Nigeria’s unfolding power reform programme

The Nigerian government under President Goodluck Jonathan is currently implementing far-reaching reforms of essential sectors. This has led to the privatisation of key areas in the value chain of the country’s power sector, opening them to foreign and local investors. This is aimed at economic growth and bringing the electricity supply to all parts of the country, writes Ejiro Barrett.

Nigeria’s power sector is witnessing a remarkable transformation. Once underperforming, an ambitious privatisation and unbundling programme – initiated by the government of President Goodluck Jonathan – is under way.

The construction of critical infrastructure is urgently being rolled out, and dedicated efforts to improve regulations within the sector have commenced. The reconstitution of the leadership of the regulatory body, the National Electricity Regulatory Commission (NERC), has further improved its ability to supervise the sector.

It is clearly the beginning of an impressive era of improvements to the country’s power sector, and experts suggest that the results will be unparalleled. The power sector has also been opened up to private investment, both local and foreign. 

The government says these steps are necessary to achieve international best practices that will ensure improved efficiencies. The incentives are many: with a population of approximately 170 million people, Nigeria has a power supply of around 3,500MW compared to a suppressed demand that is estimated at 10,000MW.

The sector presents major investment opportunities that extend into the related areas of transmission infrastructure; metering (production and installation); all aspects of revenue collection services; skills training, etc.

 There are also significant fiscal incentives. Nigeria has an attractive investment regime that allows equipment and machinery for the power sector to enjoy zero duty. Additionally, tax holidays of 5-7 years are granted to companies that manufacture transformers, meters, control panels, switchgears, cable and other electrical-related equipment vital to the industry. Power plants using gas as a feedstock are assessed under company income tax legislation at a reduced rate of 30%.

With a mandate to develop and facilitate the implementation of policies for the provision of an adequate and reliable power supply, the Ministry of Power is led by the Minister of Power, Professor Chinedu Nebo. The Minister of State for Power, the Honorable Mohammed Wakil, and the Permanent Secretary, Dr Godknows Igali, also head a competent team of technocrats and officials that are building a robust and sustainable power sector to meet the needs of Nigerians. At a recent summit, organised by the Ministry of Power, Professor Nebo reaffirmed the government’s commitment to continuing its implementation of the far-reaching reforms taking place in the sector. This commitment was evident in the interactions between the new operators of the nation’s recently privatised power generation and distribution companies, which followed the unbundling of the Power Holding Company of Nigeria (PHCN).

Civil society organisations are also part of efforts to promote transparency in the divestment programme. An academic whose cerebral approach to addressing challenges is well recognised, Professor Nebo’s efforts have been pivotal in supervising the swift implementation of initiatives that have resulted in the successes achieved so far. The extent of the government’s efforts is put in perspective by the fact that the investment in the sector today surpasses what the industry has ever attracted. 

For the government, the main challenge is meeting the financial commitments that are required to drive the growth. Based on reports from the Presidential Task Force on Power, it is estimated that the entire power sector will require over $40bn over the next seven years to meet the country’s targets. This figure is based on the projected investment by the new owners, as well as the requirements in transmission and gas infrastructure; a huge sum by any standard.

Estimates of required investment include approximately $4.5bn by 2017 for gas infrastructure and $1.5bn a year for transmission, through to 2020. A forecast of 2.5GW per annum of generation through 2020, costing over $3bn a year, is also estimated in the report. Distribution is projected to grow at 3,500 to 4,000MVa a year until 2020, with an estimated cost of $2bn a year. 

An International Conference on Private Sector Financing/Support for the Power Sector & Infrastructure was recently held in the nation’s capital city, Abuja, to launch the search for additional sources of finance. The gathering brought together over 1,000 local and international financial institutions, private equity firms, investors, arrangers, consultants, and multilateral development agencies.

A 60-man delegation from the US was led by the United States deputy-assistant Secretary of State for Energy Transformation, Dr. Robert Ichord.