N1.2trn debt overhang: Electricity tariff hike may rescue TCNs, DISCOs – FDC

Total exposure of the power sector to the banking system which is in excess of N1.20 trillion will be helped by proposed upward review of existing Multi-Year Tariff Order (MYTO), a report by the Financial Derivatives Company (FDC) has said.

The debt represents 5.54 per cent of aggregate industry loans and 9.78 per nt of total deposits.

“An increase in tariffs would improve the cash flow of the Disco’s as well as reduce their debt service burden. It will make the sector more viable and improve the cash flows of the operators by increasing their operating margins.

“If the government goes further by offering some debt forbearance, this will go a long way in fortifying the balance sheets of the banks and reduce their non-performing loans to total loans ratio” said Bismarck Rewane, chief executive officer of Financial Derivatives Company (FDC) Limited in report .

This ratio was put at 9.36 per cent when the Central Bank of Nigeria (CBN) governor, Godwin Emefiele addressed the media after the last MPC meeting in July. It is expected that any support and improvement at the fundamentals of the industry will attract additional investments and restore solvency to the industry.

The Nigerian Electricity Regulatory Commission (NERC) has proposed an upward review of the existing MYTO in the country. It is proposing that from 2020, power consumers in Nigeria will be charged an additional sum of N8 to N14 for every kilowatt-hour of power. The long-term objective is to achieve a cost-reflective tariff.

The impact of the proposed hike in electricity tariff on corporates, consumers and investors is mixed.

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