In his New Year message to Nigerians, President Bola Tinubu said significant improvement in electricity service supply is expected in the next 12 months, banking on fast-tracking power projects and private investments into the power sector.
Nigerians have been grappling with daily blackouts for years as the national power grid remains unreliable despite billions of dollars invested in the sector.
“My administration recognises that no meaningful economic transformation can happen without a steady electricity supply in 2024,” the president said.
“Just this past December during COP28 in Dubai, the German Chancellor, Olaf Scholz, and I agreed and committed to a new deal to speed up the delivery of the Siemens Energy power project that will ultimately deliver a reliable supply of electricity to our homes and businesses in 2024,” he added.
Industry watchers have blamed the challenges in the sector on an inability to create an efficient electricity market, and fix regulatory gaps that compel the regulator to kowtow to government intervention and allow indiscipline by market operators.
“The sector’s value chain is weighed down by massive debts owed to generating and distribution companies, hindering further investment and discouraging private participation,” Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies, said.
Nigeria’s electricity sector value chain has been separated into generation, transmission and distribution. The Nigerian Bulk Electricity Trading Company (NBET) runs the market, the Nigerian Electricity Regulatory Commission (NERC) regulates the sector and a standard organisation was created.
While the parts of the value chain have already been separated; the trouble is getting them to work together.
NBET buys electricity from the generating companies (GenCos) through Power Purchase Agreements and sells to the distribution companies (DisCos) through vesting contracts. The Transmission Company of Nigeria wheels this power to the DisCos for distribution to homes and businesses.
In reality, this chain is fraught with teething challenges. The GenCos are struggling to get full payment for the power sold to NBET, a situation that constrains their ability to buy gas from gas companies, fix faulty turbines and make additional investments.
The DisCos, which buy power from NBET and sell to end-users including residential buildings and factories, remit far less than they collect.
“The total revenue collected by all DisCos in 2023/Q3 was N267.61 billion out of N349.55 billion billed to customers. This translates to a collection efficiency of 76.56 percent which represents an increase of +1.02pp when compared to 2023/Q2 (75.54 percent),” NERC said in its 2023 third-quarter report.
“The DisCos collectively remitted a total sum of N158.43 billion (N124.53 billion for NBET and N33.90 billion for market operator) with an outstanding balance of N50.27 billion. This translates to a remittance performance of 75.91 percent in 2023/Q3, which is down by 19.30pp compared to the 95.21 percent recorded in 2023/Q2,” it added.
Tinubu also referenced the deal with Siemens signed on July 22, 2019, which was expected to see the German company upgrade transmission and distribution network to double Nigeria’s electricity generation and raise distribution capacity three-fold to 11,000 megawatts (MW) by 2023.
A Bloomberg report said last August that although Siemens Energy AG expected to complete an overhaul of Nigeria’s dilapidated power infrastructure, it would happen five years later than originally planned, due to delays caused by the coronavirus pandemic.
The German engineering company, which was contracted by Africa’s most populous nation four years ago to rehabilitate and expand the country’s electricity grid by 2025, will now only conclude the project in 2030, Oladayo Orolu, head of business development and government relations at Siemens Energy, told Bloomberg in an interview.
Nigeria’s power firms generate and supply between 3,500MW and 5,500MW of electricity to over 200 million citizens across the country.
Data from the Nigerian Electricity System Operator showed power generation on the national grid was 4,176.61 MW on January 7, 2024.
This poor level of power supply is seen as worrisome by various electricity consumer groups, as they stressed that privatisation has not impacted positively on the sector.
The sector was privatised in November 2013 as the federal government handed over the DisCos and GenCos to private investors.
“Inconsistent policies, overlapping regulations, and bureaucratic bottlenecks have stifled the sector’s growth,” Luqman Agboola, an energy analyst with Sofidam Capital, said.
Other experts said rising electricity subsidies will be a herculean task for Africa’s biggest economy.
NERC’s quarterly reports indicated that electricity subsidies gulped N204.59 billion in the third quarter of 2023 and N135.23 billion in Q2, which is substantially higher than N36.02 billion in Q1 2023.
Adetayo Adegbemle, the executive director of PowerUp Nigeria, a power consumer advocacy group, said bridging the gap between the cost-reflective tariff and the allowed tariff has become a significant burden on government finances, raising concerns about its sustainability.
He said: “The electricity subsidy in Nigeria has become a financial burden and is no longer sustainable. Urgent action is needed to address the disparities in subsidy distribution, prevent further strain on government finances, and redirect resources to areas where they can have a more significant impact.
“The Multi-Year Tariff Order in 2022 to gradually eliminate the subsidy. However, challenges arose with the freeze on tariff reviews in July 2023, disrupting the progress made in phasing out the subsidy.”