FG: Power Firms Short of $2.5bn of Capital to Improve Electricity Supply
The federal government has stated that Nigerian electricity companies are short of an estimated N2trillion or about $2.5 billion in capital to improve power supply to Nigerians.
A report by Bloomberg yesterday also said that the industry would require new investors to revive the industry that can barely supply power to its 200 million residents.
Special Adviser to President Bola Tinubu on Energy, Olu Verheijen, said the companies are over-leveraged and undercapitalised, which has limited their capacity to invest in distributing electricity to households.
Inadequate pricing, patchy revenue collection and a dilapidated national grid have left most residents in Africa’s most populated nation to produce their own power using noisy generators.
In Lagos, Nigeria’s commercial capital, for instance, the grid delivers only 1,000 megawatts to the city of 25 million people. By contrast, Shanghai, with roughly the same population, supplies more than 30,000 megawatts at peak demand, Bloomberg said.
“We need to set policies that facilitate reorganisation and recapitalisation and bring in new partners with new capital,” the adviser said, but without providing a date or more details for the plan.
Tinubu pledged on January 1 to improve electricity supply in the West African nation. The Minister of Power, Adebayo Adelabu, thereafter followed up with a statement, stressing that the new roadmap for the sector was ready.
Adelabu noted that in recognising the critical role of electricity in economic growth, the initial three months of his assumption of office focused on diagnosis, stakeholder
consultation, and strategy formulation.
With a well-documented implementation plan now in place, he added that it is now time to take decisive action.
“Our primary focus is enhancing distribution and transmission infrastructure to minimise technical and commercial losses. The lack of liquidity continues to be a significant challenge in the electricity market.
“We are currently reviewing the implementation process of a cost-reflective tariff, while government will continue to subsidise power supply to those that are vulnerable in our society,” he added.
But the recapitalisation, Bloomberg reported, will accompany plans to make electricity tariffs cost-reflective, which will improve the liquidity and viability of the power sector, according to Verheijen.
While the country privatised generation and distribution in 2013, tariffs are set by the Nigerian Electricity Regulatory Commission (NERC), a government-controlled body.
Power firms aren’t allowed to charge enough to recover the cost of distributing electricity, with the government paying the difference as a subsidy to companies in the sector.
Without a tariff review, weakness in the naira — which slumped 50 per cent against the dollar last year — and accelerating inflation could push energy subsidies to N1.6 trillion this year from 600 billion naira in 2023, according to the regulator.
“With the current tight fiscal space, government’s ability to cover this shortfall is challenged,” Verheijen said. “These issues have exacerbated the financial-liquidity challenges in the sector,” she added.
Only 4,000 megawatts of Nigeria’s 13,000 megawatts of installed capacity for electricity generation are distributed to homes and businesses.
In contrast, South Africa — with a population that’s a third the size of Nigeria’s and whose economy was crippled by almost-daily power cuts last year — has about 52,000 megawatts of capacity, three quarters of which comes from a debt-riddled state-owned utility running aged plants, the report stressed.