A Review of the Power Sector in Nigeria (2018 – Present)

Nigeria is the largest economy in sub-Saharan Africa with a GDP of approximately USD379 billion (NBS, 2018). Despite being one of the largest oil and gas producing countries in the world, it struggles to provide power to its 198 million population (NPC, 2018).

The power sector is plagued with structural issues across its value chain. These include:

  1. Low operational capacity compared to its installed capacity;
  2. Chronic vandalism that has crippled gas pipelines, creating gas shortages at power plants;
  3. Underinvestment in infrastructure and poor maintenance that has affected transmission.
  4. High collection and commercial losses have impacted on the financial viability of privatised distribution companies.

Nigeria has about 13 Giga-Watts (GW) of installed electricity generating capacity, out of which less than half is operational due to gas constraints. Currently, these constraints and inadequate infrastructure have led to a 64% gap between the installed capacity and the actual generation capacity of 7GW. With a current electricity demand of 98GW, the nation struggled to sustain an average daily generation of 3.8GW in the first half of 2019.  13 out of 36 states in the country have an access rate below 40%.

In the month of June 2019, seven gas generation power plants were idle resulting in average on-grid power generation dropping to 3.4GW, a significant decline from the generation peak of 5.4GW attained in February 2019.

On a more positive note, the evacuation capacity of the Transmission Company of Nigeria (TCN)  has grown to 8.1GW,  which exceeds current operationally available generation capacity. However, it still remains inadequate when compared with the generation potential that could be realised if gas constraints are fully resolved. The problems with transmission have been largely due to the insufficient financing of the TCN triggered by:

  1. Low operating tariff;
  2. Incomplete legacy projects and;
  3. Declining budgetary allocation.

The distribution phase – the final stage of the power supply value chain – wherein, 90% of the transmitted power reaches electricity consumers through the electricity distribution companies (DisCos).

Significant problems in the power sector are encountered at this stage. Most notably, distributors face large collection and commercial losses since more than 50% of the nation’s electricity consumers do not pay for the power they consume.

DisCos are also faced with metering and monitoring problems that make it difficult to track electricity usage.  Consequently, sector profitability is very low for potential investors.

The Nigerian government has taken steps to try and address the challenges faced across the power generation value chain.  They include the introduction of a power regulatory body – the Nigerian Electricity Regulatory Commission (NERC) in 2005 -, the unbundling of power assets and the implementation of the National Integrated Power Project formed to address issues of insufficient electricity generation.

In 2018, a Meter Asset Provider (MAP) was introduced by NERC to eliminate estimated billing practices. Finally,  the Electricity Theft and Prohibition Bill was submitted to the senate committee in an effort to tackle the 35% energy losses due to theft and sabotage.

RECOMMENDATIONS

  • Clarify provisions with existing regulations. Policies around the publication of distribution company expansion plans should be clear and properly enforced to eliminate the uncertainty power operators currently face.
  • The long-term viability of the sector is tied to the health and sustainability of all stages of the value chain from generation to payment by end users. Thus, it is imperative for the government to implement cost reflective tariffs that reflect market realities.

For more information, please see full report.

 

 

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