How Tinubu can address privatization issues in power sector

Nigeria’s incoming president, Bola Ahmed Tinubu can address the country’s power privatization issues in a number of ways.

This is according to a power sector expert, Mr. Odion Omonfoman, who is the Managing Director and Chief Executive Officer of New Hampshire Capital Limited. He said this in a May 2023 policy memo by Agora Policy.

In the memo, Omonfoman said the privatization of Nigeria’s power sector in 2014 was intended to address Nigeria’s power sector infrastructure and operational challenges, by reducing the direct participation of government in electricity generation and distribution, creating an efficient, contract-driven electricity market.

According to Omonfoman, privatization was meant to put the power sector in the hands of private investors, who would bring capital, operational capacity, and efficiency into the sector. However, the move has not taken the government out of direct participation in the sector, nor has it improved operational efficiency in the sector.

The real scenario

The memo highlights the fact that in Nigeria today, there are up to 26 on-grid generation stations with a total installed capacity above 13,000 megawatts (MW). However, available generation capacity hovers around 4,000 MW, with an average daily energy output of about 100,000 MWH.

Omonfoman wrote:

  • “Sadly, the little progress that has been made in the power sector since 1999 is neither at par with our population growth nor adequate for the energy needs necessary to achieve our economic potential. For reference purposes, Nigeria’s energy consumption per capita at 140 kilowatt/hour (kWh) is relatively low and is three times lower than the average for Sub-Saharan Africa.”

How Tinubu can change the narrative

According to Omonfoman, Tinubu’s incoming administration should prioritize the resolution of the privatization conundrum, particularly with a view to ensuring a “sensible activation” of contracts in the industry.

He wrote:

  • “By “sensible activation” of contracts, we mean allowing more bilateral negotiations, rather than an imposition, of market contracts amongst parties in the industry, under the regulatory oversight of the Nigerian Electricity Regulatory Commission (NERC).
  • “The in-coming administration also needs to look at re-privatizing some of the distribution companies (DisCos) that have been taken over by lenders due to default by core investors in meeting the acquisition loan repayment terms to the lenders, or under some form of administration by the NERC and the Central Bank of Nigeria (CBN).
  • “The failed DisCos in administration should be broken into smaller franchise areas preferably along state boundaries and privatized as new entities.
  • “Lastly, there is the “unspoken” issue of the payment of the huge market debts in the sector. For instance, generation companies (GenCos) claim that they are owed over $1 billion by the Nigerian Bulk Electricity Trading (NBET). It is unclear how the new government would address the payment of these debts.”

What you should know

Omonfoman also made it clear that the privatization of the power sector has recorded some positives. One of which is the increased total available generation capacity since 2014, as core investors in the successor GenCos invested to rehabilitate and restore installed capacities in some GenCo plants.

  • For instance, the core investors in Egbin, Kainji, Ughelli and Jebba power plants have restored the installed generation capacities for these plants.