Nige­ria power cri­sis up­sets Buhari’s econ­omy push

Kuwait Times - - BUSINESS -

Nige­ria’s big­gest power sta­tion shows the huge prob­lems that Pres­i­dent Muham­madu Buhari must over­come if he is to ful­fil his prom­ise to tackle chronic elec­tric­ity short­ages and re­form an econ­omy in re­ces­sion.

On the out­skirts of La­gos, three out of six tur­bines lie idle at the Eg­bin plant, starved both of gas due to mil­i­tant at­tacks on pipe­lines that sup­ply the sta­tion - and of funds that would al­low its own­ers to buy al­ter­na­tive fu­els and even im­ple­ment an ex­pan­sion plan. Buhari won last year’s pres­i­den­tial elec­tion with pledges to in­crease power ca­pac­ity ex­po­nen­tially dur­ing his four-year term and meet the de­mands of Nige­ria’s 180 mil­lion peo­ple en­tirely within a decade.

But an up­surge of the at­tacks in the Niger Delta and acute for­eign cur­rency short­ages are frus­trat­ing his am­bi­tions, along with older prob­lems of back pay­ments owed by the fed­eral govern­ment to power sta­tion op­er­a­tors and an age­ing power grid. Buhari wants to di­ver­sify the econ­omy away from oil, sales of which ac­count for two thirds of govern­ment rev­enue. But fre­quent power cuts and soar­ing fuel costs are forc­ing many man­u­fac­tur­ers to shrink, not ex­pand their busi­nesses. This, along with fall­ing crude pro­duc­tion at a time of low global prices, is deep­en­ing Nige­ria’s first re­ces­sion in 25 years.

One such fac­tory owner is Regi­nald Odiah, man­ag­ing di­rec­tor of Ben­net In­dus­tries which makes light fit­tings in La­gos. Odiah, who set up the com­pany in 1984, said he can no longer run his fac­tory on the mains sup­ply and in­stead has to use his own gen­er­a­tors run­ning on im­ported diesel, the price of which has soared due to a dive in the Nige­rian naira cur­rency.

“It makes me sick. It has run my busi­ness down,” he told Reuters, adding that his power costs have risen by around 50 per­cent over the last year. “If it con­tin­ues the way it is go­ing, we may have to close.” Since Jan­uary, Odiah has slashed his work­force from 150 to 18 and cut out­put to just three days a week. Now the fac­tory switches to the gen­er­a­tors for pro­duc­tion runs be­cause the na­tional grid “fails you with­out no­tice”, he said, com­plain­ing of power cuts up to 10 times a day.

Nige­ria needs 10 times its cur­rent out­put to guar­an­tee re­li­able sup­plies for ur­ban and ru­ral in­hab­i­tants alike. When he came into of­fice in May last year, Buhari in­her­ited a prob­lem that has held back Nige­ria’s eco­nomic de­vel­op­ment for decades. De­spite hold­ing the world’s ninth largest gas re­serves, it re­li­ably pro­duces less than a tenth of the power that South Africa pro­vides for a pop­u­la­tion less than a third of the size.

He had some ini­tial suc­cess. To­tal power out­put rose from around 3,600 megawatts to a peak of 5,074.7 MW in Fe­bru­ary this year, ac­cord­ing to the Nige­ria Elec­tric­ity Sys­tem Op­er­a­tor. But then the at­tacks by mil­i­tants, who want more of Nige­ria’s en­ergy wealth di­rected to their im­pov­er­ished south­ern swamp­land re­gion, took hold. Out­put fell close to 1,400 MW in May - far from the leap to 20,000 MW within four years which Buhari’s party pledged in its man­i­festo for the 2015 elec­tions.

The Niger Delta pro­vides not only the bulk of the na­tion’s crude oil ex­ports, but also the gas that pow­ers Eg­bin’s gen­er­a­tors about 300 km (180 miles) away in La­gos. A mil­i­tant strike on a sub-sea pipe­line that shut in oil pro­duc­tion at the For­ca­dos field in Fe­bru­ary also curbed the flow of gas to Eg­bin. “Gas sup­ply has been a ma­jor con­straint for us from the stand­point of the Niger Delta cri­sis,” said Kola Adesina, the plant’s chair­man.

Built in the 1980s, Eg­bin has a gen­er­at­ing ca­pac­ity of 1,320 MW, enough to pro­vide a third of Nige­ria’s elec­tric­ity, and yet it is now pro­duc­ing just 606 MW. Nige­ria’s Sa­hara Group, which with South Korea’s KEPCO bought a 70 per­cent stake in Eg­bin when it was pri­va­tised in 2013, has plans to dou­ble its ca­pac­ity.

But ex­ec­u­tive di­rec­tor Tonye Cole said in Septem­ber that power tar­iffs did not cover its costs, and com­plained the govern­ment, via its bulk elec­tric­ity pur­chaser, owed it huge sums. “We’re not go­ing to pour in huge amounts of money un­til we can cor­rect all these things,” Cole said.

Eg­bin’s own­ers say they are owed 90 bil­lion naira ($295 mil­lion) in back pay­ments. This is part of a much wider prob­lem. Ac­cord­ing to the Association of Nige­rian Elec­tric­ity Dis­trib­u­tors, to­tal mar­ket rev­enue short­falls were pro­jected to be 809 bil­lion naira by De­cem­ber 2016.

Min­is­ter of Power Ba­batunde Fashola says he is work­ing with govern­ment col­leagues, the pres­i­dent’s of­fice and the cen­tral bank to re­solve the prob­lem of un­paid bills, some of which pre-date pri­va­ti­za­tion. “We will find a way ... and en­sure that go­ing for­ward they will not ac­cu­mu­late again,” he said. Still, the power gen­er­a­tors face a litany of other prob­lems linked to the in­dus­try’s struc­ture. The bulk of their costs in­clud­ing for gas, main­te­nance and im­ported spare parts - are in dol­lars but cus­tomers pay for the power in naira.

With Nige­ria hard hit by the weak world oil mar­ket, the cen­tral bank ef­fec­tively de­val­ued the naira by 30 per­cent against the dol­lar in June. The power pro­duc­ers must there­fore buy dol­lars with de­val­ued naira in­come. “The forex dif­fer­en­tial is huge,” Cole told Reuters. Of­ten the pro­duc­ers can­not find dol­lars at any­where near the new of­fi­cial rate of 305 naira to the dol­lar due to the for­eign ex­change short­age that the de­val­u­a­tion was sup­posed to ease. The al­ter­na­tive is the black mar­ket, where the rate is around 460.

Eg­bin could run at least partly on fuel oil or liq­ue­fied nat­u­ral gas brought in by ship, but all these prob­lems mean the op­tion is un­fea­si­ble at the mo­ment.


In the sum­mer, the govern­ment agreed a cease­fire with the main mil­i­tant groups in the Niger Delta. But with at­tacks re­sum­ing, it is un­clear whether this will hold, high­light­ing the need to avoid re­ly­ing so heav­ily on gas from the re­gion. Fashola said the long-term di­ver­si­fi­ca­tion plan is to de­velop a net­work of power plants funded by pri­vate in­vestors, with a fo­cus on so­lar power, hy­dro-elec­tric­ity and wind farms. Nige­ria sealed its first so­lar power pur­chase deals in July, and has also signed agree­ments with the World Bank to add more than 500 MW of gen­er­at­ing ca­pac­ity.


LA­GOS: Naira ban­knotes, Nige­ria’s cur­rency, in La­gos. Nige­ria’s econ­omy con­tracted in the third quar­ter as busi­nesses strug­gled to ac­cess for­eign ex­change and rebels con­tin­ued to bomb oil pipe­lines in the restive south, of­fi­cial data showed.

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