Nigeria’s Power Crisis Defined

Nigeria is Africa’s largest oil producer, but suffers from a stunning shortage of power. The millions of barrels of bony light pumped do not translate into energy that ordinary Nigerians can use.

The country’s electric plants are inadequate and dilapidated. More than half of the 173.6 million Nigeria citizens live without reliable power.

Those citizens and businesses who are on the grid cope with daily power blackouts.

Even using gas and kerosene stoves is expensive, because Nigeria does not have sufficient refineries and must import the fuels from international exporters.

Issues that have led to Nigeria’s power shortage, which is arguably one of the largest in the world, include significant power infrastructure deficits, overuse and poor maintenance of existing electricity assets, inadequate management capabilities and dearth of technical skills.

Nigeria’s “acute” energy shortage is the root cause of a slew of health hazards, including heart and lung problems linked to traditional wooden stoves, the chairman of the Nigerian Electricity Regulatory Committee recently was quoted as saying.

Colin Archer, Chairman of APEC Logic Investments said Nigeria currently produces less than 4,000 megawatts of electricity. A good comparison is the United States who have roughly twice as many people as Nigeria produce two hundred and seventy times more power than Nigeria produces, yes 270 times as much power for roughly 319 million US citizens. When we evaluate the power industry in Nigeria we see that most is from gas power plants and the remainder in hydropower from dams. The poor condition of Nigeria’s very old and non-efficient power grid means there are frequent blackouts without any warning, including power being lost due to the grid problems.

Mr. Archer went on to say that “For many decades, Nigeria has not invested effectively in generating capacity leaving the power sector in grave condition”.

Some Nigerians complain that the country exports energy to its neighbors, while people suffer at home. This is more of a myth than fact, as at the moment you would be lucky to see export of power above 200 megawatts, and this is generally through agreements that allow the country to make use of shared natural resources, like the hydropower dam on a river shared by Nigeria and Niger.

A side effect of this lack of power is CRIME and lack of strong economic growth. Darkness in the night perpetrates crimes of many types with security problems extenuated. Also more widely available electric power could spur economic growth.

It is an accepted norm that with less electricity you have less jobs, and less business activity and foreign companies are less likely to relocate or expand due to basic key infrastructure needed for operations. It also dampens international investment as we know that power shortage scare away international investors.

Over the entire country, 65 percent of households rely on firewood and if that is not addressed immediately the entire country will become a desert in the not-too-distant future.

In 2010, it was estimated that to achieve a 40,000MW grid capacity by 2020, Nigeria would require annual investments of
at least US$ 3.5 billion across the value chain. To bridge this huge funding gap, given the global experience with proven models of Independent Power Project (IPP) finance, concessions and divestitures, the nation’s power sector would need to focus on mechanisms that assist in mobilizing domestic capital and getting access to international capital markets. To date, these investments have not been made in the power sector and Nigeria is falling further behind and realizing the severe impacts the lack of power is having on its country.

The Nigeria banks and financial institutions aren’t the answer to the overall power investment need as most Nigeria banks are currently facing liquidity concerns and do not have the capital to undertake Nigeria’s massive power needs. However, American and Asian investors such as National Standard and APEC Logic Investments along side of others do have the knowledge to bring the necessary long term infrastructure capital to the Nigerian population.

With an aggressive attempt and strong support of the central government, we believe the necessary power capacity could be financed and built within the next 36 months – developing more power than has been developed in the past 40 years.

Although factors such as a mismatch between short-term deposits and long-term loans, and the possibility of contract breaches are critical risk considerations for Nigeria’s domestic banks, they can increase participation in power sector deals by developing instruments that address maturity and contractual risk while partnering with international investment funds.

Vice President Yemi Osinbajo has blamed the deteriorating and epileptic power supply in the country on large-scale corrupt practices and dubious awards of contract in the power sector by past administrations.

Speaking at 10th anniversary lecture of Crescent University, Abeokuta, on Saturday, June 3, he implied that the Buhari administration would be taking some tough decisions to put the country back on the path of genuine growth and development According to records, Osinbajo said for several years, series of contracts were awarded in the power sector and are still ongoing without concrete progress.

He said, “Though Nigeria needs more than 10,000MW to stabilise economic growth, the present capacity of power transmission lines cannot distribute more than 5,000 MW since the improvement works on transmission lines have been stagnant over years and should be improved upon if Nigeria must achieve tangible output from the sector.

“Unfaithful to awards of contract and execution of contracts being awarded are the major challenges. Several contracts in that regards have been awarded several years back, but have not been compleed.
“What is being produced now is less than 3,000 MW. Our transmission grid today can only transmit 5,000 MW and we need to improve on transmission capacity to transmit enough power needed to stabilise economy. That is why the private investors have to increase capital investment in power sector.

“Insurgency and instability of government is a major setback especially in the agricultural sector. Agriculture contributes 24% to Nigeria GDP but the 24% is under threat because of the insurgency in the North East”.

It’s no longer about focusing on what went wrong in the past or how Nigeria found itself in this power crisis, but rather a call to action to determine how do we as caretakers of future generations fix the issue and change the course to power Nigeria so that it may reach its full potential for decades to come.

Russell Duke is Chairman & Managing Principal at National Standard Finance, LLC. Mr. Duke can be reached at RDuke@NatStandard.com. www.NatStandard.com