Nigeria’s power sector needs infrastructure investment model to unlock liquidity

In order to unlock liquidity in Nigeria’s power sector, the country must completely jettison its subsidy system and switch its investment model from consumption to infrastructure assets, leading power sector players said on Tuesday.

At BusinessDay’s 2021 future of power conference, private investors and government officials said Nigeria must switch from investment in wasteful subsidies that are non-beneficial to infrastructure investments that will make the power sector more attractive for investment funding.

Ahmad Zakari, Special Adviser to the President on Infrastructure, said Nigeria must have policies that emphasise infrastructure investments rather than extravagant consumption investment through subsidy.

He explained how the government was paying a minimum of N15 subsidy on every megawatt of electricity as back as 2015, which has recently reduced to N13.

“We want to totally eliminate the subsidy next year through a series of initiatives we would be introducing,” Zakari said at the event with the theme “Fitting the Pieces for a Secure and Sustainable Energy Future”.

To have a sustainable system, he emphasised that Nigeria needs to move away from consumption subsidy or servicing of loans to invest in infrastructure which will increase liquidity in the market.

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“Regressive subsidy is not sustainable,” Zakari said.

Edu Okeke, managing director of Azura Power West Africa Ltd, said investors will rather invest in an efficient market-reflective system than invest in a power sector with government subsidy.

“We need to have a holistic shift from consumption investment to infrastructure investment,” Okeke said. “The current service reflective tariff is the first step, but the government needs to do more.”

He advised the electricity regulators to allow distribution companies (DisCos) run a business model by supplying power to the few people who are willing to pay for power.

“Nigeria needs to also admit that it does not have enough generating capacity for its generation,” Okeke said.

Concerning funding from local banks, Muyiwa Akinyemi, General Manager, UBA Plc, said banks are moving funds towards the transactional market rather than provide funds in a subsidy market which is the current case of Nigeria’s power sector.

“Nigeria’s power sector needs incentive to attract more long-term funding,” Akinyemi said.

Ademola Adegbusi, Group Head, Power & Infrastructure, First Bank of Nigeria, said banks have not stopped lending to the power sector but are investing in more specific projects such as generation or metering.

Over the years, stakeholders have said effective metering is at the core of sustainable revenue generation and commercial viability of the electricity sector.

Without the comprehensive installation of meters, DisCos cannot give an accurate account of inflows of electricity into their network and outflows of electricity delivered to customers.

This upturns their ability to provide precise billing to clients, and payments to power suppliers upstream.

“The Discos need more long-term funds with a minimum of 10 years, they need to clean up their balance sheet books, address collection and commercial losses,” Adegbusi said.

Ebipere Clarke, SSA to the Central Bank of Nigeria (CBN) Governor on Energy & Power, said there is need to correctly resolve the investment model to reduce Nigeria’s commercial or technical losses.

He noted that investments towards funding for revenue shortfalls are unsustainable unlike CAPEX investments which are highly sustainable.

Christian Mulamula, Head Infrastructure (Nigeria), IFC, said Nigeria can only have a sustainable power sector if the citizens are paying a cost-reflective tariff.

“Initiatives towards metering are great but we need to do more in terms of poor distribution, theft and transmission losses,” Mulamula said.

Other panellists noted that if a solution is not found to such a wide scale and fundamental problem as metering, the economics of investment will remain unattractive.

The panel addressed other issues surrounding the relationship between closing the metering gap and reducing market shortfalls while also addressing electricity theft and the role of smart metering and other technological solutions.

The conference framer, Wolemi Esan, Partner, Olaniwun Ajayi LP, said Nigeria’s increasing population rate is not being matched by increasing electricity access, which has made the country the world’s energy poverty capital.

He noted that the government has fallen short in linking all its current incremental power initiates to achieve a holistic result.

“For instance, the Siemens deal has been a pool of noise but signifying not much in reality,” Esan said. “Nigeria needs bolder visions and mega projects that are capable of delivering bigger impacts in the country’s power sector.”

The BusinessDay Future of Power Conference, which has held every year since 2016, provides a vibrant face-to-face platform for important stakeholders drawn from the public, private, and not-for-profit sectors to examine the critical issues affecting the Nigeria Electricity Supply Industry (NESI), clarify priorities for action, and realise new opportunities for collaboration.

Discussions at this year’s conference centre on the main themes that have made headlines in Nigeria’s power sector over the past year, notably metering, distribution, independent power projects, clean energy and stand-alone renewable energy systems.

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