A recent report that the federal government’s intervention funding for the electricity system has risen to N 2.9 trillion highlights the protracted chaos in the energy sector. The report found that public funds injected into the sector since privatization in 2013 have continued to rise without a commensurate improvement in electricity supply. Previously, Energy Minister Abubakar Aliyu had blamed the country’s ongoing power outages on gas supply shortages and vandalism in pipelines, limiting the addition of more megawatts to the national grid. The president, Major General Muhammadu Buhari (Retd.), should heed the call for a drastic overhaul and resolve the protracted crisis of power.
The problems facing the sector go beyond gas shortages. Others include high debt, underinvestment, dilapidated infrastructure, non-metering of customers and a turbulent tariff regime. All along the value chain – generation, transmission, distribution and regulation – there are many problems.
But they are not insurmountable. The problems had long been known and diagnosed, and a strategy was adopted to move from the state monopoly to a competitive private sector-led electricity industry. The roots of the current crisis therefore lie mainly in the mismanaged asset sale of the energy sector in 2013, and subsequently in the inability of the Buhari regime to untangle the mess.
Nigeria is paying a heavy price for the insidious mistreatment of the privatization of power by the Goodluck Jonathan presidency and the bewilderment of the Buhari regime. With the unbundled 11 power distribution companies and six generation companies donated to incompetent, emergency relief companies in corruption-marred asset sales (the government kept the sole transmission company), power outages have persisted. Despite additional generating capacity, less than 4,000 megawatts are available for the 216 million people in Africa’s largest economy.
Between 2017 and 2020, the federal government said it spent a total of N1.7 trillion to support the sector. This was the trend after the Power Holding Company of Nigeria was divided into 18 utilities and 17 were privatized.
Invariably, the primary goals of privatization – attracting foreign and domestic private investment, upgrading and acquiring infrastructure, dramatically increasing power generation, transmission and distribution, boosting economic growth, skills and technology acquisition, and creating jobs – not realised.
In 2021, the Central Bank of Nigeria estimated the loans acquired by the DisCos at N819.97 billion. Some commercial banks that advance funds to acquire majority shares in the utilities, and the Asset Management Company of Nigeria have moved to acquire five DisCos due to bad debt.
In the 2022 national budget, N77.38 billion is to fund 74 electricity projects; 53 are new projects that will gobble up N75.12 billion (97.08 percent) and the rest are ongoing. Despite the enormous intervention funding from the government and the CBN, the crisis continues.
Buhari must muster the will to act. In June, the Australian regulator suspended the wholesale electricity market; a radical move that enables governments to manage the pricing and control of power assets and prevent power outages. It was the last bold direct intervention after privatization in the 1990s failed to deliver the expected results quickly. Nigeria needs the same strong decisiveness in this vital sector.
The International Monetary Fund calculates that Nigerian companies lose about $29 billion annually due to power shortages. Companies are going bankrupt, diesel prices have risen and companies are cutting production, resulting in more job losses in an economy already hit by a 33.3 percent unemployment rate, one of the world’s highest.
Solving the crisis is not magic. It just requires creative thinking, strategic assessments, fundraising and foreign investment. Egypt increased its generating capacity to 59,063 MW of electricity in a decade, displacing South Africa as the highest in the continent. South Africa, challenged, increased its capacity from 42,000 MW to 58,000 MW. But data from the Federal Ministry of Energy indicates that the highest peak power ever generated and transmitted in Nigeria was 5,802 MW delivered on March 1, 2021. A 2021 World Bank report showed that Nigeria, Congo and Ethiopia had the largest had shortages of access to electricity.
The government must againreview performance targets after privatisation. It must fulfill its own obligations under the Electric Power Sector Reform Act 2005 and subsequent roadmaps. By letting go of its own 40 percent stake in the DisCos and GenCos, it should convince majority investors to dilute their stakes so that world champions can come in with financing, foreign direct investment, technical and management expertise.
The government can leverage its 40 percent share and its control over the regulatory environment and renegotiate with the investors because power is vital to the country’s economy.
Nigeria should now build a second national power grid, as well as regional grids, mini and micro grids to distribute as much electricity as possible. In addition, the policy should encourage private investment in alternative energy sources, in particular renewable energy sources – solar, wind, hydro, tidal, geothermal and biomass.
According to the International Trade Administration of the United States, Egypt’s renewable energy strategy targets 20 percent from renewables by the end of 2022 and 42 percent by 2035. To reduce its reliance on coal-fired power plants, South Africa had increased its hydropower resources to 16.1. percent by the end of 2022. 2020 and will have new wind (415 MW) and solar (558 MW) installations commissioned that year, said Enerdata, a consulting firm. Similar plans in Nigeria should shift from policy documents and rhetoric to resolute action.
The existing national electricity grid must be privatized, with the government retaining a minimal stake or a ‘Golden Share’.
State governments should attract energy investment and focus on mini-grids and regional networks, especially in industrial hubs. While the central government is on the exclusive legislative list, it has rolled out a policy that allows states, in conjunction with private investors, to invest in electricity. The states must seize this opportunity. Regulators must crack down on operators who break laws and regulations. The DisCos should be forced to provide prepaid meters and stop chasing customers with fraudulent ‘estimated billing’. With just nine months left to leave power, Buhari must strive to leave a lasting legacy in the energy sector.