Overhaul Still Required in the Power Sector

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Thursday, March 11, 2021 / 10:50 AM / By FBNQuest Research / Header Image Credit: Nigeria Electricity Hub


Power shortages remain a prominent infrastructure gap in Nigeria. The availability of power is a catalyst to boosting levels of industrial activity for economic development. The FGN estimates national energy demand at c.22,000 megawatts (MW). For businesses located in Nigeria, self-generation places pressure on operating expenses. Household wallets are also significantly affected by the same expense. Getting access to electricity ranks as one of the major constraints for the private sector according to the World Bank's 2020 Doing Business report. Therefore, improving power sector performance, particularly in manufacturing and services, will be central to unlocking economic growth post COVID-19.

 

The Transmission Company of Nigeria (TCN) disclosed that the power sector recorded national peak generation of 5,801MW on 01 March. It transmitted this generation through the grid at a frequency of 50.09Hz. 

 

Metering remains a challenge. The Nigerian Electricity Regulatory Commission (NERC) hinted that as at Q1 '20, only four million customers have been metered (out of c.10 million registered customers). As at end-January '21, NERC disclosed that a total of 611,231 new meters had been deployed across the country.

 

Based on the latest NERC quarterly report, only NGN62.41bn was settled by distribution companies (DISCOs) of the NGN222.5bn invoice issued by the Nigerian Bulk Electricity Trading (NBET) in Q2 '20.

 

None of the 11 DISCOs met their expected remittances to NBET in Q2 '20. The liquidity constraints are largely due to the non-implementation of cost-reflective tariffs, high technical and commercial losses exacerbated by energy theft and consumers' apathy to payments under the prevailing practise of estimated billing.

 

Furthermore, we understand that the Nigerian Electricity Supply Industry (NESI) lost NGN26.6bn due to constraints such as limited gas supply and poor infrastructure including challenges with the national grid system between 05 February and 05 March '21.

 

A recent move by the FGN to tackle the issue of power in the medium term is the approval of the establishment of Infraco, a public-private partnership infrastructure company with an initial seed capital of NGN1trn. It is designed to help fund projects from roads to railways and power plants.

 

There are vast opportunities for off-grid alternatives. According to the FGN, Nigeria requires USD4bn annually to access clean and renewable energy. Its ambition to achieve a better mix with clean energy included is demonstrated by the removal of the fuel subsidy, which makes the off-grid sector more competitive.

 

The French development agency and the Manufacturers' Association of Nigeria (MAN) are together committing USD81m to the development of renewable energy through the sustainable use of natural resources and energy finance programme. This is composed of USD70m low- cost debt financing, an USD11m grant facility and technical assistance provided to partner banks and project developers.

 

The lack of reliable power supply has stifled economic activity, private investments and job creation. An industrial take-off, which will mainly be supported by improved power supply, is required if Nigeria is ever to achieve double-digit GDP growth.


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