The Nigerian federal government has made a startling disclosure that the country’s electricity companies are grappling with a staggering capital deficit of N2 trillion ($2.5 billion), a substantial barrier hindering the revival of the industry and the provision of a stable power supply across the nation.
Olu Verheijen, an adviser to President Bola Tinubu on energy, disclosed these challenges in an interview with Bloomberg, emphasizing the urgent need for policy adjustments and recapitalization.
Verheijen shed light on the financial predicament of Nigerian electricity firms, citing excessive debt and inadequate capital as primary obstacles to investing in the expansion of household electricity distribution. She advocated for policies facilitating reorganization and the infusion of new capital through strategic partnerships.
“We need to set policies that facilitate reorganization and recapitalization and bring in new partners with new capital,” she said.
The adviser further highlighted the deficiencies in the national grid, pointing to factors such as inadequate pricing, inconsistent revenue collection, and the dilapidated state of the grid, which have collectively resulted in a scenario where a significant portion of Nigeria’s population resorts to generating their own power using noisy generators.
She said there is a stark comparison between the power supply in Lagos, where the grid delivers only 1,000 megawatts to a city of 25 million people, and Shanghai, which provides more than 30,000 megawatts at peak demand with a comparable population. This disparity underlines the critical need for comprehensive reforms in the Nigerian power sector.
One proposed solution put forth by Verheijen is a cost-reflective tariff review, coupled with the much-needed recapitalization. According to her, this dual approach aims to improve the liquidity and sustainability of the power sector.
She cautioned that without implementing tariff adjustments, the weakened Naira, which experienced a 50% drop against the dollar last year, coupled with escalating inflation, could lead to energy subsidies skyrocketing to N1.6 trillion in 2024.
“With the current tight fiscal space, the government’s ability to cover this shortfall is challenged. These issues have exacerbated the financial liquidity challenges in the sector,” she said.
Skepticism surrounds the idea of fresh investments
However, some analysts have expressed skepticism about injecting fresh funds into the power sector without addressing the fundamental shortcomings that have impeded its growth. Despite the federal government’s claim of spending N7 trillion in direct interventions since 2013, even after privatizing the generation and distribution arms of the industry, tangible progress remains elusive.
Nigeria currently possesses a total installed capacity for electricity generation of 13,000 megawatts, yet only 4,000 megawatts effectively reach homes and businesses. This substantial gap emphasizes the urgent need for improvements and investments in the distribution system to efficiently channel the country’s potential power generation to meet the energy needs of its population.
In comparison, South Africa, with a population a third the size of Nigeria’s, boasts a capacity of about 52,000 megawatts, three-quarters of which comes from a state-owned utility running aged plants.
Moreover, the historical data on grid collapses and power outages in Nigeria paint a concerning picture. In 2010, there were 42 instances of total and partial collapses, followed by 19 in 2011, 24 in 2012, and a consistent pattern of system failures in the subsequent years. In 2022 and 2023 alone, the grid collapsed eight and approximately 24 times, respectively.
The economic repercussions of these persistent challenges are significant, with the estimated cost of power outages in Nigeria standing at around $28 billion, equivalent to 2% of the country’s GDP.
Analysts believe that the revelation of a N2 trillion shortfall in Nigeria’s electricity sector, among other impediments, underscores the urgency for strategic reforms, investment, and policy restructuring to address systemic challenges and bridge the gap between potential power generation and actual delivery. Failure to tackle these issues, they say, could perpetuate the nation’s energy crisis, adversely impacting economic growth.
