Diversification and incentives are key for Nigeria’s power sector growth
Over the past few years, there has been increasing amount of concern being expressed by Nigerians about the lack of action being taken to fix the current issues with the principal power production methods and networks, and create a solution to Nigeria’s urgent power needs.
There have been many plans by the government to revamp the energy sector, however most of the plans have failed for a number of reasons. There are issues ranging from pipeline vandalism to project mismanagement, policy indecisiveness and funding constraints. To try to resolve these matters, stakeholders from both the private and public sectors have been advised to collaborate to encourage and facilitate investments in the energy sector.
In his submission concerning investments in Nigeria’s energy sector, Christopher Cross, a partner in global law firm Hogan Lovells, with almost two decades’ experience of successfully completing major infrastructure projects across the globe and providing strong regional insight on the Middle East, Africa, and Europe, cautioned that what Nigeria needs now is for the public sector to incentivize private sector investment in energy by creating an environment that is more conducive to bringing foreign investment into the country and promoting the development of localized solutions. Frameworks for the development of alternatives such as off-grid and mini-grid solutions have to be put in place for the desired improvements to occur.
The geographical expanse of Nigeria means that a centralized energy system will require a level of investment that is not sustainable. The requirement for localized solutions such as mini-grid or off-grid solutions require a different and more local approach to funding the development of power infrastructure.
According to Cross, one of the major setbacks for the sector is inadequate access to committed funding. Developers are wary of making significant investment into Nigeria until the government resolves existing issues regarding non-payment and indebtedness to stakeholders in the sector. The size of the problem means that a radical solution may be required, such as debts being waived, or ensuring that central government payment security is provided to ensure that any new payment plan is properly structured.
Another alternative could be the introduction of a payment guarantee scheme, driven by the government or sovereign wealth fund entity to secure payments going forward. It is important to note that until the pre-existing structural issues are resolved (or at least a clear way forwards is identified), it is likely that new investors will remain cautious.
It is also important to understand the concern around the lack of hard currency for multimillion dollar or naira projects such as cost to purchase solar panels offshore. In situations like this, it is important that banks are incentivized to ensure there is access to hard currency locally and that there are no restrictions regarding the use of or repatriation of hard currency from Nigeria. When hard currency is brought into Nigeria currently it is transferred to Naira at a pre-agreed rate. This incentivize investors to try and undertake more work offshore (which will have a negative effect on the level of investment coming into the local economy) or to price for currency risk.
In terms of diversification of the power sector, Cross urged Nigeria to start exploiting various sources of energy apart from gas fired and big hydro plants. This has become more imperative in the face of continuous vandalism of gas pipelines and power infrastructures across the country. Nigeria needs to continue its move towards alternative power generation as it pursues a new energy mix, which encourages construction of solar farms, coal fired plants, renewable resources and investment in gas/gas pipeline infrastructures.
It is not late for Nigeria to determine and adopt the energy mix templates of countries that have succeeded like, Germany, Brazil, South Africa, Poland, the United Kingdom, Russia, etc. To make the needed progress, the country needs a departure from the current way of thinking about resolving its power problems. Wherever the current system demonstrates duplication and inefficiency the Government will need to be strong to incentivize the introduction of viable alternatives to fill the gaps in service delivery and resolve the problems endemic to the current system.