Nigeria: Hit the lights

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While power outages and widespread lack of access to electricity have long been problems in Nigeria, the administration of President Goodluck Jonathan is seeking to breathe new life into the government’s electricity privatisation programme, and an influx of private investment may finally solve the country’s power troubles.

In December 2010 the government-run Bureau of Public Enterprises opened a public tender for the assets of the state electricity monopoly. A February 2011 deadline has been set for bids on the 11 distribution firms, two thermal power stations and two hydro-power companies that make up Power Holding Company of Nigeria (PHCN). The state hopes to find buyers by May 2011. PHCN was unbundled into separate generation and distribution companies for sale in 2007, but the programme had remained on hold since then.

In August 2010 President Jonathan officially launched a road map for the power sector and pledged N300bn ($2bn) for its development from the N500bn ($3.33bn) fund created in March, which will also finance airlines. “By December 2012, Nigeria will not only celebrate one day of uninterrupted electricity supply but we will celebrate one week, one month and so on of uninterrupted electricity supply,” President Jonathan said at the launch.

The road map includes a national electricity grid to replace the existing 330/132-KV grid, which loses significant amounts of energy in transmission. The new 700-KV “supergrid” will bring generating capacity to over 14,000 MW by the end of 2013, while the government’s long-term target is 40,000 MW by 2020. The grid requires $3.5bn in investment, which President Jonathan hopes will come from the private sector as well as international development agencies.

Power supply is currently around 3500 MW, with 50% of Nigerians having access to electricity, while total demand is estimated in the 8000-10,000 MW range. Low for a country of around 150m people, this figure reflects high suppressed demand. In comparison, demand in South Africa, a country of 49m, is 37,000 MW.

The country’s generation capacity is somewhat higher, at around 4850 MW, according to the Federal Ministry of Power and Steel. However, due to lack of natural gas, many of the nation’s gas-fired generating plants run at half-capacity.

Almost a third of current electricity supply is generated by independent power projects dedicated to the oil and gas sector. In total, Nigerians produce as much as 30,000 MW using private generators, costing the country some $13bn annually, according to the central bank.

Power shortages seem entirely avoidable, given that Nigeria is Africa’s biggest hydrocarbons producer. “If Nigeria were to spend 0.4% of its oil and gas revenues on energy power and electricity, they would solve this problem immediately,” Fatih Birol, the chief economist at the International Energy Agency, told the international press in September 2010.

Yet the new fund to be shared by the power and aviation sectors appears to herald the fact that concrete action is being taken to remedy the situation. In addition, the government will institute a new tariff regime for electricity to make PHCN’s assets more attractive for investors.

Currently, customers are thought to be underpaying for electricity at around N7 ($0.05) per KW hour, while the government subsidises prices. Higher tariffs that better reflect the costs of power provision are expected in the first quarter of 2011. The Central Bank of Nigeria believes a steep increase in tariffs is essential to stimulating growth in the power sector. “This N7 ($0.05) is a myth because nobody gets power at that price. Ghana is paying N22 ($0.15). If we increase it to N22 ($0.15) and you increase gas prices, investment will come,” local press reported the central bank’s governor, Lamido Sanusi, as saying in July.

Ensuring a reliable supply of power is essential for Nigeria’s economic progress, with sectors such as manufacturing long hamstrung by lack of access to electricity. Turning power provision over to the private sector should eliminate the long-running inefficiencies that plagued the state monopoly and introduce greater competition, with both businesses and consumers likely to benefit.

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