Powering Africa: Will a New President Fix Nigeria’s Power Sector Issues?

Earlier in March, Nigeria conducted presidential elections to usher in a new government. Bola Ahmed Tinubu, who campaigned on a record of "fixing" Lagos State (Nigeria’s commercial hub) as a former governor, was declared the winner. At the beginning of this new political cycle, a Tinubu-led government will be faced with a key challenge that successive governments have attempted but seemingly failed to completely tackle, the power issue in Nigeria. For decades, electricity supply has struggled to meet demand in Africa’s most-populous nation, as the country has only been able to achieve generation capacities between 3,500 and 5,000MW of electricity since independence in 1960.[1] This is in spite of an average annual population growth rate of 2.4% (World Bank, 2021).

According to 2021 figures, Nigeria has a nominal power generation capacity of 13,000 MW, most of which is not actionable or lost during transmission.[2] This leaves about 4,500 MW of electricity for a population of over 210 million. Consequently, around 90 million Nigerians, about 43% of the population, are without access to grid electricity.[3] For context, South Africa, with a power generation capacity of 46,466MW for 60 million people currently has a power crisis on its hands.[4] If Nigeria were to triple its current power generation capacity, it would still be grossly inadequate to meet aggregate demand.

So, what might change under a new President?

A multifaceted Issue

Since the first power generation plant was built in 1866 under British colonial rule[5] (with a capacity of 60KW), the power sector in Nigeria has undergone a series of reforms, changing ownership phases and unbundling cycles. Between the 1950s and 1960s, the sector was operated by the Electricity Corporation of Nigeria (ECN) and the Niger Dams Authority (NDA), in charge of overseeing hydropower generation. By 1972, the complete value chain, from generation and transmission to distribution was merged under the National Electric Power Authority (NEPA). 27 years later, the government-controlled monopoly was underperforming as a result of deteriorating infrastructure, under-investment and a limited installed capacity of 6,000 MW, generating only 1,500MW as at 1999.[6] This set off a series of reforms and interventions that have achieved very limited success in terms of outcome, largely failing to improve electricity supply and efficiency.

Nigeria utilizes mostly thermal (natural gas) and hydroelectric power sources. In the early 2000s, the government sought to attract investment in the sector which it hoped would boost generation and supply. Consequently, the power sector was privatized and NEPA was unbundled into six power generation companies (GenCos), 1 transmission company (TCN) and 11 distribution companies (DisCos), under the Power Holding Company of Nigeria (PHCN). The Electric Power Reform Sector Act (EPSRA) was also implemented to administer key power issues leading to the establishment of the Nigerian Electricity Regulatory Commission (NERC), tasked with tariff and policy regulation; and the Nigeria Bulk Electricity Trader (NBET), concerned with purchasing power from GenCos and selling to DisCos[7]. In 2013, PHCN was dissolved, but the underlying structure was retained. Currently, the sector operates with a hybrid ownership structure where power transmission under TCN is entirely administered by the government, and the GenCos are mostly privately owned (with minority share ownership by the government), except two which operate under a concession agreement between the government and private operators. The DisCos are also mostly privately owned.

Over the years, these operators have faced varying degrees of challenges that have affected the sector to varying degrees, cumulatively stalling or hampering progress made by some actors, whether government or private owners. So, on one hand, GenCos are unable to generate power at maximum capacity because of overburdened and poorly maintained infrastructure, and limited investment. At the same time, reliance on hydro and thermal sources results in further reduced power generation capacity when water is low during the dry season; and gas is insufficient due to gas pipeline vandalism disruptions. Then, inadequate infrastructure results in a deficit on the transmission side, where a lack of investment means that transmitted electricity cannot exceed a certain threshold. And finally, DisCos, which supply to the end consumer, have profitability issues and are highly indebted because of unpaid electricity bills, systemic corruption and customers bypassing metering. They also argue that electricity tariffs, determined by NERC, are not cost-reflective. Consequently, DisCos are unable to invest in infrastructure and often rely on government bailouts and bank loans to stay afloat.[8] In 2022 the operation of four DisCos was taken over by Nigeria’s Asset Management Commission and some banks for defaulting on loan repayment.

A Paradox?

In theory, this ownership structure was intended to boost efficiency in the sector and reduce the burden of one player investing across the value chain. In practice, inefficiencies have resulted in a grossly underperforming sector, currently known to have one of the lowest electricity access rates in the world (World Bank, 2022).

Number of people without access to electricity in top 20 access-deficit countries, 2020 (millions)

Source: The Energy Progress Report (2022)

Ironically, in spite of the relationship between economic growth and access to power, Nigeria remains the largest African economy in terms of GDP (World Bank, 2021). However, one may argue that this might be so because citizens, investors and businesses have had to adapt and work around limited power supply in their interaction with the Nigerian economy; finding ways to operate in spite of the power situation. In the last twelve years for instance, the country has experienced over 222 significant power grid collapses.[9] And over the years, citizens and business owners have had to rely on other power sources, petrol and diesel-powered generating sets being the most common alternatives. But, even though petrol and diesel are highly subsidized by the Nigerian government, accumulated costs in relation to the frequency of blackouts cause a financial strain. Many businesses and residential estates have had to partially or completely go off the grid, relying on diesel generators and renewable energy sources such as solar energy.[10]

Will a New Government Fix the Issues?

With a hybrid ownership structure, and considering government interventions over the years, the new government would likely need to deepen partnerships with the private sector to turn things around. However, two recent events have the potential of impacting the power sector in the coming months, under a new government. First is the proposed removal of fuel subsidies. The Nigerian government has planned to remove subsidies on petroleum products by June 2023, as part of fiscal reforms to reduce public debt and government spending.[11] The resultant higher costs of petroleum products may further strain the capacity of Nigerians who depend on diesel generators to provide their own power. Second, the outgoing Nigerian president, Muhamadu Buhari, recently signed a constitutional amendment into law, permitting states to ‘’generate, transmit and distribute electricity in areas connected to the grid.’’[12] This may be transformative for the power sector in the coming months. It also signals an opportunity for private power generation companies to partner with states. Lagos State, Nigeria’s commercial hub, has already stated intentions to act on this new provision, with a plan to generate 1GW solar-powered energy.[13]

Tidiani Jeff Tall is CEO of Lidera Green Power, a renewable energy independent power producer (IPP) based in Madagascar. He previously held transformational leadership roles at KONE (elevators & escalators), and Lafarge (building materials), after starting his career in debt capital markets at Morgan Stanley, and strategy consulting at Roland Berger. Jeff is a graduate of Ecole Polytechnique Paris and Institut Français du Pétrole (IFP School), as well as a participant in the first session of the Emerging Leaders Program at Harvard Kennedy School.

[1] Peter Uzoho (2022). DISCOS: Nigeria Yet to Generate Up to 6000 MW Electricity Since Independence.

[2]Jerry Fisayo-Bambi (2023). Oil rich, electricity poor. What will it take to solve Nigeria's energy crisis? Africa News.

[3]World Bank (2021). Nigeria to Improve Electricity Access and Services to Citizens.

[4] Roelf, W. and du Plessis, C. (2023). South Africa invokes disaster law to tackle energy crisis. Reuters.

[5] Osavu Ogboghodo (2020). The History of Nigeria’s Power Sector.

[6] Daily Trust (2022). FACT CHECK: Was Power Generation Capacity 4,000MW In 1999 As Atiku Claimed? Daily Trust.

[7]NBET: Frequently Asked Questions (FAQs). nbet.com.ng.

[8] Sami Tunji (2022). GenCos, DisCos owe banks N836bn amid crisis. Punch.

[9] Arogie, M. and Odoh, I. (2022). Nigeria: Decentralisation Of Nigeria Electricity Grid - Prospects And Challenges. Mondaq.

[10] Noelle Okwedy (2023). How Lagos estates are going off-grid. Stears.

[11] Emeka Anaeto (2023). Gradual removal of petrol subsidy starts April —FG. Vanguard.

[12] Arise News (2023). Buhari Signs 16 Constitution Amendment Bills; States Can Now Generate, Distribute Electricity, Own Railway. Arise TV.

[13] Pascal Oparada (2023). Sanwo-Olu Unveils Lagos Electricity Market to Generate 1GW Solar-Powered Energy, Names New Firm. Legit.NG.