Course: Finance for Development.
Electricity is pivotal to the development of nations and directly correlated with healthy economic growth (Kaseke & Hosking, 2013). Nigeria is one of the most populated countries in Africa but only about 40% of the people are connected to the energy grid. The people who actually have power, experience power outages 60% of the time (Aliyu, Ramli & Saleh, 2013). Lack of adequate power supply has been a perennial problem facing Nigeria with no proactive solution to its resolution. coming second only to the unfortunate terror incidents in Northern Nigeria by the Boko Haram Sect. Although, Nigeria is endowed with sufficient energy resources like oil and gas, coal etc., to generate and supply adequate electricity, it is ironically bedeviled with grossly inadequate electric power supply due to lack of effective Infrastructure, corruption, unreliable services and poor management has hampered the development and growth of the Power Sector.
Inadequate access to electricity hinders development in the developing countries; particularly in Nigeria compared to their developed counterparts ,Power is key to Nigeria becoming one of the most 20 developed economies in the world which is why the Nigerian Government has established the Economic Transformation Agenda policy framework that would guide the generation of 40,000 megawatts of electricity by the year 2020 as well other policy objectives. To achieve this feat, a minimum of 8,000 megawatts of electricity would need to be generated and supplied annually as against the 4,000MW generated now. every other sector of the economy depends on adequate supply of electricity.
Prior to the privatization of its Power Sector, the government owned and operated a vertically integrated company, known as the National Electric Power Authority (NEPA). NEPA was a creature of statute, specifically established to exercise unilateral control over generation, transmission and distribution of electricity in Nigeria.
Some of the challenges facing the Power Sector in Nigeria for which the Privatization reforms sought to address include:
Ø Shortage of electric power supply to meet the ever increasing demand of a growing populace;
Ø Nonpayment of utility bills by a large percentage of consumers;
Ø Loss of the already insufficient electric power due to dilapidated, obsolete and poorly maintained Infrastructure;
Ø Shortage of gas supply for thermal stations and low water levels for hydro stations;
Ø Uneconomically high operating costs, especially of maintenance of the available power generation plants and other requisite infrastructure, equipment and machinery;
Ø Scarce foreign exchange to purchase spare parts to replace damaged parts; and the recurring vandalism of power installations due to poverty.
The Federal Government in a desperate attempt to tackle these challenges have since the year 2000 introduced several reforms to the sector, The Previous Government headed by President Good luck Jonathan initiated the most ambitious reform in the Privatization process by announcing in 2010 that the government-owned Power Holding Company of Nigeria (PHCN), which had responsibility for the generation, transmission and distribution of electricity, would be sold to the private sector to increase efficiency and profitability.
The first phase of the privatization was concluded in November 2013. This was a first of its kind transaction as 70 per cent of the transaction was debt financed solely by local banks, Local debt financing available for the first phase of the privatization was relatively expensive and the Banks have not fully recovered from that exercise, The Central Bank of Nigeria, CBN, had in its Financial Stability Report for 2013 released in 2014, disclosed that power and energy firms owe banks in Nigeria N193.98 billion, representing 1.93 per cent of the total loans advanced in the period.
Nigerian banks, alone, lack the capacity to provide an average of between $8 and $12 billion (N1.3 trillion – N1.9 trillion) funding required to execute projects required in the power sector in the next 10 years, there is the need for institutional investors and foreign investment to bridge the funding gap Consequently the Introduction of “The Power Africa “initiative launched by the US government in 2013 came at a timely period.
"Power Africa" is a US government initiative to add over 30,000 MW of more efficient electricity generation capacity in six focus African countries, including Nigeria. The World Bank has also announced a commitment of US$5 billion of support for "Power Africa”. Currently the Private Sector has also partnered with Power Africa initiative, resulting in over $20 billion in commitments for new power generation. Nigeria is already benefiting from this initiative after entering into an MOU with the United States of America regarding Power Africa in 2014.
The Global Edison Corporation has concluded plans to construct a $2.5 billion, 1500mw gas power plant in Anambra State under the “power Africa “Project.
Power Africa and its specific commitments to Nigeria:
1. The U.S. Government is to provide in Nigeria the sum of $28 million in support of the power sector privatization, reform of the gas sector and development of renewable electricity generation.
2. Through USTDA provide $3 million in support of gas fired independent power production and modernization of the electricity distribution sector.
3. Provide embedded advisor, other technical support and advisory services to BPE, NBET, FMOP, TCN, etc.
4. Provide regulatory technical assistance to NERC including advisory support, study tours, assessment and internship to support the effective regulation of privatized distribution companies.
5. Provide potential capital expenditure loan guarantee facility for the power sector.
6. Support gas sector reforms and efforts to create and implement a gas flaring reduction strategy.
The Former Minister of Finance of Nigeria , Ngozi Okonjo-Iweala has joined other experts to advise that the solution to Nigerian’s Power lies in off-grid initiatives that are climate friendly and also promotes sustainable development.It is our expectation that the Partnership between the United States and other international and Private Organizations under the Power Africa initiative with African countries and Nigeria in Particular should culminate in an adoption of several best practice tools which should aid the reform of the Power Sector. Some of these tools include policy and regulatory best practices, pre-feasibility support and capacity building, to long-term financing, insurance, guarantees, credit enhancements and technical assistance,
We expect that the liberalization of the Power Sector as contained in the Electricity Power Sector Reform Act of 2005 (ESPR 2005) should continue, some of these reforms include:
1. Renew and adopt the Renewable Energy Masterplan produced in 2006 which outlines FG plans to diversify energy sources.
2. Support the newly reconstituted Rural Electrification Agency to implement the Rural Electrification Policy.
3. Review and update the renewable energy feed- in- tariff.
4. Continue to collaborate with the Federal Ministry of Petroleum Resources and Federal Ministry of Environment to prioritize a systemic approach to reduce gas flaring.
5. With the support of Power Africa and other donor agencies continue to develop comprehensive strategy to optimize allocation of gas resources and develop a pricing framework for gas-to power and other users.In Conclusion, Nigeria and African Countries as a whole should not go cap in alms expecting assistance solely from the Developed Countries on improving their Power Sectors. Instead there should be an immediate strategy in place to make use of all the resources available including Domestic Revenue Mobilization, Private and International Partnerships and use of alternative sources of energy to improve Power Generation in these Countries.
Nigeria in particular should effectively utilize its current opportunity with Foreign Investment and Natural Resources, taking into specific consideration the technical assistance being offered by the “Power Africa Initiative” to urgently reform Its Power Sector.
Alternative Sources of Power like the use of renewable energy and other Off Grid alternatives should be harnessed to urgently address the deficit in Power supply to its growing populace.
This will support industrialization and aid the diversification of its Economy as other sectors (e.g Manufacturing and Agriculture) will develop exponentially when stable Power supply is provided.