CBN Provides Discos with Loans to Tackle Funding Crisis

Central Bank Of Nigeria - cbn loan
In order to enable the Electricity Distribution Companies to cover the collection and operational expenditure shortfalls and halt the liquidity crisis in the country’s power sector, the Central Bank of Nigeria (CBN) is now providing loans to the distributors.

The Discos are mainly the revenue collection arm of the power sector, as they sell and distribute power generated by power generation companies, which is transmitted to the Discos by the Transmission Company of Nigeria.

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The power sector was officially unbundled in November 2013 and the generation and distribution arms privatized. Since then, there have been complaints by other players that the Discos remit below 30 per cent to the sector.

This development created severe liquidity challenges in the sector, and it made the Federal Government to pump in over N1.3tn into the power sector within a period of four years, despite the privatisation carried out in 2013.

In order to put an end to the liquidity hassles in the sector and ensure that the Discos make the right remittances to the industry, the CBN had to intervene. Impeccable sources from the Federal Ministry of Power and directors in some Discos revealed that the CBN had been supporting power distributors with loans to cover up their shortfalls and remittances to the industry.

An official in the ministry who pleaded not to be named because he was not authorized to speak on the matter said “What the CBN did and is doing is to loan the Discos to pay for any shortfall so that in total, there won’t be any shortfall in the sector.”

The official explained that assuming the NBET (Nigerian Bulk Electricity Trading company) invoiced N1bn to a Disco and the Disco was able to collect, let’s say, N800m from customers, you will have a N200m shortfall.

The source stated further that “The loan from CBN also includes coverage for the OPEX (operational expenditure). So, let’s say with the OPEX and collection the bill rises to N1.2bn and the Disco was able to collect say N900m, the shortfall will be N300m.

“So, the CBN is ready to lend the Disco the N300m to make it up to the N1.2bn bill, so that there won’t be any shortfall for anybody. With this loan, the Discos will be able to pay their energy bills and settle other operational costs.”

When asked whether the loans from CBN to Discos were fixed amounts to each Disco, the source said the facility was different for the various power firms depending on their respective shortfalls.

“It is not fixed. It depends on the energy load that is delivered and the shortfall incurred by each Disco,” the source said.

The official added, “The idea is basically to ensure that there won’t be any form of liquidity issue in the sector. And this has been ongoing for almost eight months.”