In a bid to address the critical challenges plaguing Nigeria’s electricity sector, estimated at a staggering N2tn ($2.5bn) capital deficit, urgent calls for new investments have emerged. The power industry in Nigeria, struggling to meet the demands of its 200 million residents, requires a revitalization through fresh capital and restructuring.
Olu Verheijen, an energy advisor to President Bola Tinubu, highlighted the dire situation in an interview, stating that Nigerian power companies are currently over-leveraged and under-capitalized. This financial strain has severely restricted their ability to invest in the necessary infrastructure for efficient electricity distribution.
Nigeria, with a population of 200 million, generates and supplies a mere 3,500MW to 4,500MW of power across its 36 states and the Federal Capital Territory. The inadequacy is compounded by issues such as inadequate pricing, irregular revenue collection, and an aging national grid. Consequently, many residents resort to using noisy generators for their power needs.
Using the city of Lagos as an example, the power grid delivers only 1,000MW to a population of 25 million. In comparison, Shanghai, with a similar population, supplies over 30,000MW at peak demand.
To address this crisis, Verheijen emphasized the necessity of policies that facilitate the reorganization and recapitalization of the power sector. The plan involves bringing in new partners with fresh capital to inject life into the struggling industry. President Bola Tinubu, in his New Year’s address on January 1, 2024, pledged to enhance electricity supply in the West African nation.
The proposed recapitalization will coincide with efforts to make electricity tariffs cost-reflective. This move is anticipated to enhance the liquidity and viability of the power sector. While the privatization of generation and distribution took place in 2013, tariffs remain under the control of the Nigeria Electricity Regulatory Commission, a government body.
Notably, power companies currently face limitations in charging tariffs sufficient to cover the distribution costs, with the government bridging the gap through subsidies. Without a tariff review, the impact of the weakening naira and accelerating inflation could result in energy subsidies soaring from N600bn in 2023 to N1.6tn in the current year, according to the regulatory body.
