Nigerian power sector suffers $40bn deficit as global sovereign funds play safe     

Nigerian power sector, which is in dire need of money to fund generation, transmission and distribution infrastructure, still remains unattractive to financiers, particularly managers of sovereign funds from developed nations around the world, who question the credibility and transparency of the nation’s business and investment environment.

According to Sunday Oduntan, the executive director, research and advocacy for the Association of Nigerian Electricity Distributors (ANED), about $40 billion or N9 trillion is required to achieve this feat.

This, he said, is three times the amount of Foreign Direct Investment (FDI) that has ever accrued to Nigeria in a single year, as, according to him, Nigeria has never had over $3 million in FDI in one year.

However, Oduntan said the needed $40 billion could be sourced using many global sovereign funds, private equity funds and hedge funds scattered all over the world that were dedicated to financing energy infrastructure projects and were currently looking for markets.

Oduntan stated that to convince investors that Nigeria had changed and that investor principal will not be at risk of loss, mandating them to part with $40 billion, the country must take two steps, one of which is to demonstrate integrity and transparency in how project funds could be deployed and managed.

Another condition, he said, is the provision by the federal government of sovereign guarantee against loss of principal funds that may be invested in public projects and all fuel purchases.

Among the conditions precedent for achieving reliable supply, Odutan said the Nigerian electricity supply industry ‘needs assurance of fuel supply, no matter the level of domestic production, industrial demand, or power generation demand.

Another way is to completely deregulate the price of gas for power generation companies to remove gas supply as a limitation on gas-fired generation growth, identify and explore the feasibility of coal production in the states with coal resources, as coal generation capacity is estimated at around 5,000-10,000mw based on reserve threshold.

There is also a need to build a liquefied natural gas (LNG) re-gasification (receiving) terminal that is connected to the domestic gas pipeline system in order to have the flexibility to buy LNG from any market in the world and ensure security of supply.

The LNG terminal, Oduntan said, will pay for itself many times over with a lower cost of gas, increased supply and the economic value of far more energy production.