Nigeria’s electricity sector is facing a staggering deficit of approximately 2 trillion naira ($2.5 billion) in capital, leading to a severe crisis in its ability to serve the country’s 200 million residents adequately.
Olu Verheijen, an adviser to President Bola Tinubu on energy matters, outlined the sector’s critical financial shortcomings in an interview.
The over-leveraged and under-capitalized electricity companies are grappling with operational challenges, impeding their capacity to invest in essential infrastructure for distributing electricity to households.
The deficiency is starkly apparent in Lagos, where a population of 25 million receives only 1,000 megawatts of power from the grid. By contrast, with a similar populace, Shanghai supplies over 30,000 megawatts at peak demand.
Verheijen stressed the urgency of policy reforms geared toward reorganizing and recapitalizing the struggling companies, emphasizing the need to attract new partners with fresh capital infusion.
A fundamental aspect of the proposed revival strategy involves aligning electricity tariffs with actual costs. Currently set by the Nigeria Electricity Regulatory Commission, tariffs fall short of covering distribution expenses, compelling the government to bridge the gap through subsidies.
The vulnerability of the naira and escalating inflation threaten to escalate energy subsidies to an estimated 1.6 trillion naira this year, significantly exacerbating fiscal strain.
Out of Nigeria’s 13,000 megawatts of installed electricity generation capacity, only 4,000 megawatts reach consumers.
This stands in stark contrast to South Africa’s higher capacity, despite a smaller population, which faced a severe power crisis characterized by frequent outages in the previous year.
According to Verheijen, resolving Nigeria’s electricity challenges demands substantial investment, comprehensive policy reforms, and strategic measures to bridge the vast disparity between energy generation capacity and effective distribution, ensuring a more reliable and efficient power supply for the nation’s populace.
“With the current tight fiscal space, government’s ability to cover this shortfall is challenged,” Verheijen said.
“These issues have exacerbated the financial liquidity challenges in the sector,” she added.
