The 11 electricity Distribution Companies (DisCos) would require about $10 billion in investments involving new investors, to deliver quality electricity services over a five-year period, estimates quoted by a study has said.
French Agency for Development (AFD) said Monday it commissioned the study with the support of the European Union (EU) on the Nigerian Electricity Supply Industry (NESI) challenges in order to contribute to the design of a plan for the sector. The agency commented in Abuja at a conference it organised on the Nigeria power sectors challenges.
The study carried out by a consultancy firm, AF Mercados under the Technical Assistance Programme, said, “According to the best estimates, the 11 DisCos operating in Nigeria would need more than USD 10 billion in 5 years, innovative financing solutions must be devised, possibly involving new players.”
In a presentation, the Team Leader of Capacity Building and Technical Assistance Programme (CaBTAP), AF Mercados, Jose Guerra, said the aim of this study was also to contribute to empowering decision makers in making the right decisions in the Nigeria power sector, with reliable information, officials of AFD noted.
AFD said that along with other development institutions involved in supporting the power sector in Nigeria, they had witnessed the slowdown of investments in the sector since it was privatised.
This has led to the build-up of a major bottleneck, constraining ever more access to electricity for the public and the economy, driving up the costs for users who can only resort to diesel-powered generation, AFD said.
The failed attempts at financing DisCos led the Federal Government and its development partners to think out ways of breaking the vicious cycle starting from an initial infrastructure gap and leading to today’s severe liquidity crisis with a revenue shortfall that is over $3 billion.
The report traced causes of the shortfall to the lack of a cost reflective tariff, customer dissatisfaction and a lack of performance in the power sector in general which has led to a shutdown of access to finance.
In conducting the study, AFD said Mercados worked closely with stakeholders in the sector and the DisCos since mid-2017 following the guidelines of the Performance Improvement Plans (PIP) released by the Nigerian Electricity Regulatory Commission (NERC).
The study shed light on key actions to be taken to solve the liquidity crisis in the sector such as in the areas of segmenting the electricity market into manageable urban areas, rural areas, and potential Eligible Customers.
The other segmentations are informal settlements in urban areas and peri-urban areas, and the difficult to manage rural areas.
It also shed light on the area of analysing the cost and revenue structure of the DisCos on these various segments; and on appropriate data that will help in valuing the needed investment linked to key performance indicators targets to help in forming the PIP of each DisCo as required by NERC.
The development partners however placed an emphasis on the need to set up a consistent legal and regulatory framework that would attract investors to sustain the power sector.
The presentation of the study was followed by a roundtable discussion between representatives of the private sector, ranging from banks, DisCos, to investors, representatives of government institutions, and from several development partners.
The study said there was need for more investment rather than Central Bank of Nigeria’s interventions in the electricity market. It noted that N600 billion had been earmarked as the second tranche of CBN of Nigerian Electricity Market Stabilisation Facility starting this year or by 2020.