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The Cost Of Electricity In Nigeria

Electricity

Over the years, the structure and ownership of the power sector have changed. There used to be an Electricity Corporation of Nigeria until 1 April 1972 when it was merged with Niger Dam Authority to become the National Electric Power Authority (NEPA). Then the power monolith metamorphosed into the Power Holding Company of Nigeria (PHCN) in the late 2000s in preparation for a privatisation that was finally executed on 30 September 2013. Although, the government retained a 100-percent ownership of transmission, through the Transmission Company of Nigeria.

A total of N425.8 billion ($2.7 Billion) was generated by the Federal Government through the sale of the power assets. However, in less than a year subsequent to privatisation, the Federal Government passed a N213 billion bailout facility, about half of amount generated from sale, to settle legacy gas debts to address financing problems in the power sector.

Despite the restructuring, the power sector is plagued with several problems; privatisation on its own is not a silver bullet for reversing the infrastructure deficit accumulated over the years.

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Firstly, the assets were procured pig in a poke – true nature or value of assets was unknown. Successor companies claim that the assets were overvalued.

Secondly, the assets were partly financed with foreign debt whose servicing will be done with foreign currency. The Naira has been devalued by 25% since those purchases (and a further devaluation looms). This automatically increases financing costs.

Thirdly, the availability of gas and its pricing are still problematic. About 70% of power plants in Nigeria are gas-fired. Although the country is the largest holder of natural gas reserves on the continent, delivery to end users and power facilities is really lagging. Investment in infrastructure to make this possible is also needed. Nigeria produces about 9 billion cubic feet of gas a day, half of which is exported as liquefied natural gas. In the local market, the price is regulated at $2.50 for 1,000 standard cubic, but trades on the international market for $3.18. About 10% of it is flared during oil production.

Fourthly, there is an unresolved metering (the measurement of consumption) issue. The distribution companies (DISCOS) which are the gateway of revenue collection, mostly use an estimated billing system. The Nigerian Electricity Regulatory Commission (NERC) has mandated electricity distribution companies to complete metering of unmetered customers (within a set time), after which there will be no more estimated billing. Considering a 5-million (maybe higher) metering gap, it is a long shot to achieve in the set time.

Lastly, huge investment is needed in the Transmission Company of Nigeria (TCN). This part of the electricity chain currently has the capacity to transmit only 5,000MW, although real demand is estimated to be ~16,000MW. When significant investment is made and there is capacity to generate more electricity, delivery of these added megawatts will be impossible without an accompanying investment in the transmission capacity.

Clearly, there is a need for significant investment in the entire sector and a misalignment between electricity tariffs and the true cost of running electricity businesses will further hinder the much anticipated growth.

Critically comparing Nigeria’s rates with that of other countries, Nigeria’s rates are still some of the lowest in Africa, though, care must be taken in comparing tariffs in different countries as other metrics should be put into consideration.

According to Eskom, South Africa’s electricity capacity is at 36,000 MW for a population of 52 million. Notwithstanding, demand sometimes exceeds supply as Sub-Saharan’s most developed nation seldom experiences blackouts. Nigeria’s population is triple that of South Africa, but it is only able to produce a tenth of its electricity need. Though there is a similarity in pricing between Nigeria and South Africa, South Africa’s power infrastructure is developed, whereas Nigeria has to play developmental catch up at a similar price!

Electricity price hike is always met with resistance; many consumers find a hike strange considering the epileptic supply currently being meted out. The new tariff regime comes with renewed commitments by the power sector to rapidly improve on the quantity and quality of electricity supply. These commitments are contained in service level agreements based on the performance level agreements submitted by the new owners during the bid process.

To bring about the desired improvements in the power sector, there need to be a push to meet set timelines of transitioning into full metering, an upgrade of existing facilities (including TCN’s) and efforts to ensure operators in the entire power chain meet their end of the bargain.

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