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Nigeria’s power sector charged for growth

With daily blackouts and crumbling power infrastructure that has until recently seen little or no investment in over three decades, Nigeria has been christened the Generator Republic. Most households and virtually all serious businesses have resorted to self-help, investing heavily in generators and other back-up power systems to meet their daily electricity needs.

The noisy hum of generators that fills the air in the commercial capital of Nigeria is affectionately called the Lagos symphony, but on a serious note their running costs are crippling and these expensive and sometimes toxic back-up power systems have become the primary source of electricity for everyday use.

For Nigeria’s population of 168 million, change can’t come soon enough. The good news is that finally there is a roadmap for the development of a power market that I believe will be able to provide households and businesses with constant and secure access to electricity within the next decade.

Next chapter

The privatization of Nigeria’s formerly state-owned power generation and distribution assets has been a long time coming – about 16 years in the making. But that phase is now largely complete with the carving up of the former national electricity company almost complete.

That is the first step in solving Nigeria’s energy crisis, the biggest constraint on business development and economic growth. But decades of neglect means that the new owners have their work cut out for them. Change on the ground can’t be expected to be felt immediately, but I am positive that within about two to three years, the country will start to see significant improvements. But there are still big challenges that need to be overcome and many rest with the government to fix.

Big challenges

First of all, government must stay true to the task of overhauling and strengthening the transmission system, which it still owns, adding new lines and capacity to safely evacuate new generation output load centres across the country. Without timely improvements in the transmission and integrated planning of investment throughout the power value chain, Nigeria will not be able to exit the dark ages.

The Government must also do all it can to relieve the bottle necks and constraints to the flow of gas from the gas fields to the market. That means urgently reassuring investors that financial incentives currently available to companies that invest in gas production will not be removed in new legislation about to be passed.

If passed as is, the controversial Petroleum Industry Bill (PIB) will further discourage investment in the production of gas, exacerbating a problem caused by tight regulation and fixed prices that are  put off producers concerned about recouping the high costs of investing in gas production, processing and supply infrastructure.

Easing gas flow bottleneckA

Nigeria’s natural gas reserves is put at more than 5 trillion cubic meters, which makes it the country with the 9th largest gas reserves in the world and the largest in Africa. However, in terms of production for market, Nigeria only produced 42 billion cubic meters in 2012, 25th in the world.

For a country reputed to be a gas region with spots of oil, Nigeria is sadly still focused on harnessing gas produced as a by-product of oil production, flaring an estimated 1.2bcf/day in the process – a terrible waste, particularly considering the scale of the pent-up demand. Being the most affordable and accessible fuel in Nigeria, the country relies heavily on gas-fired plant and fiscal and regulatory constraints may not allow Nigeria to meet its ambitions of boosting output tenfold by 2020.

Currently the country produces about four and a half gigawatts of electricity. To put that in perspective South Africa produces 40 gigwatts for a third of the population of Nigeria and Germany produces 120 gigawatts for 82 million people (about half of Nigeria’s population). The government must also put diplomacy to one stand and step in to ensure security of gas transportation through the restive Niger Delta, a historic hotbed of crude theft and pipeline vandalism.

International finance support needed

Local banks should be applauded for rising up to provide most of the funds to drive privatisation of Nigeria’s power sector. But millions and billions more dollars will now be needed for major capex investments to upgrade or replace power generating and distribution infrastructure.

The burden will need to be spread out and much needed longer term financing provided  by international funders, such as the World Bank, other development finance organisations and private equity firms, because it cannot be shouldered by the local banking sector alone. Again, it is up to the government to make this happen to enable the country’s ailing power sector to be developed into an efficient market with power systems on a par with other world-leading economies – the bold ambition of President Goodluck Jonathan.

It’s really amazing to think that Nigeria’s economy has been growing at 7 percent practically without power. We could easily see double-digit growth once the lights are turned on.

Read more about the Nigerian power sector here

 

About Segun Sowande

Segun is a Partner in the Management Consulting practice of KPMG Nigeria. He has over 22 years of professional experience specialising in strategy articulation and transformation, project management, diagnostic reviews, organisational design and redesign, change management, business process review and improvement, process re-engineering, public sector reforms, systems design and implementation, feasibility/market analysis, studies, assessment and research. He has provided varied advisory services to most of our clients operating in the public and private segment of the Nigerian economy, the West Africa and Africa. Segun is the Lead Partner in KPMG’s Power Sector group and has extensive experience in serving Infrastructure and Public Sector clients and delivering value adding results. He has also demonstrated his expertise in project and business management skills, acquired from various local and off-shore training and from hands-on experience in leading/managing client projects in varied industries including the power and utilities space.

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