Shakir Akorede: How To Make Private-Sector Involvements Solve Nigeria’s Energy Problem

Shakir Akorede: How To Make Private-Sector Involvements Solve Nigeria’s Energy Problem

As I write, almost 95 million Nigerians live in daily blackout imposed by the energy crisis that has persisted for decades. The situation is blamed on the failure of the state-controlled power sector. But even after much of the sector has been handed over to private hands, nothing has impressively changed. Power outage continues to afflict households and social lives. More, it paralyzes industrial and commercial activities of more than 180 million Nigerians.

Since 1999, successive governments spend about US$2bn annually on electricity provision. The Jonathan regime, in a bid to revitalize the energy sector, launched the Power Sector Reform Roadmap in 2010. This initiative successfully transferred the running of power utilities to the private sector, including the privatization of the state-owned Power Holding Company of Nigeria (PHCN). In 2013, “five power-generation plants and eleven distribution companies unbundled from PHCN were eventually sold.”

Yet in 2016, the government controversially raised electricity tariff purposely to make energy more cost-reflective, and to stimulate more private investments. Unfortunately, this happened at a time when Nigeria was been hurt by the collapse of global oil prices and its consequential economic meltdown in the country. As a result, the development was met by staunch condemnations from labour unions and majority of the masses.

Even as Nigeria has recently managed to come out of the recession, poor energy infrastructure is still a tough challenge, making it hard to diversify the oil-dependent economy (particularly through industrialization).

Making the privatization work

It is important to mention why private involvement was considered the solution to the energy problem. In simple terms, the revitalization of the ‘poorly maintained’ sector and provision of clean energy requires a huge amount of investments that the government cannot afford. In fact, the government has been borrowing to fund expenditure. Unfortunately, it already has a high debt-service-to-revenue ratio, meaning, “It is approaching the limit of its capacity to increase its debt burden without risking a slide back into debt troubles.”

Surprisingly however, Nigeria has come to the point of being asked, “What next after privatization?” After all, there’s virtually nothing yet to show for it. The Economist elaborated a clear analysis when it noted that nothing would change until the obstacles faced by private operators (including those hindering current operations and others that make the energy industry less-attractive to private investors) are defeated. “Private investors are unlikely to put money into infrastructure projects if they believe that there is little or no prospect of achieving profitable returns on their investment,” it noted.

To give an instance, government pricing policy is responsible for the shortage of gas, which affects the entire energy industry, despite Nigeria’s large deposits of natural gas. Additionally, low gas prices paid by power companies do not encourage international oil companies to invest more “in the construction of the facilities to gather and process the country’s gas for domestic consumption.” These are pressing issues the government must address, going forward.

Diversification

Energy is central to Nigeria’s economic reform vis-à-vis sustainable development. As the government pursues these goals, it must “diversify the energy sources in domestic, commercial, and industrial sectors and adopts new available technologies to reduce energy wastages and to save cost,” writes Sunday Oyedepo in a detailed review entitled, “Energy and sustainable development in Nigeria: the way forward.”

Given the energy consumption patterns in today’s world, Nigeria (and of course African countries) has the lowest rates of consumption. Yet, it suffers from erratic power supply. This is paradoxical because the country is not only “rich in conventional energy resources, which include oil, national gas, lignite, and coal. It is also well endowed with renewable energy sources such as wood, solar, hydropower, and wind.”

It is unarguable that the energy supply mix must be diversified. Nigeria can develop its abundant renewable energy resources and enhance the security of supply by installing an appropriate infrastructure and creating broad awareness. Again, Nigeria has significant biomass resources to meet both traditional and modern energy uses, including electricity generation.

 

The role of businesses

Alongside privatization and diversification lies the role of Nigeria’s big businesses, especially via the windows of investments, funding of projects, and diversification of the sector through renewable energy sources.

Some homegrown companies, such as the Aiteo Group, are acting in this direction. Aiteo Group, an integrated, global-focused Nigerian energy conglomerate, was founded by Benedict Peters in 1999. The company is today one of the most successful and largest energy companies that are helping Nigeria manage its natural resources. Other industrial giants including Africa’s richest man, Aliko Dangote, have more roles to play. While Dangote has made millions of private donations to educational and empowerment programs across West Africa, there’s more to be done in the energy sector.

Conclusively, there’s the need for massive investment in alternative energy and microgrid infrastructure to help people in remote areas have access to power, instead of major power producing ventures, as contended by Peters. In all, Nigeria needs to solve the issues causing investors’ reluctance if privatization will solve its unending energy problem.

Article by Shakir Akorede: writer, agenda contributor to the World Economic Forum, and founder of 501Words. You can connect with him on Twitter.

 

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