Spotlight on the Nigerian Power Sector


Thursday, October 21, 2021 / 12:59PM / FBNQuest / Header Image Credit: EOS Intelligence

Power is a major catalyst for productivity and growth in any economy. According to the 2021 tracking SDG7 report, as at 2019, Nigeria had the world's largest energy access deficit, with 45% (90 million) of its population lacking access to electricity. Nigeria held the same position in 2018. In its latest development update on Nigeria, the World Bank estimates annual economic losses from lack of reliable power at USD25bn (5-7% of GDP). Today, we highlight some of the sector's challenges: gas shortage, power losses, electricity subsidies and deficient tariff policies.

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  • Insufficient gas supply has remained a major constraint to efficient power generation. Nigeria currently has about 28 generation companies (GenCos), 25 of which run gas-fired plants. In its latest (Q2 '20) report, the Nigerian Electricity Regulatory Commission (NERC) reported that gas accounted for 81.5% of the electricity generated in the reference period. Gas shortage has led to consistent underutilisation of the GenCos' production capacity.
  • The transmission and distribution companies regularly grapple with high losses. The average aggregate technical, commercial & collection (ATC&C) losses recorded by the sector hit 49.1% in Q2 '20, higher than 15% that is seen as best practice internationally, and the c.20.3% allowance as stated in the Multi-Year Tariff Order (MYTO) of 2020.
  • According to the NERC, these losses are reflective of energy theft, low investments in distribution networks aggravated by inadequate metering of end-use customers, and pandemic-related restrictions which hindered collection of payment due from consumers.
  • The high indebtedness of many ministries, departments, and agencies (MDAs) also exacerbated these losses. We understand that the FGN has set aside NGN327bn in the FY '22 budget to offset the electricity tariff shortfall incurred by these MDAs.
  • The FGN also funds the electricity tariff shortfalls for the rest of the country. The World Bank estimates the cumulative shortfalls for 2015 through 2019 at NGN1.7trn. In 2019, total FGN support hit NGN524bn. It was disclosed at the recent public presentation of the FY '22 budget proposal that the FGN has earmarked NGN300bn to subsidise electricity next year.
  • One reason for the consistent electricity tariff shortfalls is the lack of cost-reflective tariffs. A critical function of the NERC is to regulate electricity tariffs and ensure that charges are fair to customers. Although the NERC issues MYTOs, enforcement has always been a challenge. This results in liquidity constraint across the value chain, forcing the FGN to intervene and cover the shortfall - a significant fiscal burden.
  • Nigeria's huge metering gap for end-use customers also contributes to electricity tariff shortfalls as the use of estimated post-paid billing (which is the only alternative) often leads to billing and collection inefficiencies. Data from the NERC show that of over 10.5 million registered electricity customers as of H1 '20, only 4.2 million (40.3%) had been metered. The Meter Assets Provider (MAP) scheme and the National Mass Metering Programme (NMMP) which were launched to tackle this challenge have led to the metering of about 1.1 million consumers as of July '21. Under the NMMP, the CBN has so far disbursed NGN41.1bn to ten DisCos, for the procurement and installation of over 750,000 meters nationwide.
  • As the nation emerges from the pandemic-induced slump of 2020, there is a need for increased productivity, spurred on by economic activities, private investment, and job creation. To achieve these, fixing the power sector is paramount.

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