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Nigeria: Report – Electricity Tariff Hike Will Boost Industry Liquidity

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Analysts at CSL Stockbrokers Limited have expressed optimism that the rise in electricity tariffs will definitely put the power distribution companies (Discos) and ultimately the entire industry in a better liquidity and financial position.

In its latest note on the sector, the financial advisory firm noted that though this may not be adequate to rejuvenate the industry and generate rapid investment in the sector, it would be a step in the right direction.

Analysts at the Lagos-based firm, “believe the rise in electricity tariffs would definitely put the Discos and ultimately the entire industry in a better liquidity and financial position, though may not be adequate to rejuvenate the industry and generate rapid investment in the sector.”

The Nigerian Electricity Regulatory Commission (NERC) had described the bane of the power sector failure as the pricing of the product.

It had noted that the Discos have struggled to raise new investments primarily because the sector remains grossly unattractive to investors (both equity and debt providers) who are aware that the electricity tariffs across the industry are not cost reflective.

“We agree with the commissioner that pricing is the biggest challenge facing the power sector. In 2014, the generation and distribution segments of the power sector value chain were privatised with the goal of attracting new investments and introducing private sector efficiency in running the segments.

“However, six years later, it is widely accepted that the privatisation process has not yielded desired results. The sector has been plagued by several challenges including; lack of cost reflective tariffs, poor metering coverage, energy theft, decrepit infrastructure, and regulatory stranglehold. However, of all these challenges, the lack of appropriate pricing for power remains the biggest challenge in our view,” the firm noted.