposed to Foreign Exchange risks which need to be addressed to ensure sustainable commercial operations & steady power generation. The financial security some of the aforementioned initiatives will engender in the sector will incentivize investment in the sector, propelling its growth.


Building a Strong Foundation: Upgrading Infrastructure

Modernizing transmission and distribution infrastructure is paramount. Ongoing investments in upgrading aging grids and expanding capacity will minimize energy losses and ensure efficient power delivery. This not only improves access to electricity but also lays the groundwork for seamlessly integrating future generation sources.


Empowering Progress: Enabling Legislation and Effective Regulation

Robust legislation, like the Finance Act 2023, plays a vital role. Tax breaks and incentives for investment in the sector, coupled with effective regulation, create a conducive environment for growth. Transparent and predictable regulations foster trust among stakeholders and attract much-needed capital.


Fueling the Future: Gas Supply Security

Ensuring a reliable and secure supply of natural gas, a key fuel source for power generation, is essential. Long-term gas supply agreements and strategic infrastructure development will mitigate disruptions and price volatility, promoting stability and cost-effectiveness in the power sector. Ultimately, a revamped & comprehensive gas-to-power master plan with limited dependency nation’s petroleum industry policy is needed to guarantee the predictability of gas feedstock and by association, stable power generation & supply.


Mitigating Risk: Enhanced Credit Risk Management

NESI’s financial health hinges on effective credit risk management. Implementing stricter creditworthiness assessments, improved billing and collection practices, and a robust credit guarantee framework will ensure a more sustainable financial ecosystem. This fosters trust among stakeholders and reduces the burden of unpaid debts on the entire system.


Aligning for Success: Commercial Alignment

Achieving commercial viability across the entire electricity value chain is crucial. Streamlining billing processes, fostering communication between market participants, and establishing fair and transparent pricing mechanisms will incentivize timely payments and efficient operations. This alignment ensures a win-win situation for all stakeholders.


A Brighter Future Beckons

By implementing these solutions, Nigeria can illuminate a path towards a stable and reliable electricity sector. This future promises not only consistent power supply for homes and businesses but also a more robust foundation for economic growth and development. With continued commitment and collaboration, Nigeria can ensure the lights stay on, paving the way for a brighter and more prosperous future.


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

Yes. GENCO energy sales to the electricity market in Nigeria is based on PPAs whose terms stipulate that energy invoices are paid in arrears after supply. This amounts to credit extension & entails credit management between credit extension and final settlement.


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

The Nigerian business landscape currently faces challenges in accessing credit. Traditional hurdles like collateralization remain, making it difficult for startups and smaller businesses to secure funding. Additionally, creditworthiness assessment and credit scoring systems are still evolving, hindering lenders’ ability to accurately evaluate loan risks.

However, promising signs indicate a brighter future for doing business on credit in Nigeria.


Innovation in Risk Management:

The emergence of new credit risk management tools is transforming the landscape. Alternative data sources, beyond traditional collateral, are being explored to assess creditworthiness. These can include a business’s digital footprint, payment history with vendors, and utility bills, providing a more holistic view of a borrower’s financial health.


Contractual Guarantees:

Contractual guarantees from reputable third parties are becoming increasingly common. This can involve insurance companies providing loan guarantees or partnerships with established businesses that vouch for the creditworthiness of smaller entities. These mechanisms offer lenders additional security, making them more comfortable extending credit.


Shifting Attitudes:

A cultural shift towards credit responsibility is underway. Individuals and businesses are increasingly recognizing the value of a good credit history. This, coupled with improved financial literacy initiatives, can lead to more responsible borrowing practices and timely loan repayments.


A Collaborative Approach:

Collaboration between government agencies, financial institutions, and credit bureaus is key. By developing a robust credit information sharing framework and establishing clear legal guidelines for credit reporting, all stakeholders can contribute to a more transparent and efficient credit market.

While challenges remain, the emergence of innovative risk management solutions, evolving credit assessment methods, and a growing emphasis on credit responsibility paint a promising picture for the future of doing business on credit in Nigeria. As the ecosystem matures, access to credit is poised to become more accessible and efficient, fueling entrepreneurial ventures and propelling economic growth.


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

The Nigerian Institute of Credit Administrators (NICA) can join forces with the Nigerian Power Supply Industry (NESI) to illuminate a brighter future for Nigerian lending. Collaboration can encompass various areas: structuring innovative credit offerings for a wider customer base, fostering knowledge exchange through workshops and online platforms, and advocating for responsible lending practices across the industry. NICA can also leverage its unique role in the administration & advisory of credit in Nigeria to advocate for a robust national credit policy that will impact the NESI & address the current credit issues in the sector. Training programs for credit professionals and joint efforts to raise awareness of credit risk management tools can also further strengthen the financial landscape. By working together, we can illuminate a path towards a more inclusive and robust credit ecosystem in Nigeria.

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