Thursday, March 10, 2016 05:50PM / FDC
Nigeria has about as much electricity as Edinburgh. That is a problem.
Out in the farthest reaches of Lagos, a bumpy boat ride across the city’s dividing lagoon, Egbin power plant is trying to light up one of the world’s darkest nations. Six turbines growl in its huge belly, watched over by mechanics in a futuristic control room.
They say the place is barely recognizable since privatization in 2013. Output has rocketed since Sahara Group, a Nigerian energy conglomerate, took over. When running at full steam, Egbin generates almost a quarter of the whole country’s electricity.
That is not a particularly stretching target. Of Nigeria’s many daily headaches, power is perhaps the worst. After years in which state-owned power plants decayed, the government changed course by selling power stations and the distribution grids that carry power to homes and businesses.
This bold stroke was meant to turn the lights on, and indeed it has encouraged investors to put millions of dollars into upgrading the battered system. Yet the supply of power has failed to respond as hoped in the two years since privatization.
At the moment the country’s big stations produce a pitiful 2,800MW, which is about as much as is used by Edinburgh. Only just over half of Nigerians have access to electricity, and it is still harder for businesses to hook up to the grid than almost anywhere else.
One reason why privatization has failed to improve Nigeria’s power supply is that the process itself was flawed from the start. Even as companies were bidding to buy power stations or distribution companies, striking staff prevented them from looking at what they were buying.
Once the deals were done they found they had bought rundown equipment and companies whose books had been systematically cooked. More important, though, was that many could not get the gas they needed to power their plants.
Government meddling held down gas prices, which meant that many producers would simply flare it off (while extracting oil) instead of bothering to sell it at a deep loss. Moreover, the pipes meant to carry the flammable stuff are rusting and regularly vandalized by thugs demanding money to protect them.
The privatization process was also incomplete and left the trans-mission grid (which carries electricity from power stations to the local distribution grids) in the hands of the state. It has not in-vested much, so huge amounts of power fizzle out on its dilapidated lines. Even if power plants could generate more electricity, the grid would not be able to handle it.
At Egbin a handful of people employed by the state-owned transmission network sit watching YouTube clips as their private-sector colleagues beaver away. Power plants are also owed colossal sums by the agencies that act as middlemen between generation companies and the distributors.
Egbin alone is some $225m out of pocket. The intermediaries, in turn, blame distributors, saying they have not been collecting cash from their customers. As for the distributors, they say that the tariffs they are allowed to charge are too low to cover their costs and that, in any case, Nigerians do not pay their bills.
Depressingly, the biggest offender is the government, whose various departments and agencies owe almost $300m. “It’s difficult for anyone to go to a military barracks and order them to pay—except if you’ve written your will,” says one insider.
More than a year ago the Central Bank of Nigeria organized a $1 billion loan to plug the gap and avoid a wave of insolvencies among power generators, but only a fraction has been disbursed.
Since then a falling currency and shortages of foreign exchange have made it harder for private power producers to service debts denominated in dollars, a currency many chose because it offered lower interest rates than borrowing in naira. Finding cash (and hard currency in particular) to buy gas, maintain machinery and pay technical partners is a growing strain.
Dallas Peavey, Egbin’s chief executive, reckons that without repayment or preferential access to foreign currency he can keep the country’s biggest power station running for just another four weeks.
Still, there are glimmers of hope. In recent years the government has raised the price of gas, and supplies are growing more reliable. Distribution companies are installing new meters, which are harder to fiddle.
Unpaid public electricity bills are being chased up. Most crucially, tariffs were increased in February by as much as 45%. It did not go down at all well with locals. But if Nigerians can be convinced to pay their bills, it ought to get some cash flowing through the system. That would be a start.