June 20, 2017

Why foreign investors shun Nigeria’s electricity industry

Electricity: Nigeria installs first commercial undergrid minigrid power project in Makoloki


By Sebastine Obasi & Prince Okafor

Nigeria’s electricity industry may not receive the needed foreign investment attention if the identified teething problems are not tackled headlong, former Minister of Power, Professor Barth Nnaji, has warned.

Speaking at the Nigerian Gas Association (NGA) Business Forum held in Lagos, Nnaji, who is the Chairman of Geometric Power Limited, identified lack of cost reflective tariff, gas constraint, transmission constraint, non-credit worthiness of the distribution companies, DISCOs, lack of will to enforce agreements, over leveraged power assets and value chain misalignment as some of the reasons given by foreign investors for shunning the electricity industry.

According to Nnaji, the Federal Government has not addressed the concept of cost reflective tariff and other major issues that would guarantee return on investment. He stated: “Gas has to be properly calculated. Without that, the business will be faulty. The cost of darkness is infinite. The cost of light is finite. Tariff must reflect the currency movement.” He explained that several power projects have been stalled due to financial constraints and tariff problems.

“There must be attachment of tariff to currency movements and adjustments must be done. Tariff review will help DISCOs to recover costs and pay for gas,” he said.

As regards the non-credit worthiness of the DISCOs, the former minister advocated for full implementation of the agreement they had with the Federal Government.

“Now, they (DISCOs) are only able to pay for just 30 per cent of the power they take. They have also said that they have 50 per cent inefficiency. They did not even complete the payment of stake-holding when they bought the assets.

“A lot of them do not actually know what business they were venturing into. They looked at it basically from business, not technical angle. Now, we can all see the results,” he said.

On the aspect of the agreement concerning the government, Nnaji maintained that it is also far from being achieved in less than two years to the timeline stipulated in the pact.

As a stopgap measure, Nnaji called on the government to subsidise electricity supply.

“The only way we can resolve the chicken and egg situation in favour of the consumers is if government subsidizes. Otherwise, the public has to pay to get power. The other aspect like gas supply, you have to have a situation where gas supply is liberalised, so that the producer will be free to produce and charge the correct market price.

“Nigeria recognizes that the business of power is something that government has to be sensitive about. We have to look at other African countries. Nigeria pays low value in comparison to other parts of Africa in term of power,” he said.

Justifying the privatisation of the industry, he said; “The intention of the privatisation is really to take the DISCOs and GENCOs out of government hands, and that’s very clear. It is intended that those who have taken the assets should be able to invest in the asset. But of course, government should do its own part, to ensure that what it promised the DISCOs will get done so that the DISCOs will be held accountable to the agreement made.

“The agreement was that the government will give these assets for a specific value not a bided value, but they should reduce losses which is called average technical connection and commercial losses. They should reduce it to a certain level that they bided for. But to do that requires a lot of cash to invest in the network, commercial aspect of the business, metering.”