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Nigeria’s Energy Crisis Hindering Economic Growth

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Nigeria’s electricity crisis is presenting significant challenges to the economy such that key stakeholders in the sector have called for holistic review of the power sector reform. They said the partial privatization exercise has failed and a new model should be adopted, CHIKA IZUORA, reports.

A recent review of the economy by PwC Nigeria, indicates that in spite of the economic slowdown, there still exists significant potential for sustainable growth in Nigeria. The report observes that there exists a sizeable non-oil economy, driven by the services and agriculture sectors which needs to become revenue and export- generating for the government.

In addition, Nigeria’s 46 million middle class population is one of the largest in Africa and is expected to be a key driver for consumption-led growth going forward.  However, in order to emerge from the current situation, Nigeria needs to take specific steps towards building internal capabilities which will enable and support the economy and one of the areas requiring immediate focus and investment is the power sector, where the low availability of power is currently a major obstacle.

The PwC report shows that Nigeria’s per capita power consumption is now only 151 kilowatts hour, kWh per year, and indeed one of the lowest in the region and globally. The sector is currently inhibited by multiple factors such as value chain losses, limited transmission coverage and supply disruptions as well as theft and corruption.

Based on ongoing projects, the per capita power consumption in Nigeria will only reach 433 kWh per year in 2025, and given the requirements of the economy and the population, there is a critical need to drive higher power availability, and there is the believe that a stretch target of 982 kWh per year (6.5 times the current level) by 2025 is realistic.

Nigeria’s current power supply is from a mixture of sources. In 2015, thermal power – mainly oil and gas constituted the majority of power generation, at 82 per cent hydropower made up a further 17.8 per cent with limited contributions by non-hydropower renewable sources making up the remainder.

Various attempts by successive Nigerian governments at industrialisation and rapid economic growth have been hampered by energy infrastructure deficit gap. Constant and adequate power supply is an important condition for industrialisation. Many efforts have been made to close this gap including privatisation.

The economic rationale behind privatisation includes efficiency among others. Therefore, the privatisation of the power sector adopted by government as a last option is aimed at tackling the myriads of problems in the sector: limited access to power, inadequate generation and usage of power capacity, overlapping/conflicting roles and responsibilities between government and holding companies etc.

But with a growing need for power to supply both domestic consumers and its growing industrial park, the federal government took a bold decision to attract private sector to invest in the industry in one of the biggest privatisation processes in history. The initiative was boost the country’s power generation capacity to 40 GW by 2020.

After a liberalising policy change in 1998 failed to attract investors, seven years later the government moved forward with the Electric Power Sector Reform Act EPSRA, and established the Power Holding Company of Nigeria (PHCN), the initial company, and then unbundled it into 18 companies called “successor companies”.

The idea was to unitise the government’s power producing assets in order to sell them to more efficient private investors that could recover and optimise production. New regulatory structures were put in place and a long-term policy was devised.

On November 1, 2013 the new owners took possession of the power producing assets, but problems emerged when investors realised that poorly kept expense logs contained records of extensive debts and the state of the crumbling infrastructure was much worse than expected. Feedstock supply was insufficient, tariffs were too low and power theft and money collection problems were rampant.

The fact that the national power transmission company remained in state control and faced its own very considerable infrastructural problems, further limited any short-term progress. However, at the time of inauguration of President Muhammadu Buhari on May 29, the available electrical power in Nigeria was about 2,500 megawatts, MW, but in less than six months power generation almost doubled.

The Nigerian Ministry of Power attributed the scale up to enhanced supply of gas to the nation’s newly constructed gas power plants. Many Nigerians, however, believe that’s only part of the explanation. The new owners of the electricity generation and distribution entities that were part of the government monopoly before liberalisation of the electricity industry had to sit up in view of the well-known no-nonsense disposition of the new president.

The National Population Commission reports there are 178.5 million people in the country, and electricity supply of 5,000 MW is grossly inadequate for that many Nigerians. Even though access to electricity is available to only to about 55 percent of the people, load-shedding for rationing electricity is widely practised all over the country despite the big jump in the supply figure noted above.

Much more than 5,000 MW of electricity is required for the socio-economic growth of the nation. Energy planning experts using modern energy modeling tools estimate that for the Nigerian economy to grow at a rate of 10 percent the country’s electricity requirement by 2020 will be of the order of 30,000 MW, and by 2030 it will be 78,000 MW.

Reacting to the dismal performance of the industry, the director-general, of the Lagos Chamber of Commerce and Industry, LCCI, Muda Yusuf said the industry reform has failed to address the country’s energy crises. Yusuf told LEADERSHIP SUNDAY that the current initiative is highly centralised thus creating unnecessary bottleneck in the system.

“We need to revisit the reform Act and adopt a new model that will help decentralise the system. While we see power generation increase at some point the critical problem is a weak link at the level of distribution. The distribution network is very weak.

We hear generation has improved, yes this can be true but when the consumer is not receiving what is generated can you say the system is working, so we the Organised Private Sector, OPS, is not feeling the impact”, he said.

According to him, a greatly expanded electricity supply regime for Nigeria will require a detailed assessment of the recent privatisation of the nation’s electricity generation and distribution infrastructure, adding that a large part of the existing transmission system is old, unreliable and unstable, with limited redundancy, which results in frequent customer outages at the transmission level. Government should facilitate and encourage the private sector to significantly improve the transmission capacity to deliver power to end users.

In his reaction, the president of the Manufacturers Association of Nigeria, MAN, Frank Udemba Jacob, observed that the national grid is weak and fragile and cannot manage more than 7,000 MW, on completion of the on-going National Integrated Power Projects (NIPPs), for distribution to consumers.

Jacob said that there is urgent need for the grid to be regionalised and privatized to enable the new owners to strengthen and expand the grid in line with the dictates of their respective zones.

On distribution, it should be noted that the Federal Government, in line with the stipulation of the Electricity Power Sector Reform (EPSR) Act 2005, should maximise access to electricity by consumers. The target should be to ensure that there is a distribution mains supply within a distance of 1 km to any consumer cluster in Nigeria.

“We in MAN is working with the ministry of power and the Nigeria Electricity Regulatory Commission, NERC, to grant us license to kickstart our own power generation infrastructure. This will help supply needed energy to manufacturers and I am glad that government is spearheading this through the embedded power initiative. Projects of the embedded generator type should be vigorously promoted at distribution networks to close the gap in local demand and supply of electricity. One way of doing this is to invite investors to be part of pre-packaged pilot projects in all the distribution companies”, he said.

He also pointed to the need for expansion of the energy mix for new power plants which will require special efforts that will call for the development of new gas fields, and there is also the need for development of both large and small farms for the production, on the one hand, of the feedstocks for biomass/biofuels power plants and, on the other hand, agro-allied industries for processing the feedstocks.

The sustainable way of doing this is to entice the organized private sector through pragmatic policies and legislations and this initiative will lead to the creation of thousands of job opportunities for unemployed Nigerians.

In one of his recent submissions, Professor Abubakar Sambo, Chairman of the Nigeria National Committee of the World Energy Council, said that the energy mix for electricity supply will need to be broadened from the current two of  hydro and gas sources to seven sources: hydro, gas, solar, wind, biomass/biofuels, coal and nuclear.

Additionally, there will be a requirement for the strengthening and expansion of the national grid along with improvement of distribution systems as well as promoting the development of fuels for gas, coal and nuclear power plants. There is also the need to update both the National Energy Policy and the National Energy Masterplan and pass them into law.

For enhanced security of electricity supply, Sambo said, there is the urgent need for expanding energy sources, from gas and large hydro to gas, hydro, solar energy, wind energy, biomass/biofuels, coal and nuclear. The new power plants can be built on the basis of public-private partnerships. The Government would then divest its involvement after some years in line with the current policy of getting the private sector to handle generation and distribution systems.

Sambo further stated that it is possible to simultaneously achieve the generation and transmission of a minimum of 8,000 MW within 18 months, from the date of constituting the Federal Executive Council of Ministers. This is because the combined capacity of the old and the 10 new power stations is at least 8,000 MW if sustained.

However, the realisation of this assurance is largely dependent on having an insight of the internal workings of the power sector and being able to work around the clock to ensure that the existing infrastructure of the generation plants, both old and new, operate at optimal level and that efforts should also be made to complete ongoing construction of new power plants.

A concrete and simultaneous approach to achieve the medium term target of a minimum 8,000 MW of power generation and transmission requires a win-win arrangement for all relevant allied supports, such as ensuring the regular supply of gas from independent oil companies (IOCs) through results-oriented discourse involving the Ministry of Power (MOP), its agencies and the IOCs for an effective cost of the gas, the economic and social cost of the gas supply including security of the pipelines; cost reflective tariff in line with the agencies of the MOP; construction of new gas pipelines; provision of sufficient electronic meters, upgrading single circuit transmission lines to the double circuit; as well as the repair and expansion of the distribution network.

Last Monday, government moved quickly to prevent the “collapse” of the electric grid after it close down six power plants following a pipeline failure and “technical issues” at Shell gas well. The Transmission Company of Nigeria (TCN) in a statement said with a total loss of 1,087 Megawatts into the grid, the transmission system has become quite fragile and is working hard to avert a collapse of the system by engaging in load shedding.

Electricity production has oscillated between 2,500 megawatts and 4,500 megawatts out of capacity of 7,000 megawatts. Reversing the country’s crippling power deficit is seen as key to driving economic growth but has evaded successive governments because of mismanagement, incompetence and vested interests.



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