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Nigeria loses $29.3bn yearly to inadequate power supply

Nigeria’s economy is currently losing $29.3 billion yearly due to inadequate power supply, according to the draft document of the Power Sector Recovery Programme (PSRP) seen by Financial Quest.
apacity utilisation among companies is very low because of lack of power, as they have to spend about 40 percent of their production cost on generating electricity for themselves.
Consequently, unemployment continues to rise in the country.
Power challenges and foreign exchange difficulties were cited as major reasons why 272 manufacturing firms shut operations in Nigeria last year.
In a bid to retool the sector, the PSRP has been developed in response to yawning electricity gaps which account for heavy dependence on generators, raising daily consumption of petrol to 49million litres and diesel at 11million litres last month.

The PSRP is a series of policy actions, operational and financial interventions to be implemented by the Federal Government of Nigeria to attain financial viability of the power sector and reset the Nigerian Electricity Supply Industry (NESI).
According to the World Bank’s Africa Infrastructure Country Diagnostic (AICD) and a 2015 McKinsey report, African countries are losing 1% of GDP per annum due to poor power infrastructure.

Nigeria’s estimated GDP loss from 1999 to 2015, which was used in computing the yearly economic loss, shows that the country has lost N71 trillion due to under- investment in power infrastructure.
Nigeria’s power sector cries for radical intervention with average power supply for March at less than 3,000MW, in a nation that requires 160,000MW, following industry rule of 1MW for every thousand population.

This gap has crippled the manufacturing sector, raised operational costs of business and is a major factor blighting ease of doing business in Nigeria.
The Purchasing Managers Index (PMI), an indicator of the economic health of the manufacturing sector, stood below 50 index points between January and November last year, which means that industrial production suffered massive decline.

Currently awaiting approval by the Federal Executive Council, the PSRP is built upon three critical planks: resolving accumulated deficiencies across the electricity value chain, strengthening regulation and instituting a stronger financial framework for funding the sector.
A comprehensive financial analysis being planned will review the financial statements of market operators and develop a sector financial simulation model, which will focus on cash/debt flow analysis, encompassing all market participants.

The current tariff methodology will be reviewed in the plan, which is proposing new requirements for power purchase agreements and vesting contracts which hitherto cannot take-off due to unrealistic tariffs.

The PSRP will further review the linkage of macroeconomic policy framework to correct the present scenario, where tariffs are based on dated assumptions.
Key policy results expected from the PSRP include the elimination of accumulated deficits between 2015 and 2016, fund future sector deficit between 2017 and 2021 and ensuring electricity distribution companies improve performance.

The plan also aims to put measures in place guaranteeing a minimum of 4,000MW/H of average daily energy and developing and implementing a robust loss reduction plan through metering.
It will also “ensure MDA debts are paid and implement a payment mechanism for future bills; restore sector governance by putting all boards across the sector in place (Nigerian Bulk Electricity Trading Company, Transmission Company of Nigeria, Nigerian Electricity Liability Management Company, Niger Delta Power Holding Company, Rural Electrification Agency, Bureau of Public Enterprises).

It further plans to increase electricity access by implementing off-grid renewable solutions, developing and implementing an FX policy for the power sector and making electricity market contracts effective, and implementing an end user tariff trajectory, ensuring cost reflective tariffs are achieved over five years.
Stakeholders have long canvassed for deep reforms in the electricity sector, beyond occasional funding interventions to ease liquidity gaps created because operators could not recover costs, as economic realities rendered obsolete, the assumptions on which tariffs were based.

“What the sector needs is deep reforms beyond just intervention and this is a step in the right direction,” says Chuks Nwani, energy lawyer and vice president of PowerHouse International, an energy consultancy.
Since 2013, gas prices have increased to from $2.44/mmbtu to $3, inflation rates have spiked to 18 per cent from 8.8 per cent and foreign exchange rate climbed to $1/450 from $1/198 yet the Nigerian Electricity Regulatory Commission (NERC) says tariff increase is not imminent.

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