Businesses in major cities in Nigeria suffer an average monthly power outage of 239 hours equivalent to two weeks, raising operational costs and impacting negatively on profits, analysts at FBN Quest has said citing industry sources, in a note sent to BusinesDay.
“Therefore, self-generation and the associated cost are unavoidable, depleting profit margins of businesses,” the analysts said.
Power is a major constraint to Nigeria’s economic growth and limits its ambition to be one of the world’s top 20 economies by 2020. In many industrialized nations, for every thousand of population, 1MW is required so Nigeria’s energy need is actually 180,000MW given its population of 180million.
However, Nigeria’s Vision 2020 report and the road map for powers sector reform set the target of 40,000MW by the year 2020. This has since been revised to 25,000MW by 2020. Currently, power generation capacity from the grid stands at around 7,000MW while distribution capacity is still below 5,000MW.
This low capacity in power generation and distribution has forced many businesses to increasingly rely on alternative power sources. Sanusi Ohiare, executive director, Rural Electrification Agency (REA) said businesses in the country spend an estimated N5trillion annually importing, fuelling and maintaining generators.
In March, power generation suffered some setback due to gas supply shortage, gas supply declined to 17.5 million standard cubic feet (mmscf) compared with 21.5mmscf in February.
“Aside from gas shortages, the sector suffers from poor liquidity across its value chain. This is partly linked to non-reflective cost tariffs as well as commercial losses aggravated by consumers’ apathy to making payment. As at end-December 2018, DISCOs had collectively paid only 28% of their N1.08trn debt to the Nigerian Bulk Electricity Trading Plc (NBET),” said the analysts.
There is growing interest around off-grid solutions. “We understand that Borno State has unveiled a solar panel factory with the capacity to produce 40 Megawatts (MW) of panels annually. The goal is to achieve self-sufficient power generation over the next three years as Borno requires about 120MW to 150MW to power its industrial drive,” the analysts said.
FBN Quest analysts say a better energy mix would reduce operating costs for businesses and boost productivity. The manufacturing sector grew by 2.4% y/y in Q4 2018.
