Nigeria’s electricity sector grapples with a daunting capital deficit of approximately N2 trillion ($2.5 billion), highlighting the urgent need for fresh investments to revitalize an industry struggling to meet the power needs of its 200 million citizens.
Olu Verheijen, the energy adviser to President Bola Tinubu, emphasized the over-leveraged and under-capitalized state of electricity companies, hindering their capacity to invest in household power distribution, as reported by Bloomberg.
The country faces power challenges due to pricing inadequacies, erratic revenue collection, and a deteriorating national grid. With the national grid delivering only 1,000 megawatts to a city like Lagos, housing 25 million people, most Nigerians resort to using generators for their power needs. In contrast, Shanghai, with a similar population size, provides over 30,000 megawatts at peak demand.
Verheijen underscored the necessity for policy changes to facilitate restructuring, strengthen capitalization, and attract new investors, without specifying a timeline or detailed plan.
President Tinubu, on January 1, expressed a commitment to enhance electricity supply in Nigeria.
Recapitalization efforts will align with tariff adjustments aimed at reflecting true costs, potentially improving the financial stability of the power sector.
The Nigeria Electricity Regulatory Commission, controlled by the government, sets tariffs, leaving power firms unable to recover electricity distribution costs. Consequently, the government subsidizes these firms, bridging the financial gap.
Without tariff revisions, the impact of currency devaluation and escalating inflation may increase energy subsidies from 600 billion naira in 2023 to 1.6 trillion naira in the current year, posing fiscal challenges for the government.
Of Nigeria’s installed capacity of 13,000 megawatts for electricity generation, only 4,000 megawatts are distributed, highlighting the country’s struggle with power distribution inefficiencies.
In contrast, South Africa, despite economic challenges and frequent power shortages, possesses approximately 52,000 megawatts of capacity, with most of it derived from a debt-ridden state-owned utility grappling with aging infrastructure.