Mission-300 Nigeria’s 5-Year Energy Compact (Part Three)

This is the third instalment of the opinion piece on Nigeria’s National Energy Compact prepared as part of the African Development Bank-World Bank-inspired Mission-300 targeted at bringing electricity to 300 million Africans by 2030, in line with the United Nations Sustainable Development Goal 7 (SDG7). A key aim of this article is to give more details about the National Energy Compact of Nigeria in a way that does sufficient justice to the tremendous effort of the technocrats and professionals who prepared it and give due credit to the Federal Ministry of Power, while at the same time pointing out gaps wherever they exist, and provide more information about the document to the reading public, including various energy sector stakeholders.

The National Energy Compact for the Federal Republic of Nigeria seeks to provide access to one hundred percent of Nigeria’s population to electricity, up from 61 percent currently, by increasing the pace of access to electricity in Nigeria from 5 percent to 9 percent per annum; increase the annual rate of access to clean cooking from 22 percent to 25 percent per annum to achieve one hundred percent access of the population by 2030, providing clean cooking to 227 million people, including women and marginalised communities; increase the share of renewable energy in our energy mix from 22 percent to 50 percent by 2030; and create the enabling business environment for energy sector investors to provide US$15.6 billion private capital for last mile electrifications. The plan is also to ensure “that grid generation and transmission expansion is based on least-cost planning and through competitive procurement” and “approval of the National Integrated Electricity Policy and Strategic Implementation Plan (‘NIEP-SIP”) in consultation with relevant stakeholders by 2025 to clarify the role of federal versus state, the role of different generation sources, sector institutions, including distribution, market creation, etc., 2025.”

Read also: Mission-300: Nigeria’s 5-year energy compact (Part One)

In line with The Electricity Act 2023, state governments now have the power to establish and regulate their own electricity markets following the guidelines of the Nigerian Electricity Regulatory Commission (NERC). The policy thrusts and activities at the subnational level are expected to complement that of the Ministry of Power at the national level to realise the national goal of universal access to electricity and clean cooking.

“The policy thrusts and activities at the subnational level are expected to complement that of the Ministry of Power at the national level to realise the national goal of universal access to electricity and clean cooking.”

The National Energy Compact document reveals that Nigeria currently has 12,000 megawatts (MW) of installed grid-connected capacity, out of which only 40 percent is currently being utilised, due to a combination of factors, including insufficient gas supply to our thermal plants and weak transmission infrastructure. There is a plan to invest $2.1 billion from tariff and non-tariff sources to upgrade the transmission infrastructure of the Transmission Company of Nigeria between 2024 and 2026. Similarly, the distribution infrastructure is weak, due to very little capital investment since their partial privatisation in 2013 resulting in extremely high aggregate technical, commercial and collection (ATC&C) losses of as high as 47 percent. It is patently wrong for the National Energy Compact document to state that the privatisation of the distribution companies “was completed in 2013.” The federal and state governments still own 40 percent. The federal and state governments should completely divest by selling the shares to the investing public through an Initial Public Offering on the stock exchange. Until that is done, and until a full reflective tariff is achieved and the seven million meter gap is bridged, the DisCos will not have the needed liquidity to upgrade their distribution infrastructure. That is the way to enthrone Pillar II of the National Energy Impact, which is to “work towards financially viable utilities that provide reliable service.”

Pillar III, “incentivise private sector participation to unlock additional resources,” aims to mobilise private sector capital for on-grid and off-grid access to power. The primary challenge is the illiquidity of the DisCos, as highlighted above. The government is doing a great deal in this direction, including the public presentation of the National Integrated Electricity Policy (NIEP) last week, which includes the planned phase-out of the N3 trillion electricity subsidy, the inauguration in 2023 of the US$500 million World Bank-supported Nigeria Distribution Sector Recovery Programme (DISREP), which seeks to improve the financial and technical performance of the DisCos to improve their liquidity and enhance their financial and technical operations. The seven million three-year metering gap programme is another programme to limit the financial losses of the DisCos and the entire electricity value chain. However, the government needs to complement these laudable initiatives with the full privatisation of the DisCos and the ten National Integrated Power Plants (NIPPs).

Pillar IV, “Embrace Distributed Renewable Energy (DRE) and clean cooking solutions for affordable last mile access,” represents the sustainable energy component of the National Energy Compact, especially with emphasis on solar and mini-grids. The federal government has already invested $550 million through the Nigeria Electrification Project (NEP) in 158 mini-grids serving about half a million people as well as providing result-based financing to solar system distributors who sold about 1.1 million stand-alone solar energy solutions that have brought power supply to about five million Nigerians.

Read also: Mission-300: Nigeria’s 5-Year Energy Compact (Part two)

The funding requirements from the public and private sectors for implementing the National Energy Compact are as follows. Public: generation ($3,000m), transmission ($5,300m), distribution ($3,400m), off-grid ($4,300m), and clean cooking ($1,200m), making a total of $17,200m. Private: distribution ($5,100m) and off-grid ($10,500m), making a total of $15,600m.

What the entire narrative shows is that the National Energy Compact of Nigeria is largely and overwhelmingly a public sector proposition. The Nigerian power sector should be completely and fully and conclusively privatised. The government only needs to spend $1,200 on clean cooking access. The rest can be provided by the private sector in a fully privatised Nigerian power sector. The government can then spend the remaining $16 billion on infrastructure in other sectors.

Mr Igbinoba is Team Lead/CEO at ProServe Options Consulting, Lagos