Report: Nigeria will Require $100bn in 20 Years to Fix Power Supply Challenges

A new report by Financial Derivatives Company (FDC) Limited, a research firm which provides insights for investment decisions, has disclosed that Nigeria will require about $100 billion funding spread across the next 20 years to solve its electricity supply challenges.

According to FDC, the faster and efficiently this needed funding takes place, the more the increase in investor appetite towards the sector.

It stated that if Nigeria is ready to do the hard work by successfully implementing reforms, investors are willing to actively participate in the power sector through partnerships, joint ventures, training of personnel and building of transmission and distribution infrastructure.

The unique factor, the report said, is that Nigerians have proven to adapt to situations quickly, thereby assuring that they will pay more with improved and reliable power supply.

The document however explained that the government has to do its part first, by addressing the numerous issues pervading the sector and affecting output.

“The country will require significant investments to achieve reliable power supply in the short to medium term.
“The estimated amount needed is about $100 billion over the next 20 years.

The government also needs to hasten its steps to close the metering gaps as about 50 per cent of the total population is still on estimated billing,” it stated.

Stressing that the Nigerian economy had been heavily dependent on generators for electricity supply, given power sector data assessment from the National Bureau of Statistics (NBS), the report said that this contributes as much as 48.6 per cent of the electricity consumed by both families and enterprises across the country.

Of the estimated $100 billion in investment required to bridge the gap, FDC noted that renewable energy sources are likely to form the bulk of Nigeria’s energy solutions as global warming and climate change restrict investment in traditional energy sources.

According to FDC, over 80 per cent of the 28.9 million households in Nigeria do not have access to electricity generated from the national grid, reasons being the inadequate investments and a wide infrastructure gap.
The country’s power generation, it stated, is mostly thermal (80 per cent) and hydro (20 per cent) with an installed capacity of about 12,522MW while at least 40,000MW is needed to meet the country’s electricity demand.
“However, monthly, the national grid struggles to provide a little over 4,200MW, which is 66.46 per cent and 89.5 per cent below the installed and potential capacity.

“More so, the government privatized 11 electricity distribution companies and six generating companies while retaining 100 per cent ownership of the Transmission Company of Nigeria (TCN).

“Interestingly, Nigeria, which has the lowest electricity consumption per capita in Africa, supplies power to the Republic of Benin, Congo and Niger under the West African Power Pool (WAPP) agreement for ECOWAS countries,” it stressed.

FDC noted that while reflective pricing of electricity has its immediate pitfalls, the medium to long term perks are undeniable.

However, it explained that are underlying structural bottlenecks including policy uncertainty, labour union issues, poor maintenance, weak implementation and monitoring culture, and abandonment have made the specific reforms in the power sector unable to yield the desired result of increasing private investments.
“Business confidence is low, and investors are sceptical about the Nigerian economy.

“Erratic and unexpected changes in government policies without adequate checks and balances due to weak institutions play a huge role in tapering investment inflows into this sector, hence, providing a bleak outlook for the country’s capacity to achieve nationwide electricity any time soon,” it noted.
However, if these issues are addressed in a timely and efficient manner, the report stated that “there is light at the end of the tunnel.”

It listed policy uncertainty, lack of transparency, poor monitoring and implementation, inefficient industry practices as some of the challenges , pointing out that investors need to be assured that prices will reflect their cost of operations.

While the immediate impact of cost reflective electricity prices is an increase in living costs for consumers, however, in the medium term, other things being equal, the report noted that power supply will increase and become more reliable.

It added that self-generation for power ultimately increases the operating costs for both households and businesses, maintaining that if this continues, the probability of an increase in divestment of resident businesses to other friendly African countries poses a huge threat to the Nigerian economy.

FDC noted that for the power sector to be more efficient in power transmission and distribution, the government needs to heavily invest in high grade infrastructure and training of industry personnel.

This, it stated, will substantially expand the power transmission network and capacity, allowing distribution companies to improve reliability and supply to consumers.

It called for increased investments in smart grid technology, electricity equipment and provision of adequate energy storage facilities which will significantly support the country’s electricity generation.
Nigeria, it explained , currently imports a large percentage of its electricity equipment due to low output and expertise.

The report said that the best place to start is by making substantial provisions for the sector in the budget for the fiscal year, rather than heavily depend on borrowings and handouts from multilateral institutions that could worsen the country’s debt profile.

“In addition, transparency in government practices within the sector that will in turn stimulate investment and taper investor scepticism are imperative.

“Beyond addressing infrastructural issues, there is need for strong institutions to checkmate government policies to reduce uncertainty and increase business confidence.

“Also, the government needs to encourage local business that could provide raw materials needed within the sector as this would reduce import costs and support government revenue,” it added.

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