Nigeria’s struggling electricity companies are facing a critical shortfall of an estimated N2 trillion ($2.5 billion) in capital, signaling the urgent need for new investors to revive an industry grappling with the challenge of supplying power to its 200 million residents.
Olu Verheijen, an adviser to President Bola Tinubu on energy, highlighted the predicament of power companies in Nigeria, citing their over-leveraged and under-capitalized status as a significant hindrance to investing in the distribution of electricity to households. This revelation comes as the nation generates and supplies a modest 3,500MW to 4,500MW to its citizens across 36 states and the Federal Capital Territory, with Thursday’s power generation standing at 4,582.49MW as of 6 am.
In an interview with Bloomberg, Verheijen emphasized the challenges posed by inadequate pricing, inconsistent revenue collection, and a deteriorating national grid, forcing many residents in Africa’s most populated nation to resort to using noisy generators to produce their power.
The situation is particularly dire in Lagos, where the grid delivers only 1,000MW to a city of 25 million people. Comparatively, Shanghai, with a similar population, supplies more than 30,000MW at peak demand.
Verheijen outlined the need for policies that facilitate the reorganization and recapitalization of the power sector, emphasizing the importance of bringing in new partners with fresh capital. However, specific details and a timeline for the plan were not provided.
President Bola Tinubu, on January 1, 2024, pledged to enhance electricity supply in the West African nation. The proposed recapitalization is set to accompany plans to make electricity tariffs more reflective of costs, aiming to improve the liquidity and viability of the power sector.
Despite the privatization of generation and distribution in 2013, tariffs in Nigeria are determined by the government-controlled Nigeria Electricity Regulatory Commission. Power companies are currently unable to charge enough to cover the cost of electricity distribution, with the government stepping in to subsidize the difference.
Without a comprehensive tariff review, the vulnerability of the naira, which depreciated by 50% against the dollar last year, and the escalation of inflation could potentially lead to a surge in energy subsidies to N1.6 trillion this year, up from N600 billion in 2023, according to the regulatory body.