Electricity Companies Seek N2tn Capital Injection to Overcome Challenges

In a bid to address the mounting challenges facing Nigeria’s electricity sector, power companies are advocating for a substantial capital injection of an estimated N2 trillion (approximately $2.5 billion).

The plea comes as the industry grapples with over-leverage, under-capitalization, and an urgent need for new investors to breathe life into an ailing system that struggles to meet the demands of its 200 million residents.

Olu Verheijen, an adviser to President Bola Tinubu on energy, highlighted the dire state of power companies in Nigeria, citing their over-leveraged and under-capitalized status.

This financial predicament severely limits their ability to invest in the necessary infrastructure for effective electricity distribution across households in the country.

Nigeria currently generates and supplies between 3,500MW and 4,500MW to its vast population spread across 36 states and the Federal Capital Territory.

Despite these efforts, the nation faces chronic power shortages, prompting most residents to resort to using noisy generators for their energy needs.

Lagos, with a population of 25 million people, receives a mere 1,000MW from the grid, illustrating the stark disparity compared to other global metropolises like Shanghai, which supplies over 30,000MW at peak demand with a similar population.

Verheijen stressed the urgency of implementing policies that facilitate the reorganization and recapitalization of the power sector, urging the infusion of new capital through partnerships with fresh investors.

While specific details and timelines for the plan were not provided, it aligns with President Bola Tinubu’s commitment on January 1, 2024, to enhance electricity supply in Nigeria.

The proposed recapitalization is expected to accompany plans to make electricity tariffs more reflective of costs, thereby enhancing the liquidity and viability of the power sector.

Despite the privatization of generation and distribution in 2013, the Nigeria Electricity Regulatory Commission, a government-controlled body, sets tariffs, hindering power firms from charging enough to cover distribution costs.

Without a tariff review, the depreciation of the naira and escalating inflation pose significant challenges, potentially pushing energy subsidies from N600 billion in 2023 to a staggering N1.6 trillion in 2024, according to the regulator.

As Nigeria grapples with the urgent need for substantial capital to rejuvenate its power sector, the success of these proposed measures holds the key to overcoming the persistent challenges and fostering a more reliable and sustainable electricity supply for its growing population.