Efficiency gaps clog Nigeria’s power sector competiveness

When Nigeria government in 2013 sanctioned the privatisation of the power sector, hope were high that the process would address issues around efficiency and attract private capital needed to propel the sector to meet Nigeria’s fast growing electricity demand.

As lofty as this aspirations were, close to four years down the line, the situation more or less have failed to live up to expectation as the sector still grapples with systemic challenges, with negligible improvement in supply relative to the pre-reform era.

The question that continue to trouble the mind of industry close watchers is why the sector has seen little progress despite so much promise.

Industry experts are of the view that rather than the Discos, GenCos and Transmission company of Nigeria(TCN) trading blames, they should pull forces together in addressing lingering bottlenecks such as: sub-optimal utilisation of generating capacity; Inadequate transmission infrastructure and high distribution losses; and low rates of revenue collection.

According to industry stakeholders, the power sector reform in Nigeria has come with both pains and gains, with the former taking the shine off the noble intents of the privatisation exercise. “The challenge with effective and efficient electricity supply in the post-privatised electricity market in Nigeria boils down to shortage.

Reports indicate that the biggest hurdle against the commercial viability of the Nigerian electricity value chain is insufficient cash flows. This has significantly impaired the ability of the Gencos and Discos to recover all costs and generate appropriate returns on investment.

It has been a rather daunting task aligning the charges for electricity consumption with the cost of electricity generation, transmission and distribution.

At the moment, situation shows that Discos are currently overleveraged, hence equity injection is the most efficient way to plug capital shortfalls in the sub-sector. The domestic financial system is overexposed to the sector and lacks the capacity and depth to provide further funding support, especially debt capital.

Analysts are worried that despite the avalanche of challenges facing the power sector, efforts seem to be focused on ramping up investment in the grid, arguing that a less centralised structure, where off-grid solutions are prioritised and supply close to 50.0 percent of power output would ensure improved efficiency and a more competitive electricity market.

At the moment, an estimated 3,000MW of generating capacity is stranded due to gas constraints. Transmission capacity can only wheel 50-60 percent of installed capacity, while collection losses range between 40-60 percent at the distribution company (Disco) level.

Industry analysts observe that from feedstock availability to electricity units delivered to the end-user, there are severe strains that not only threaten the financial viability of the sector, but also practically repel fresh funding and investment across the value chain.

Wumi Iledare, Director of Emerald Energy Institute, University of Port Harcourt, Rivers State said the role of government in the settlement and payments system extended far longer than it should, with debilitating impact on investor confidence and the operational efficiency of the market.

Iledare further added that across the value chain, lax regulation and enforcement of sanctions at the Discos level with respect to collection efficiency created cash flow shortages which continue to impede the overall efficiency of the sector.

“The cost of not having electricity is much greater than the cost of putting the right machinery in place given that self-generation costs 62-94kWh, two times grid-based power in Nigeria” analyst added.

KELECHI EWUZIE