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Solving Nigeria’s power woes may take decades
« on: May 02, 2013, 02:46:02 PM »
IN AN unwanted daily routine lasting 17 years, Phillip Cleatus sits in the dark doorway of his shoe-making shop in Nigeria’s northern city of Kaduna, waiting for the lights to come back on.

President Goodluck Jonathan is trying to persuade Mr Cleatus and about 170-million other Nigerians this will soon change.

Yet while his plan to privatise power is creeping forward, it is likely to take decades to end the chronic electricity shortages that are among the main barriers to investment and growth in Africa’s second-biggest economy and top oil producer.

Nigeria is in the process of breaking up the state power company into 17 private generation and distribution companies and selling them for about $2.5bn in total, as part of efforts to increase electricity output tenfold over the next seven years.

It might be its most advanced effort yet to end the perennial power shortfall, but progress has been so slow that Mr Jonathan’s targets look far too optimistic. Industry experts believe some improvements will be felt in two to three years.

If Nigeria gets the lights on, it would cut business costs by up to 40%, add 3% to gross domestic product (GDP) and reduce the mass unemployment that fuels unrest seen in oil theft in the south and a bloody Islamist insurgency in the north, economists say.

It could also spur a boom in labour-intensive areas like manufacturing, food processing, textiles and pharmaceuticals, while opening up the opportunity for new low-cost service industries like the call centres that aided India’s rise.

The $13bn a year Nigerians spend on diesel, most of which is imported, would be a thing of the past. Power from generators costs more than twice as much as from the grid.

"This is killing my business. I lose 45% of my annual profit to poor power supply," Mr Cleatus told Reuters.

A glitzy ceremony Mr Jonathan hosted last week celebrated the first payment by private companies taking over the unbundled state electricity firm and a deal by the World Bank to give an initial $145m risk guarantee for a gas supply.

A close look at the private companies that won bids shows a mix of oligarchs and influential figures connected to Nigeria’s political elite, and some recognised technical partners like Siemens and Manila Electric.

This has raised some questions about the expected efficiency of the privatisation process and what it can deliver, but there are those who argue that effective business in Nigeria is impossible without political connections and patrons.

"Much has been achieved, yet the race will not be over until Nigerians can take electricity supply for granted," Mr Jonathan told dignitaries and power companies last week at his villa.

Electricity capacity had been in steady decline for a decade when he launched his reform plan in 2010, pledging Nigeria would boost generation from 3,000MW to 10,000MW by the end of this year, and 40,000MW by 2020.

Generation has increased to about 4,000MW but experts say there is zero hope of meeting government targets, while the scale of the task means power output will initially fall after the privatisation is completed at the end of this year.

Despite being Africa’s top oil producer and holding the world’s ninth-largest gas reserves, Nigeria’s power output is a tenth of South Africa’s for a population three times the size.

"It will probably take Nigeria another 50 years before it attains the same level of electricity consumption per capita that South Africa currently enjoys, " said David Ladipo, whose company, Azura, is spending $700m in order to build a 450MW plant.

He thinks electricity output could grow to 6,000MW in the next two years and to 9,000MW by 2020, before seeing a potential boom as post-privatisation investment kicks in.

Yet privatisation is months behind schedule and the government is struggling to get the funding it needs for crucial transmission and gas supply infrastructure. Unions are blocking attempts to pay off 40,000 state electricity workers.

Nigeria says it has found 340-billion naira ($2.1bn) to pay off the workers, but they remain reluctant to leave.

The African Development Bank is providing $150m to aid with transmission and some of a $1bn debut Eurobond would help with upgrades. But in Nigeria, just making the money available does not always mean it will be used wisely.


Adewale Odubiyi
Owner, Nigeria Oil & Gas Forum

Nigeria Oil & Gas Forum

Solving Nigeria’s power woes may take decades
« on: May 02, 2013, 02:46:02 PM »


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