Connect with us


Collections and Remittances, Still a Challenge for DISCOs – Coronation Merchant Bank



power project

An industrial take-off is essential for Nigeria to achieve sustainable double-digit GDP growth. The power industry plays a key role in ensuring industrialisation across emerging economies. According to the recently released Q2 ’21 report from the Nigerian Electricity Regulatory Commission (NERC), the average of daily available generation capacity was 5,472.10 MW. Implying a decline of 8.1% compared with 5,956.23 MW recorded in Q1 ’21. However, actual generation was limited to an average of 4,074.30 MW. The total electrical energy generated in Q2 ’21 was 9,187,337 MWh, this was 3.3% lower than the 9,498,786 MWh generated in Q1 ’21 and attributable to an increase in the number of generation units that underwent maintenance and repairs, which resulted in unavailability for operations during the quarter.

In terms of delivery, a total of 8,909,910 MWh (96.9% of total generation) was delivered to the grid but only 7,332,949.05 MWh was delivered to the DISCOs during the quarter. This was due to energy export, energy sold on bilateral contracts and transmission losses.

In terms of the energy mix, the share of thermal power plants in the energy mix increased to 82.3% from 76.3% recorded in Q1 ‘21. While, the share of energy generated from hydro declined to 17.7% from 24% recorded in Q1 ‘21. According to the report, a total invoice of N259.70bn was issued to the eleven (11) DISCOs for energy received from the Nigerian Bulk Electricity Trading Plc (NBET) and for administrative service charges by the market operator (MO), but only N130.1bn was settled, creating a total deficit of N129.6bn. This represents a remittance performance of 50.1%.

This is a -1.8% decline compared with the final settlement rate of 51.9% recorded in Q1 ‘21. We note that total billing to electricity consumers by the eleven (11) DISCOs stood at N268.9bn, while total collection was N185.3bn in Q2 ’21. This implies a collection efficiency of 68.9%. However, this is a marginal improvement of 0.4% from the collection efficiency of 68.6% recorded in Q1 ’21. Ikeja, Eko and Abuja DISCOs had the highest collection efficiency of 84.5%, 84.1% and 81.8% respectively while Kaduna DISCO had the lowest collection efficiency of 33.3%.

One roadblock within the power industry is the huge metering gap for end-use customers.

According to the NERC report, as at end-June ’21 only c.4.5 million customers have meters, accounting for 41% of the estimated 11.1 million registered energy customers. Furthermore, the report shows that 315,717 meters were added by DISCOs in Q2 ’21 compared with 189,226 meters provided in Q1 ’21. Therefore, c.6.5 million (59%) unmetered customers are currently on estimated billing. A billing estimation cap has been established to guide the DISCOs and protect unmetered customers from being over charged while awaiting appropriate metering.

The non-settlement of energy bills by ministries, departments and agencies (MDAs) across the three tiers of government (i.e. federal, state and local government) also features as a challenge. Resolving the debt owed by MDAs would assist in significantly improving the liquidity of DISCOs, as well as their capacity to settle invoices from NBET and MO.

The report also revealed that in Q2 ’21, power companies from the Republic of Benin, Niger Republic, Togo and other special customers such as Ajaokuta Steel Co. Ltd, were issued a total bill of N770m by both NBET and the MO and they made no payment for the electricity supplied and services rendered. We understand that the economic scarring from the Covid-19 pandemic and lockdowns were major reasons for the non-payment.

Typically, industrial customers fall into the highest tariff class. We understand that some industrial customers prefer to avoid using the grid power supply for production purposes. This is due to the potential adverse effect of poor energy quality from the grid on production cycles. Data from DISCOs indicate that industrial customers’ account for only 12% of annual energy sales by DISCOs. To boost the patronage of grid electricity by industrial customers, improving the quality of energy supplied via the grid is imperative.

Fixing Nigeria’s epileptic power supply will serve as a catalyst to boosting industrial activities, which by extension would support economic growth and development.

Continue Reading


Forward Steps Required for Affordable Housing – Coronation Merchant Bank

Housing supply remains inadequate in Nigeria. Official records place the country’s housing deficit at 28 million units.



Housing - Investors King

Housing supply remains inadequate in Nigeria. Official records place the country’s housing deficit at 28 million units. According to the latest national accounts, the real estate sector grew by 5.3% y/y in Q1 ‘22 and has averaged a growth rate of 5.6% over the past eight quarters.

Housing finance remains in its infancy. Nigeria’s mortgage/GDP ratio of 0.6% compares with South Africa’s 23%, Tunisia’s 10.6% Kenya’s 2.1%, and Ghana’s 0.8%.

According to the FGN’s national development plan (2021-2025), the FGN intends to improve access to affordable housing by constructing between 500,000 – 1 million houses per year. The goal is to boost the real estate to GDP ratio to 8.4% y/y by 2025. It is currently 4.4%.

Coronation Merchant Bank noted that there are several priority sectors and so the FGN has competing claims for its limited budgetary funds. In the 2022 budget, the FGN allocated N12bn to the national housing program, compared with N11.9bn allocated last year.

Additionally, N10bn was allocated to social housing scheme (family homes fund), N2.1bn for new social housing in Iponri Lagos State and N1bn for new prototype housing scheme in Niger and Lagos states.

In July ’22, the MPC/CBN raised the policy rate to 14% in an attempt to combat rising inflation. The headline inflation is currently 18.60% y/y. As at June ‘22, prime and maximum lending rates were 12.9% and 27.6% respectively vs 11.96% and 27.37% in the previous month. According to the CBN, mortgage loans to the private sector by primary mortgage banks (PMBs) stood at N198.3bn in June ’22 vs N187.8bn in the corresponding period of 2021.

The Federal Mortgage Bank of Nigeria (FMBN) is the principal public financing institution, tasked with addressing housing challenges in the country. The bank provides national housing fund (NHF) loans at 4% interest to accredited PMBs for on-lending at 6% to NHF contributors over a maximum tenor of 30 years.

This is in addition to providing estate development loans to private developers, state housing corporations and housing cooperatives.

Furthermore, the bank provides a rent-to own mortgage scheme whereby the period for rental payment is 30 years with an interest rate of 7% of the property price. Other mortage products offered by FMBN include; home renovation loans, construction loans and diaspora mortgage loans.

Since 2017, the FMBN has issued c.4,985 mortgages and disbursed home renovation loans valued at N49.3bn to 60,500 beneficiaries. We understand that the construction of at least 9,500 affordable housing units across the country were financed by FMBN.

Similarly, the Nigeria Mortgage Refinance Company (NMRC) is expected to deepen the primary and secondary mortgage markets by providing liquidity to the mortgage market and enhancing the maturity structure of the industry’s loans. As at December ‘21, NMRC disclosed that it had refinanced mortgage loans totaling N21.1bn compared with N17.4bn in 2020.

Public-private partnerships (PPPs) targeted at mass housing schemes should be encouraged. Although there are commendable steps with regards to this collaborative effort, there is still vast room for improvement. The Federal Housing Authority (FHA) recently completed 1,016 affordable housing units in select locations across the FCT, Bayelsa and Cross River. To expand this project to other states such as Imo, Rivers and Lagos, the FHA has considered leveraging PPPs.

On a separate note, it is worth highlighting that the Nigerian Exchange Group (NGX) recently raised c.N72bn (USD167.9m) for real estate companies quoted on its platform. Furthermore, NGX intends to launch an “impact board” to support the listing of social bonds that would raise capital to meet housing sector needs.

Funds held by pension fund administrators (PFAs) can be channeled towards providing affordable housing. As at June ’22, assets under management (AUM) totalled N14.2trn. However, funds allocated to the real estate and real estate investment trust (REIT) asset classes account for less than 2% of total AUM.

PFAs could consider increasing their exposure to funds or companies in the housing value chain, pursuant to PENCOM investment guidelines. Bespoke instruments such as mortgage-backed securities would also assist in capital formation and reduce the housing deficit.

Another challenge faced by the housing sector, is the lack of a robust housing database. There is a silo-working approach regarding data gathering within the sector. Developers, real estate agents and financers tend to build their respective in-house database but seem reluctant to share publicly due to concerns around market share expansion.

Meanwhile, data collected by regulators with oversight on investment, urban development, and participation in property markets is not readily available in the public domain. The dearth of data contributes to the sluggish pace in homeownership and affordable housing initiatives.

The rising cost of building materials poses as another challenge impacting housing supply and affordability. The heavy reliance on imported inputs (such as, building materials) used for construction exposes the sector to passthrough effects that emerge from exchange rate depreciations. Industry sources suggest that c.55% of building materials are imported.

Given its importance in driving socio-economic development, affordable housing remains at the front burner not just in Nigeria but across other African countries. Prior to the coronavirus outbreak, housing shortage in Ghana was recorded at c.2 million housing units.

The government proposed several affordable housing interventions, including resuscitating initiatives that were stalled at various stages of development. However, given the current macroeconomic environment – rising inflation, a depreciating local currency and high public debt, fiscal prudence is required, and this could affect projects geared towards affordable housing initiatives. Ghana plans to trim its 2022 national budget by c.30%.

We note that the housing deficit in Kenya is also estimated at 2 million units. However, given the steady pace of urbanization, the housing deficit is expected to widen. Based on local newswires, at least 500,000 affordable housing units are expected to be delivered in 2022 (i.e. c.1% of Kenya’s total population).

The construction sector posted growth of 6.4% y/y in Q2 ’22 and is regarded as one of the country’s green shoots. Meanwhile, South Africa continues to struggle with adequate and affordable housing. The housing deficit is estimated at 3.7 million units, and this can be partly attributed to relatively high poverty and unemployment levels. South Africa’s unemployment rate has hit 34.4%, rural-urban migration has contributed to rising unemployment rate.

In Nigeria, there is no shortage of policies with regards to tackling challenges across economic sectors, the housing sector inclusive. Affordable housing targets remain unmet partly due to security challenges in select locations, structural issues contributing to supply-side constraints and the current hazy macroeconomic environment which is also affecting demand dynamics. According to the Bank of Industry, N21trn (USD48.9bn) is required to close the current housing gap in Nigeria.

Forward steps with significant progress require partnerships with the private sector. We hope to see increased activity across the property market (both demand and supply) as the economy continues on an upward growth trajectory.

Continue Reading


Cost of Servicing Nigeria’s Debt to Hit N10.43 Trillion by 2025

Nigeria’s debt servicing was estimated to hit N10.43 trillion by 2025



US Dollar -

Nigeria’s debt servicing was estimated to hit N10.43 trillion by 2025, according to the 2023-2035 Medium Term Expenditure Framework & Fiscal Strategy Paper.

In 2021, Nigeria budgeted N3.32 trillion for debt servicing but spent N4.2 trillion in the first 11 months of the year, representing an increase of 37.9%, or N1.15 trillion.

While between January and April 2022, the country has already spent N1.94 trillion on debt servicing, against a retained revenue of N1.63 trillion. Meaning, Africa’s largest economy is presently spending more than its generating on debt.

Rising interest payments on debts might wipe out Nigeria’s entire earnings, said Ari Aisen, an IMF representative in Nigeria.

Aisen said, “The biggest critical aspect for Nigeria is that we have done a macro-fiscal stress test, and what you observe is the interest payments as a share of revenue, and as you see us in terms of the baseline from the federal government of Nigeria, the revenue of almost 100 per cent is projected by 2026 to be taken by debt service.

“So, the fiscal space or the amount of revenues that will be needed and this, without considering any shock, is that most of the revenues of the Federal Government are now, in fact, 89 per cent and it will continue if nothing is done to be taken by debt service.”

Similarly, Patience Oniha, the Director General of the Debt Management Office, said the country’s high debt servicing cost is affecting investment in the real economy.

According to the DMO DG, “High debt levels lead to heavy debt service which reduces resources available for investment in infrastructure and key sectors of the economy.”

Nigeria’s Minister of Finance Ahmed Zainab said the country is presently struggling with the rising cost of servicing debt despite the increase in revenue.

She said, “Already, we are struggling with being able to service debt because even though revenue is increasing, the expenditure has been increasing at a much higher rate, so it is a very difficult situation.”

Continue Reading


U.S Senate Passes $749 Billion Inflation Reduction Act

The United States Senate has voted in support of President Joe Biden’s $749 billion Inflation Reduction Act expected to rein in America’s over 40-year high inflation rate, support American families by reducing everyday energy costs and compel the richest corporations in America to pay their taxes.



The United States Senate has voted in support of President Joe Biden’s $749 billion Inflation Reduction Act expected to rein in America’s over 40-year high inflation rate, support American families by reducing everyday energy costs and compel the richest corporations in America to pay their taxes.

Explaining the significance of the bill, the President said it will reduce the federal deficit by over $300 billion and cap seniors’ out-of-pocket spending on prescription drugs at $2000 a year, no matter what their drug bills would otherwise be, seniors citizens will not pay more than $2000.

Also, 13 million Americans presently under the Affordable Care Act, will save $800 on their health insurance premium a year.

“This bill tackles inflation by lowering the deficit and lowering costs for regular families,” President Biden declared.

Americans earning below $400,000 a year will not pay any new taxes while the wealthiest corporations will now be paying 15% on income, estimated at $40 billion in 2020. The bill will ensure America invests $369 billion in clean energy and addresses the climate crisis.

“It also gives consumers a tax credit to buy any electric vehicle or fuel cell vehicle, new or used, and a tax credit for up to $7,500 if those vehicles were made in America.

“This investment in environmental justice is real. It also provides tax credits that will create thousands of good-paying jobs — manufacturing jobs on clean energy construction projects, solar projects, wind projects, clean hydrogen projects, carbon capture projects, and more — by giving tax credits for those who build these projects here in America,” President Biden stated.

Speaking on the milestone, President Joe Biden said “I ran for President promising to make government work for working families again, and that is what this bill does — period.”

President Biden would be expected to sign the Act into law once the House of Representatives passed it.

Continue Reading