Power Sector to Receive US$8-bil. Investment in Nigeria

10,000MW to Be Added

Nigeria's underperforming power sector is set to receive massive investment of US$8 billion, which should boost the country's generating capacity to over 10,000MW, with 20 companies having been granted independent power plant (IPP) licences.

The federal government embarked on the privatisation of the power sector back in March 2005, enabling new legislation in the Electric Power Sector Reform Act. The Act reviewed the generation, transmission, and distribution of electricity in the country in order to improve its performance. Nigeria's previous state power utility was the notorious National Electric Power Authority (NEPA), which, through the reforms, has become the Power Holding Co. of Nigeria (PHCN). NEPA was unbundled into six generating companies, 11 distribution companies, and a transmission company by the Bureau of Public Enterprises (BPE), Nigeria's privatisation agency.

The country, since October 2005, has had an independent regulator: the National Electricity Regulatory Commission (NERC), and the reforms continued this week when Dr Grace Eyoma, NERC's commissioner, said that the Nigerian Electricity Management Co. (NENCO) would be managing the assets of PHCN as the privatisation process continues.

It is incredible that power generation in Nigeria is currently less than one-half of the level of output before independence in 1960. Nigeria's generating capacity is currently around 3,000MW, but, because of the number of breakdowns at power stations and pipeline sabotages, this figure is rarely reached.

Gas to Lead the Way

Nigeria’s energy requirements are met through oil (64%), natural gas (27%), and hydro-electricity (8%). Coal, nuclear energy, and renewable energy sources are not currently utilised. The relatively low reliance on natural gas is a result of the limited gas infrastructure and the absence of an integrated network system. However, there are now major plans to utilise the country's vast gas resources for power generation. New President Umaru Yar'Adua has spoken about the need to prioritise the country's gas reserves for domestic use (see Nigeria: 13 June 2007: Nigerian President States Gas Reserves Should Be Given Domestic Priority). It is estimated that about 80% of natural gas utilised in Nigeria is consumed annually by PHCN and IPPs. A policy has been set out to make domestic gas usage the key issue for a viable electricity sector. Fifteen new gas-fired power plants are under construction as the federal government has set a target to increase generating capacity to 10,000MW by 2010, thereby increasing the gas demand from the power sector from 1 Bcf/d in 2005 to about 3 Bcf/d in 2009. NERC has stated that it is working with both the Nigerian Gas Co. (NGC) and the Nigerian National Petroleum Corp. (NNPC) to ensure that the new power station will receive adequate gas supply.

IPPs are expected to provide the majority of the new generating capacity. Seven of the new plants are being built in the Niger Delta where most of the country's gas deposits are located. Some existing gas-fired power plants will be expanded to increase generating capacity, such as the Afam plant in Rivers State that Shell will be modernising. While Eni and ConocoPhillips are investing in a new 450MW gas-fired power plant in Delta State. Chevron is constructing a 780MW power station at Agura, Lagos, at a cost of US$750 million.

NERC also announced that it has received 100 applications to build the country's first coal-fired power station, which would be located in Enugu State where there are sizable deposits of coal. The authorities have has also stated that the country will have a nuclear power plant in operation by 2017. The director-general of the Nigerian Atomic Energy Commission (NAEC) Dr Erepamo Osaisai said that the plant will generate 1,000-4,000MW of electricity.( see Nigeria: 2 August 2006: First Nuclear Power Plant in Nigeria to Be Built within 12 Years).

Outlook and Implications

Dr Ransome Owan, the chairman of NERC, has announced 20 licences for power stations with an estimated generation capacity of 8,237MW. Despite the massive investment of US$8 billion, Owan has said that the electricity sector will not stabilise for another four years, given the long lead times it takes for new IPPs to come online, but the new administration is serious about transforming Nigeria’s power sector.

For decades, the sector received little funding and no investment was given to the maintenance of the infrastructure. It has been reported that the government spent US$4 billion on the power sector during former president Olusegun Obasanjo's time in power between 1999 and 2007, yet there is very little to show for this, although a number of projects should boost the country's generating capacity in the near term.

Nigeria's power sector has been an embarrassment for as long as most can remember and, despite the massive investment made under Obasanjo, for many Nigerians there is no discernable difference between “before” and “after”: many households and businesses still have to rely on private diesel generators for a reliable supply of electricity. The reforms, which began two years ago, should start to push forward a number of new projects and the involvement of the private sector will enable a number of new power stations to be built.

It is of the utmost importance that a new Energy Minister is appointed very quickly to guide the progress of the reforms towards the goal of reaching 10,000MW by 2010, and it is important that the work of the different agencies is co-ordinated by the government. Nigeria must take advantage of its vast gas resources, which could massively boost the country's generating capacity, The country should also build its first coal-fired power station, and push on to construct a nuclear power station.