N1trn subsidies in 2 years fail to stop energy sector liquidity drought 

Nigeria’s energy sector is still faced with a huge liquidity drought despite N1 trillion in subsidies granted by the federal government between 2019 and 2021.

This worrying situation has been a source of major concern for stakeholders in the country, whereas the abysmally poor electricity generation in Nigeria continues to show how the country is grappling with capacity utilisation, as well as the rate of high losses, which the transmission and distribution companies have faced over the years.

In spite of Nigeria’s vast energy resources, the country’s inability to deliver adequate power has remained a constant concern and following the privatisation of significant portions of the sector’s value chain, such as the generation and distribution arms of the value chain, in 2013, there was very high optimism on what was to have been the end of the electricity crisis.

However, nine years on, privatisation of the sector has not yielded the intended results, with new bottlenecks across different aspects of the value chain.

According to an SDG7 tracking report, Nigeria has the world’s largest energy deficit, with 90 million people lacking access to power, ahead of the Democratic Republic of Congo at 70 million, and Ethiopia with 58 million. According to the Nigerian Electricity Regulatory Commission’s (NERC) latest quarterly report for Q4 of 2020, the average daily electricity production in Q4 was just under 4,400 megawatts (MW), up from less than 4,000 megawatts in the previous quarter.

However, data show that in January of 2022 power generation in Nigeria peaked at 5,112 megawatts with an average of 4,283 megawatts per hour. Consequently, it is without a doubt that the distribution companies (DisCos) are faced with imminent collapse as they continue to wallow in debt, which the federal government said hit N326 billion within nine months in 2021. To further buttress this assertion, the generating companies (GenCos) have revealed that a total of 2,248 megawatts of power were stranded monthly in 2021 despite blackouts.

Energy sector analysts at FBNQuest Capital Research, have offered the view that the sector is still in need of a spark despite the vast resources owned by the country.

“We understand that the Nigerian mini-grid market offers significant revenue potential due to its high cost which often amounts to 2-3x the cost of on-grid generated power. The transmission and distribution companies regularly grapple with high losses. The average transmission loss was 7.2 percent in the fourth quarter. The issues of cost-reflective tariffs, proper metering, and electricity theft are at the forefront of the industry’s problems. Despite some tariff reviews, the average cost of electricity for Nigerian households at $0.06 per kilowatt hour (KWh) is significantly lower than the global average of $0.14 per kilowatt hour (KWh),” they said.

According to industry insiders, self-generated electricity in small petrol and diesel generators might be as much as 15,000 megawatts. Furthermore, industry sources estimate that the federal government subsidises electricity consumption monthly with the sum of N30 billion. According to the government, its subsidies to the sector amounted to N1 trillion between 2019 and 2021.

However, the fact that just N169 billion of the N260 billion in energy bills issued by DisCos was settled highlights the sector’s liquidity challenges. The settled sum is much lower than the N246 billion total invoice issued to the DisCos by the Nigerian Bulk Electricity Trading Company (NBET) and the market operator.

But on the distribution end, the aggregate technical, commercial and collection (ATC&C) losses recorded by the sector was 47.1 percent, higher than the 15 percent figure that is seen as best practice internationally, and the 22.1 percent allowance as stated in the Multi-Year Tariff Order (MYTO).

The NERC report also reveals a concentration in power generated for the grid, with the top-five power plants accounting for over half of the country’s on-grid electricity output.

Nigeria’s energy mix lacks diversification, with gas (thermal) accounting for 75.3 percent of electricity generated in the last quarter of 2020; hydro contributed 24.7 percent. Nevertheless, the level of power generated is paltry for a country with a population size of over 200 million, and whose power demand has been estimated at 11,000MW to over 100,000MW, depending on the source. This highlights the need to generate power through multiple sources, including on-grid/off-grid renewable sources, FBNQuest’s analysts said.