The Nigerian power sector is facing a significant capital shortfall of around N2 trillion ($2.5 billion), necessitating the injection of new investments to revitalize an industry struggling to meet the electricity demands of its 200 million residents.
Olu Verheijen, an energy adviser to President Bola Tinubu, highlighted the over-leveraged and under-capitalized state of power companies in Nigeria, limiting their ability to invest in efficient electricity distribution across the country.
As of now, Nigeria generates and supplies approximately 3,500MW to 4,500MW of power to its vast population spread across 36 states and the Federal Capital Territory. Despite being Africa’s most populous nation, the lack of adequate pricing, inconsistent revenue collection, and an outdated national grid have left many residents reliant on noisy generators for power. In Lagos, for example, the grid supplies only 1,000MW to a city of 25 million people, while a comparable population in Shanghai receives over 30,000MW during peak demand.
To address these challenges and enhance the electricity supply, the adviser emphasized the need for policies that facilitate the reorganization and recapitalization of the power sector. While specific details and a timeline for the plan were not provided, the adviser emphasized the importance of bringing in new partners with fresh capital.
President Bola Tinubu, on January 1, 2024, expressed a commitment to improving the nation’s electricity supply. The proposed recapitalization is expected to coincide with plans to make electricity tariffs cost-reflective, thereby enhancing the liquidity and viability of the power sector. While the country privatized power generation and distribution in 2013, tariffs remain regulated by the Nigeria Electricity Regulatory Commission, a government-controlled entity. Currently, power firms are constrained from charging tariffs that adequately cover the distribution costs, with the government bridging the gap through subsidies.
Without a tariff review, the vulnerabilities of the naira, which depreciated by 50% against the dollar in the past year, coupled with rising inflation, could escalate energy subsidies to N1.6 trillion this year from N600 billion in 2023, warned the regulator.
