GCR expects more debt capital injection into Nigeria's power sector

GCR Ratings recently released its 2024 outlook for Nigeria's power sector, predicting additional investments in the short to medium term. The report highlighted the positive impact of the listing and performance of Geregu and Transcorp Power on the Nigerian Exchange. However, the absence of a sustainable debt payment plan remains a major challenge within the sector, according to Oluwafemi Atere, Sector Head for Corporate and Public Sector Ratings at GCR Ratings. In an interview with CNBC Africa, Atere discussed various aspects of the power sector, ranging from recent developments to key challenges and potential solutions. The power sector in Nigeria has been witnessing significant progress with companies like Geregu Power and Transco Power making their presence felt on the exchange. This has not only boosted investor confidence but also signaled a potential increase in capital investment in critical areas like the national grid and power infrastructure assets. Despite these positive strides, the sector still grapples with pricing issues, particularly the lack of a sustainable cost-reflective tariff model. Atere emphasized the impact of the current pricing structure on subsidy payments, with the federal government reportedly paying billions in subsidies due to tariff shortfalls. The recent MITO review aimed at addressing these challenges, particularly for Band A customers, but structural issues like systemic collection challenges and liquidity crunch persist. One of the key underlying problems in the sector is the debt owed to gas companies, affecting the supply chain from generation to the final consumer. With gas powering a significant portion of Nigeria's electricity generation, any disruptions in gas supply can lead to reduced power output and grid instability. The increasing debt to gas suppliers has already resulted in a substantial drop in power supply, highlighting the interconnectedness of different elements in the sector. Moving forward, addressing these systemic challenges is crucial for ensuring sustainable growth and stability in Nigeria's power sector. While there are ongoing efforts to support liquidity and improve tariff structures, more comprehensive strategies are needed to tackle the root causes of the sector's challenges. Enhancing grid capacity, addressing collapses, and advancing projects like the Siemens initiative are among the areas that require focused attention and investment. As stakeholders work towards a more robust and sustainable power sector, navigating the complexities of debt management, pricing models, and supply chain dynamics will remain key priorities for the industry.