By the Blouin News Business staff

An end in sight to Nigeria’s chronic power shortages

by in Africa.

Nigerian President Goodluck Jonathan. Photo: Reuters

Nigerian President Goodluck Jonathan. Photo: Reuters

Nigeria’s ever-present power shortages have slowed the country’s economic growth and held back its social development. The government has struggled for a long time to privatize its state-owned electricity company in the hope that doing so would break open this bottleneck to development. Eight years ago, enabling legislation was passed and the bidding process launched. On September 30, President Goodluck Jonathan finally presented licenses to 14 of the owners of the new successor companies to Power Holding Company of Nigeria (PHCN).

The Nigerian government raised more than $2.5 billon from the privatization, though the prospective long-term economic and social benefits are the real prize. The goal is to give Nigerians an uninterrupted electrical power supply with which to increase the country’s productivity. Nigeria has the capacity to generate only 5,900 megawatts of power, a woefully pitiful amount for sub-Saharan Africa’s second largest economy, and made worse by energy losses of about a third along the system. Effective capacity is below 4,000 megawatts. Only two in five Nigerians have access to electricity.

The privatization is intended to expand capacity to meet a goal of connecting four in five Nigerians to electric power (originally targeted for 2010, the 50th anniversary of independence), to reduce business costs by 40% and boost GDP by 3%. It has been estimated that meeting the goals would require 16 new power plants, approximately 15,000 kilometers of transmission lines and new distribution facilities.

Now the government just needs the newly established energy system to work. President Jonathan warns that revitalization of the power sector won’t happen overnight. Industry experts say the first improvements won’t be seen until 2016.

The National Council on Privatization, which set up the Nigerian Electricity Regulatory Commission (NERC) in 2005, has unbundled PHCN into three areas: generation, transmission and distribution. Today there are 11 distribution companies (discos), 7 generation companies (gencos) and the Transmission Company of Nigeria (TCN). Only 10 discos and 4 gencos have made full payment, and so received their licences. They will take physical ownership of their infrastructure next month.

The biggest complication that emerged during the privatization process came from the more than 14,000 PHCN workers. They want agreed severance and entitlements paid before the planned handover, and have warned the new owners to stay away. The workers’ pay-off is valued at $2.4 billion, close to what the government is to get from the licence fees. The government says that a solution will be found shortly; it does not want to kick off Nigeria’s new power era with an unnecessary stumbling block.

The new electricity drive in Nigeria doesn’t stop here. On September 28 Nigeria announced that it had signed a $1.3 billion deal with two Chinese state-owned companies to build a hydroelectric power plant in Zungeru, 150 kilometers north of the capital Abuja. The new plant will add 700 megawatts to the national grid upon completion. Similar deals could be sealed in the following months. The country has high hopes for hydropower, with 8,000 megawatts of new hydropower capacity planned.

Beyond that, the privatization of PHCN may be a prelude to the same treatment for the new National Integrated Power Projects in the gas-producing Niger Delta, a group of gas-fired power plants whose holding company is jointly owned by the government.