PwC Nigeria has disclosed that inadequate gas supply, limited transmission lines, among others are the biggest problems facing Nigeria’s power sector.
The international auditing company explained that operational inefficiencies, poor water management at hydropower plants and inadequate and obsolete distribution infrastructure are other issues facing the sector.
PwC Nigeria in a recent published white paper titled, ‘Solving the liquidity crunch in the Nigeria Power Sector’, noted that the situation in Nigeria’s power sector is rather abysmal.
According to the company, the country’s operational capacity of less than 4,000MW is far less than the set target, prior to the privatisation of the power sector, in the early 2000s.
The report also noted that only 60 percent of Nigeria’s population has access to electricity, meaning that the remaining 40 percent are completely cut off. Interestingly, even the 60 percent do not get quality service, because electricity supply is epileptic.
“As one can expect, there are many problems facing the Nigerian power sector. A lot of these problems bother on inadequate production. Also, the means via which generated electricity is transmitted also presents another major challenge, the report explained.
The report noted that, “Gas-fired power plants account for more than 77 per cent of total electricity generated (Q4’2018: 71per cent) while hydro sources accounted for 23 per cent (Q2’2018: 29per cent). Insufficient gas supply and variability in rainfall and water level at hydro plants, among other challenges, continue impact power generation in Nigeria.
“Liquidity crunch is the biggest challenge of the Nigerian electricity sector today.”
Besides these problems, PwC Nigeria noted that liquidity crunch is the most worrisome challenge facing the power sector.
According to the company, the tariff framework (I.e., the electricity pricing structure in Nigeria) is non-cost reflective. This is because, “industry participants often complain that electricity charges to customers do not reflect the cost of generation, transmission, and distribution” As such, this predisposes the operators to liquidity constraints.
“Liquidity crunch is the biggest challenge of the Nigerian electricity sector today. The 11 DISCOs have been struggling to meet their obligations to the Nigerian Bulk Electricity Trading Plc (NBET) and Market Operators (MO), as evidenced in their low remittances to NBET and MO.
“In Q1’2019, only about 28 percent of the N190 billion invoice (comprising invoice of 161.4 billion for energy purchased from NBET and an invoice of N28.8 billion for administrative services from MO) of DISCOs were remitted.”
PwC proposes possible solutions to the biggest problem facing Nigeria’s electricity sector
According to PwC Nigeria, a possible solution to the problem of liquidity crunch facing the DisCos is to start supplying 50 percent of distributable electricity to Nigerian companies. This, the white paper suggests, should be done provided these companies are willing to pay N80 per kilowatt. The remaining 50 percent can then be shared among residential consumers.
The paper went further to explain that doing this will help solve the liquidity problem facing the sector. This suggestion is based on the assumption that Nigerian companies will be willing to pay for stable electricity supplied by DisCos instead of expending more to generate electricity for themselves. And if these companies pay N80 per kilowatt for a collective 50 percent of Nigeria’s generated electricity, they will eventually be paying an estimated N400 billion to the DisCos. This will go a long way towards solving the main problem highlighted above.
“To revitalize liquidity in DISCOs, we consider 50 percent of energy received by DISCOs is transmitted to industries at a cost-reflective rate of N80/Kw. At N80/Kwh charged to industries, an estimated N400 billion will be injected into the power sector annually.”