The 11 power distribution companies (DISCOs) in Nigeria will need a minimum of $10 billion (about N3.07trillion) investments to boost their services over the next five years.
This was contained in an industry study report on how to boost electricity supply presented at a one-day conference in Abuja to appraise challenges in the country’s power sector.
The French Agency for Development (AFD), which organised the conference, said it conducted the study with the support of the European Union (EU) on the Nigerian Electricity Supply Industry’s challenges, to help resolve the problems of the sector.
The study conducted by a consultancy firm, AFMercados, under the Technical Assistance Programme, said the best way out of the challenge was to evolve innovative financing solutions, possibly involving new players to invest in the sector.
A key finding from the study was that the sector needed more investment than interventions by the Central Bank of Nigeria (CBN) to turn the electricity market around.
Also, it disclosed N600 billion has been earmarked as the second tranche of CBN of Nigeria Electricity Market Stabilisation Facility (NEMSF) starting this year or by 2020.
The team leader of the Capacity Building and Technical Assistance Programme (CaBTAP), AF Mercados, Jose Guerra, said the study was also designed to empower decision makers with reliable information on the country’s power sector.
AFD said the study was conducted in conjunction with other development institutions involved in the power sector and witnessed how investments in the sector have been stalled since it was privatised.
“This has led to the buildup of a major bottleneck, constraining ever more access to electricity for the public and the economy, driving up the costs for users who can only resort to diesel-powered generation,” AFD said.
“The failed attempts at financing DISCOs by the Federal Government and its development partners to think out ways of breaking the vicious cycle starting from an initial infrastructure gap led to today’s severe liquidity crisis, with a revenue shortfall that is over $3billion,” the agency added.
The report blamed the revenue shortfall on the lack of a cost reflective tariff, customer dissatisfaction and a lack of performance in the power sector, in general, resulting in a shutdown of access to finance.
AFD said Mercados worked closely with stakeholders in the sector and the DISCOs since mid-2017, following the guidelines of the Performance Improvement Plans (PIP) released by the Nigerian Electricity Regulatory Commission (NERC).
The study shed light on key actions needed to solve the liquidity crisis in the sector, such as in the areas of segmenting the electricity market into manageable urban areas, rural areas, and potential Eligible Customers.
The other segmentations are informal settlements in urban areas and peri-urban areas, and the difficult to manage rural areas.
Other highlights of the report included an analysis of the cost and revenue structure of the DISCos on these various segments; appropriate data to help in valuing the needed investment linked to key performance indicators targets to help in forming the PIP of each DISCO as required by NERC.
The development partners, however, emphasised the need to set up a consistent legal and regulatory framework that would attract investors to sustain the power sector.
Participants in the conference included representatives of the private sector, including banks, Manufacturers Association of Nigeria, investors, representatives of government institutions, and other development partners.