For Nigerians to begin to see the benefits of the reforms in the power sector, a significant investment of about N11.2 trillion ($70 billion) is to be made in the sector, while constant gas supply to the power plants scattered across the country should be guaranteed.
This is the view of stakeholders in the power sector, such as the International Financial Corporation, the Federal Government and investors, among others. This is coming on the heels of the epileptic power situation in the country, where electricity supply has failed to rise beyond the 4,000 mega watts region, despite claims by the Federal Government that the sale of the power companies to new investors will bring about a significant improvement in power supply in the next couple of months.
One of the new owners of the privatized assets of the Power Holding Company of Nigeria, PHCN, Mr. Tonye Cole, Chief Executive Officer, Sahara Group, buyer of the Ikeja Electricity Distribution Company, few weeks ago heightened the fears of Nigerians, when he disclosed that it would take about five years before the country will begin to experience uninterrupted electricity supply.
According to Cole, there are areas that needed to be improved upon before stable national power supply would be actualized, adding that the increasing rate of pipeline vandalism is another impediment to stable power supply in the country. He further stated that a lot of investment and capital is required before the country will begin to enjoy stable power supply. He said, “Before we can get to a point where we don’t have to think about power, because it is just there, it requires a lot of investment, a lot of capital has to go into that.”
Also, Mr. Sam Amadi, Chief Executive Officer, Nigerian Electricity Regulatory Commission, blamed the epileptic power situation on the serious financial challenges facing the new owners and inadequate gas supply caused by the vandalism of gas pipelines. According to him, the immediate and long-term challenges facing the sector, includes financing to facilitate further improvement, especially with regards to the distributions companies. He maintained that the new owners, especially in the distribution side, lack the financial muscle that will ensure efficient distribution of the generated electricity, adding that the companies need to be able to access funds to carry out their operations.
In his own view, The Chairman, Technical Committee of the National Council on Privatisation, NCP, Mr. Atedo Peterside, said that about N1.135 trillion is expected to be sourced by investors in the power sector within the next five years, to ensure stability in the supply of power in the country. According to him, financing the necessary capital expenditure to fund the incremental 4,284.4 megawatts that is required to achieve full capacity, crudely estimated at $1 million per mega watts, approximately, will cost an additional $4.28 billion (N684.5 billion). ”At an estimated weighted average cost (purchase and installation) of N25, 000 per meter, this amounts to over N150 billion. The bulk of this should be recoverable from the consumer, but then the distribution infrastructure also needs to be modernised and expanded to achieve greater coverage. The 11 distribution companies (Discos) are projecting annual capital expenditures in the region of N60 billion per annum for each of the next five years.”
Also, the International Finance Corporation, IFC, said an investment of about $70 billion (N11.2 trillion) is required for Nigeria to achieve its 40 giga watts (40,000 mega watts) target by the year 2020. Mr. Femi Akinrebiyo of the Infrastructure Department of the IFC, in a presentation titled, ‘Nigeria’s power sector: Viability, funding sources and liquidity,’ noted that more than $3 billion (N480 billion) will be needed to expand the capacity of the ten Nigerian Independent Power Plants, NIPP, of the Niger Delta Power Holding Company, NDPHC; while over $20 billion (N3.2 trillion) private capital will be needed by front-runners IPP candidates to contribute towards achieving the country’s power target by 2020.
He also estimated that more than $5 billion (N800 billion) will be required to improve the Transmission Company of Nigeria’s, TCN, wheeling capacity, with some of it envisaged to come in the form of Public Private Partnership, PPP. He called for an overhaul of both the transmission and the gas sectors, saying that the TCN is currently operating at a loss and has accumulated liabilities estimated at US$1.3 billion (N208 billion). He said grid investment needs have been estimated to be between US$2.6 and US$5 billion, adding that the TCN would probably need a higher wheeling charge.
The challenges in the power sector were seen recently when inadequate supply of gas to the various power plants in the country and the non-payment of gas fee by the new investors to Nigeria National Petroleum Corporation, NNPC, were blamed for the huge decline in power supply in the country over the last couple of months, a situation which saw power supply dropping by about 450 mega watts. TCN blamed the drop in power supply to reported vandalisation of the gas pipeline supplying gas to Okpai power plant in Delta State, which resulted in the shutdown of the power station and unavoidable power rationing nationwide. The General Manager (Public Affairs) of TCN, Mrs. Seun Olagunju, said the repair of the pipeline was been done, adding that it would take a while for power supply to stabilise in the country.
Bekuochi Nwawudu, Director, CBO Capital, an investment advisory and project development firm, who is also an energy expert, expressed confidence that the power companies would soon get the much needed funds to finance their projects. He said, “Telecommunications companies found the money and expanded. Oil companies have borrowed significant amount. Power will be the same. The question is will people pay their bills and thus will revenues/profits be generated? If this happens, then in addition to banks, pensions funds have capital and bonds can be issued; the banks do not need to do it all.”
On the issue of gas supply which is central to firing up the power plants, Nwawudu said,” The companies should take a partnership not ownership approach. They should sign advance contracts that pay a fair price – to support gas capital sourcing and they should focus on the power margins/ volumes and not necessarily backward integration.”
Nwawudu explained that the privatisation of the power sector has thrown up opportunities in the economy, “The impact is huge. Cheap power improves our manufacturing competitiveness. There are opportunities for electricity generation using alternative fuels and there will be implementation of smart grids.
It is expected that the challenges hindering the availability of steady power supply will soon be surmounted, as banks and other financial institutions, both in Nigeria and across the globe, have indicated their preparedness to stake their funds in the Nigerian power sector which they see as a growth sector. Specifically, the World Bank and its subsidiary, the International Finance Corporation, IFC, disclosed that they will invest about $1 billion (N160 billion) in Nigeria’s energy sector in the next couple of months. Marie Francois Marie-Nelly, World Bank Country Director, Nigeria, said the investments will be in terms of Partial Risk Guarantees for gas supply and Independent Power Plants valued at $800 million and $200 million respectively. This is in addition to planned financing of the power sector by banks in Nigeria, who have in the last four years staked about N1 trillion in the sector.
*Ike Eboh is a a writer with a specialist focus on energy issues.