August 21, 2024/CSL Research
Based on news reports, the Federal Government announced on Monday that it has paid off ₦205 billion of the ₦1.3 trillion debt owed to Generation Companies (Gencos) to improve liquidity in the power sector. The Minister of Power, Chief Adebayo Adelabu, emphasized the urgent need to upgrade Nigeria’s power infrastructure and revise the current tariff policy. He highlighted that various segments of the power sector require attention, noting that many of the transmission towers are collapsing, and the substations are in a state of disrepair with outdated transformers. Similarly, distribution infrastructure is failing, with substations at the distribution level not functioning properly.
Regarding metering, Adelabu revealed that out of over 12 million electricity customers nationwide, less than 6 million are metered even after major metering projects by the federal government such as Meter Asset Provider (MAP) and the National Mass Metering Programme (NMMP). He stated that the ministry is committed to installing two million meters annually over the next five years, expressing optimism that the sector, which had been stagnant for the past 15 years, is now showing signs of revival. On the Siemens project, Adelabu mentioned that the pilot phase is nearing completion, with several pieces of equipment already being installed across the country. This phase includes the importation, commissioning, and installation of 10 power transformers and 10 mobile power substations nationwide.
The Nigerian power sector has been bedevilled by a number of constraints since the privatization done in 2013. Lack of cost-reflective tariff, poor metering infrastructure, low network coverage and decrepit transmission facilities have continued to undermine performance and drive liquidity squeeze in the sector. Over the years, the widening deficiency in on-grid supply of power has forced consumers into costly off-grid alternatives. Clearly, a lot of work is required in improving the supply of power across the country and ensuring its availability to unserved and underserved households and businesses.
The federal government in July 2019 signed a power deal with the power giant Siemens to deliver 25,000MW by the end of 2025 and to fix the archaic transmission and distribution infrastructure in the sector. Furthermore, milestones were set to ensure provision of 7,000MW and 11,000MW of reliable power supply by 2021 and 2023 respectively. Since then, several steps have been taken such as the initial N8.6bn commitment made by the government in 2020 as disclosed by the then Minister of Power, Sale Mamman.
We were initially optimistic about the Siemens agreement as a significant step toward revitalizing the rapidly deteriorating power and energy sector. However, since the agreement was reached in 2019, we have not observed substantial progress. The project’s focus across the entire power value chain is a notable positive, especially given that the sector’s challenges span the entire chain. However, we believe that the government’s regulation of electricity tariffs poses a significant risk to any investment in the sector. We remain skeptical about Siemens’ ability to recoup its investment, particularly because the liquidity squeeze caused by non-cost-reflective tariffs remains unresolved.
