*Lagos, Nigeria – September 25, 2023:*
Despite significant financial support, the power sector in Nigeria continues to grapple with a crisis, with a tariff shortfall expected to reach record highs in the second half of the year. The Federal Government of Nigeria has reportedly spent approximately N2.8 trillion on subsidizing electricity consumption from 2015 to June 2023.
The suspension of the Multi Year Tariff Order, implemented through the Service-Based Tariff (SBT), is contributing to the anticipated tariff shortfall. The SBT had previously shifted the financial burden of the power sector’s inefficiencies onto consumers.
Nigeria’s power sector is facing a liquidity crisis that has adversely affected financial institutions and led to the closure of many Small and Medium Enterprises (SMEs) and manufacturers. Despite the financial challenges, the sector has struggled to report profits.
Stakeholders in the power sector have expressed concerns that privatization has failed to address the fundamental issues plaguing the industry. With daily electricity generation hovering around 3,000 megawatts over the past decade, Distribution Companies (DisCos) have consistently underperformed, with remittances falling short despite interventions by the Nigerian Electricity Regulatory Commission (NERC). Aggregate Technical Commercial & Collection (ATC&C) losses for some DisCos still stand at approximately 75 percent.
The government has provided subsidy support in recent years, with the following subsidies reported:
– 2015: N225 billion
– 2016: N308 billion
– 2017: N351 billion
– 2018: N440 billion
– 2019: N528 billion
– 2020: N501 billion
– 2021: N251 billion
– 2022: N144 billion
– First half of 2023: N57 billion
The subsidy decreased from N528 billion in 2019 to N144 billion in 2022, but economic factors such as the floating of the naira, inflation, and foreign exchange issues may lead to higher subsidies.
Experts emphasize the need for a holistic approach to address the power sector’s challenges, with piecemeal solutions unlikely to suffice. They argue that stakeholders must collaborate to find solutions to the sector’s fundamental problems.
Former Chairman of NERC, Sam Amadi, believes that privatization has failed, and it is time to review its assumptions and redirect the sector towards coherence and efficiency. He suggests that bold actions based on accurate assessments and diagnoses of problems are necessary.
Experts also stress the importance of affordability, reliable grids, and increased generation capacity to alleviate the crisis in the power sector. They advocate for liberalization to attract private investment and support companies in recouping their investments.
The power sector’s challenges remain a significant concern for Nigeria’s economy, and stakeholders are calling for comprehensive reforms to address the crisis and improve electricity supply.
