Following last year’s successful privatisation programme, Nigeria is looking to increase electrification rates, stepping up investments in transmission infrastructure while also boosting generation capacity, though it will likely be well into the next decade before connectivity targets are reached.
On May 8 the minister of power, Chinedu Nebo, said the government set the objective of ensuring at least 75% of Nigeria’s people had access to electricity by 2020 through extending the national transmission grid. Currently, more than 65% of Nigeria’s population is not able to access the main electrical grid, with an estimated 30m households not connected to a power source, local media has reported.
At least 1.5m households would be connected to the grid annually, the minister told delegates attending a forum held in Abuja recently. In some remote areas where direct connections to the grid cannot be made, Nebo said projects would be rolled out to provide electricity through alternative off-grid sources such as wind or solar power.
“Electrifying Nigeria will be a source of economic and social development in Nigeria that will improve citizens’ quality of life and bring about development,” he said.
The constraints of Nigeria’s electricity sector are well-known, and the reliance by a majority of consumers on standalone diesel generators drives up overhead costs for manufacturers by as much as 30% and contributes to broader inflationary pressures.
The problems are not just confined to transmission, with generational capacity well short of present needs. Current installed generation capacity is 6600 MW, though it is estimated that actual capacity is less than 4800 MW – roughly 10% of South Africa, which has one-third the population – with many plants unable to produce at maximum levels. Existing peak demand – excluding latent demand – is estimated at around 13,000 MW, meaning Nigeria’s power sector can meet less than 30% of its present requirements.
Plans to boost capacity
On May 9 Vice-President Namadi Sambo expanded on the outline plans for broader-based projects, saying the federal government was intending to invest $3.7bn in projects to extend the transmission grid and encourage a jump in generational capacity to 20,000 MW over the coming years. Utilising the public-private partnership (PPP) model, Sambo said the government was also looking to channel up to $8bn of investments into the gas industry, which would help secure fuel supplies for the power sector.
These hopes may be fulfilled, according to a recent study prepared by Standard Chartered Bank, which said the privatisation of Nigeria’s power sector could lead to a surge in investments in the coming years, once a planned regulatory review is conducted later this year. However, the report noted that the findings of the review will have to balance the need for investment to drive better efficiency and reliability of service against the price the sector will be allowed to charge consumers.
“If the price is investment-conducive and correct incentives are put in place, rapid improvement should be expected over the next two to three years,” the report said. Cost-recovery tariffs are central to ensuring the long-term financial sustainability of private generating and distribution assets, but a large proportion of Nigeria’s population remain sensitive to price increases for basic services.
International support for expansion
The government’s efforts to reinforce the national energy backbone were given support in early May when the World Bank Group announced that three of its agencies – the World Bank, International Finance Cooperation and Multilateral Investment Guarantee Agency – were combining to provide Nigeria with loans and guarantees worth $1.2bn to fund electricity developments. Among the projects being given support are a 459-MW power station in Edo State, and a 533-MW facility in Ibom State.
According to Makhtar Diop, the World Bank’s vice-president for the Africa region, by mobilising private sector financing to strengthen the electricity sector, Nigeria’s economy will be in a position to broaden its base.
“Efficient, affordable and reliable access to electricity is essential for small and medium-sized enterprises in Nigeria to accelerate job creation,” said Diop.
Power cuts a drain on the economy
Power cuts in those areas that are connected to the grid and a lack of access to electricity elsewhere are among the major hurdles to the expansion of the Nigerian economy and job creation. Not only does it restrict growth, but it also represents a significant drain on the economy, with resources having to be diverted to provide alternative power sources to generate electricity.
Shortfalls in electricity have a flow-on effect throughout the economy, restricting industrial development, limiting retail activity with consumers reluctant to buy goods dependent on power, and imposing costs on sectors as broad as health and food processing, all of which rely on access to electricity.
If the government is able to strengthen the transmission backbone, which remains a state-owned enterprise, and boost generational capacity through PPP projects and direct private sector investment, it will go a long way towards achieving the country’s millennium development goal and increasing employment and wealth creation potential.