Power cuts exposes Nigeria’s diesel-dependent economy

Africa’s largest economy is relying more on Automotive Gas Oil (AGO) commonly called diesel, to keep machines humming as the country lives through power outages never seen before in recent times.

Diesel generators are roaring harder than before in a nation where nearly 80 million people – some 40 percent of the population – have no access to grid power.
But the soaring cost of diesel is taking a toll on businesses. A litre of diesel has risen above N625 in filling stations around major cities.

This represents an 118.75 percent increase within months when compared to the N288 per litre it sold in January, according to the National Bureau of Statistics (NBS) data.
“A 20 percent price increase could shave 0.2 percent off GDP growth, now imagine what over 100 percent could do to Nigeria’s economy,” Luqman Agboola, head of energy and infrastructure at Sofidam Capital said.

Higher costs for maintaining generators, computer servers and mobile phone towers that power Nigeria’s creaking economy could further impair growth. GDP is already limping at 3.4 percent growth at a time inflation is at 15.6 percent.
“With the population growing at 2.6 percent each year, people are getting poorer,” Agboola said.

According to the 2022 budget, the federal government will spend N85 billion to buy new power generating sets and N19 billion to fuel them bringing the total to N104 billion ($252 million).

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That amount can build a 250-megawatt power plant using global market benchmark which puts the cost of a one-megawatt power plant at $1 million.
This is more than enough to power all the government’s ministries, departments and agencies and just enough for the homes of 250,000 households or at least one million people with the assumption of four people per household.

“These numbers the federal government is proposing to purchase generators are outrageous,” Ayodele Oni, energy lawyer at Bloomfield law practice, told BusinessDay.
“How can we be spending this much on generators when the average international price for a kilowatt of power is one million dollars?” he asked.
Oni advised the government to leverage its gas potentials to power its ministries and agencies by building more power plants rather than spend so much on generators.

Along with the financial cost of generators are health and environmental costs. Two out of three generator users in Nigeria complained of hearing impairment, according to data cited in a 2019 report by the Access to Energy Institute (A2EI), a non-profit research and development institute working to advance the use of solar energy in developing countries.

“The noise is delirious,” Bello Ajayi, a businessman who works close to one of the government’s major agencies, told BusinessDay. “Every time a nearby generator goes off, it’s like a part of your soul you never knew was missing, returns.”
“Everybody hates them,” he added, “but everybody including government officials have one.”

Many businesses are already searching for solutions. A former chairman, Nigerian Institution of Estate Surveyor and Valuers, Lagos State, Adedotun Bamigbola said what is prevalent in most of the newly built residential houses is for management to provide inverters with the sales of the properties to reduce dependency on generators as a source of power supply.