“Nigerian Businesses in the Dark: ₦2 Trillion Gap Threatens Power Industry Recovery”.
Nigeria’s electricity companies grapple with a staggering capital deficit of about N2 trillion ($2.5 billion), necessitating fresh investments to rejuvenate an industry struggling to adequately supply power to its 200 million citizens.
Adviser to President Bola Tinubu on energy, Olu Verheijen, stressed the companies’ over-leveraged and under-capitalised status, limiting their ability to invest in electricity distribution to households, according to Bloomberg reports.
The nation faces power challenges due to pricing inadequacies, erratic revenue collection, and a deteriorating national grid. Most Nigerians resort to using generators to produce their own power as the national grid falls short, delivering only 1,000 megawatts to a city like Lagos, housing 25 million people. In contrast, Shanghai, with a similar population size, provides over 30,000 megawatts at peak demand.
Verheijen stressed the need for policy changes to facilitate restructuring, bolster capitalisation, and attract fresh investors without specifying a timeline or detailed plan.
President Tinubu vowed to enhance electricity supply in Nigeria on January 1.
Efforts toward recapitalization will coincide with tariff adjustments aimed at reflecting true costs, which could enhance the financial stability of the power sector.
The government-controlled Nigeria Electricity Regulatory Commission sets tariffs, leaving power firms unable to recover electricity distribution costs. Subsequently, the government bridges the financial gap by subsidising these firms.
Without tariff revisions, currency devaluation and escalating inflation may elevate energy subsidies from 600 billion naira in 2023 to 1.6 trillion naira in the current year, exacerbating fiscal challenges for the government.
Of Nigeria’s installed capacity of 13,000 megawatts for electricity generation, only 4,000 megawatts are distributed, underscoring the country’s struggle with power distribution inefficiencies.
In comparison, South Africa, despite facing economic turmoil 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 ageing infrastructure.