Underfunding And Debts: The Root Causes Of Nigeria’s Power Sector Woes

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Discover the root causes of Nigeria’s power sector challenges, from DisCos’ debt crises to government reforms. Learn about proposed solutions and future outlooks for 2025.

Why Nigeria’s Power Sector is Struggling

Nigeria’s power sector continues to face significant challenges due to the financial instability of Electricity Distribution Companies (DisCos), their mounting debts, and the intervention of financial institutions. Despite efforts to improve, power generation remains at 4,609.14 megawatts (MW), while transmission and distribution fall below 4,000MW, causing persistent hurdles for households and businesses.

Debt and Takeovers: A Double-Edged Sword

In 2013, the privatization of Nigeria’s power assets saw core investors in DisCos taking out massive loans amounting to billions of naira. Unfortunately, many of these loans remain unpaid, forcing financial institutions to step in and take control with government approval.

Some examples include:

Fidelity Bank and AMCON taking over Kano, Ibadan, Benin, Kaduna, and Port Harcourt DisCos.
United Bank for Africa (UBA) taking over Abuja Electricity Distribution Company (AEDC) to recover a $122 million debt owed by Kann Consortium.

While some DisCos, such as IBEDC and BEDC, remain under the control of AMCON and Fidelity Bank, the Nigerian Electricity Regulatory Commission (NERC) has urged banks to divest their stakes to investors with the financial capacity to turn things around.

NERC’s Directive: A Path Forward?

The NERC has expressed concerns about lenders’ prolonged control over DisCos, warning it poses risks to the sustainability of Nigeria’s electricity sector. In a letter to Fidelity Bank, NERC Chairman Sanusi Garba set a March 31, 2024, deadline for divestment to reputable investors with both financial strength and technical expertise.

The letter highlighted alarming statistics:

A monthly shortfall of ₦2.46 billion in 2022.
A ₦6.2 billion underpayment of market invoices in 2023, creating a fiscal burden on the federal government.

Garba emphasized that no extensions would be granted beyond this deadline, with necessary actions under the Electricity Act to follow if compliance is not achieved.

A Grim Outlook for 2025

The Centre for the Promotion of Private Enterprise (CPPE) has painted a gloomy picture for Nigeria’s power sector in 2025. Key challenges include:

Poor transmission infrastructure requiring significant investments.
Frequent transmission grid collapses.
Regulatory transition issues as states take over electricity market responsibilities.

Dr. Muda Yusuf, Director/CEO of CPPE, emphasized the urgency of addressing these concerns to prevent further deterioration of the sector.

Federal Government’s Ambitious Targets

Despite the challenges, the Federal Government has set ambitious goals to revitalize the power sector:

30,000MW capacity by 2030.
350GW by 2043.
20-hour daily electricity supply by 2027.

Additionally, the government aims to increase renewable energy’s share to 36% by 2030 and invest in hydroelectric plants with a combined capacity of over 6,024 MW.

The Role of the Power Consumer Assistance Fund (PCAF)

PowerUp Nigeria, an advocacy group, has proposed the Power Consumer Assistance Fund (PCAF) as a solution to the sector’s liquidity crisis. Unlike blanket subsidies, PCAF provides targeted financial support, enabling DisCos to charge cost-reflective tariffs and meet their financial obligations.

Adetayo Adegbemle, convener of PowerUp Nigeria, stated that PCAF would:

Bridge the gap between cost-reflective tariffs and consumer charges.
Eliminate cash flow shortages that disrupt power supply.
Foster a more resilient electricity supply chain.

NERC plans to activate the PCAF by Q1 2025, marking a critical transition period requiring robust stakeholder engagement.

Expert Opinion: Write Off Debts to Move Forward

Bismark Rewane, CEO of Financial Derivatives Company, believes writing off DisCos’ debts is essential for progress. He also stressed the importance of improving the metering system to enhance efficiency and accountability in the sector.

Conclusion

Nigeria’s power sector stands at a crossroads, with significant financial and operational challenges overshadowing ambitious government targets. Resolving these issues will require collaborative efforts between the government, financial institutions, and private investors. Initiatives like PCAF and strategic divestments offer hope for a brighter future, but the path ahead is undoubtedly steep.