Generating investment in Africa’s energy sector: Nigeria must go further

There can be no development of Africa, the world’s final frontier market, without access to modern, efficient energy. So how should we address the continent’s current power deficit, which leaves more than 600m people without electricity? Sub-Saharan Africa currently consumes less electricity than Spain. According to the Africa Progress Panel, based on current trends, it will not be until 2080 that every African has reliable access to electricity.

Nigeria presents a stark example. The Nigerian Bureau of Statistics recently almost doubled its estimate of the country’s 2013 GDP to 80.2tn naira ($500bn), meaning Nigeria has overtaken South Africa as the continent’s largest economy. It now ranks 24th in the world, yet its average annual per capita power consumption is only 130 kWh – 7 per cent of that in Brazil and 3 per cent of that in South Africa.

South Africa’s installed electricity generating capacity is over 45,000 MW, while Nigeria has a meagre 8,000 MW, less than half of which is actually generating electricity. The citizens and businesses of a country with a population of over 170m have resorted to the use of electric generators to the point at which, according to industry experts, the upfront costs, including imported fuel, nearly match Nigeria’s annual national budget.

There is clearly an urgent need for investment in Nigeria’s power sector, which is mission-critical for the country’s economic transformation.

Nigeria’s federal government started the painstaking process of sustainable reform with the enactment of the Electric Power Sector Reform Act (EPSRA) in 2005. This Act outlined the framework necessary to: Unbundle the state-owned power utility, the National Electric Power Authority (NEPA). This led to the creation of six generation companies, 11 distribution companies and a single transmission company, allow the transfer of assets, liabilities and staff of NEPA to an energy sector holding company, the Power Holding Company of Nigeria (PHCN), create a competitive electricity market and establish an independent regulator.

Since privatisation, the development of a competitive power sector has been stalled by numerous challenges, such as the inability to get adequate feedstock in the form of natural gas, a very uncertain tariff regime and the need to enable timely collection of electricity bill payments. The previous government’s highly celebrated “Road Map for Power Sector Reform” has simply missed its targets, requiring surgical intervention from the new federal government.

The Presidential Task Force on Power, headed by the Vice President, will serve the country well by cementing the achievements of the reforms so far. Initiatives could include: A true stakeholder engagement in identifying the issues that are inhibiting Nigeria’s development, enacting laws that take into account the needs and expectations of international investors, addressing investors’ concerns (legal, currency and collection risks, etc, a strong, public re-education programme regarding the impact of power theft on electricity supplies, and a novel tax on self-generation, enabling the value chain to support the government’s efforts, by ensuring electricity consumption is accurately metered and charged for.

Investors readily see the growth potential of this market but are dissuaded by previous examples of failed privatisations, such as those in India and Latin America in the 1990s. They also have concerns regarding industry regulation, feeling that African governments, including Nigeria’s, do not have adequate regimes to promote business-friendly environments.

Unlike many of its peers, the government of Nigeria can be lauded for pursuing the power agenda with admirable resolve and zeal. However, the centrepiece of privatization lies in the effectiveness and efficiency of the system, which is contingent upon the environment the government, creates.

EMANUEL MISGHINNA, REMATCO