Following the privatisation exercise in 2013, the Nigerian electric power industry has recorded moderate growth in private investments. As at March 2017, over 90 independent power producers (IPPs) have been licensed and 10 National Independent Power Projects (NIPPs) have been commissioned. Despite this seeming increase in private sector participation, the Industry is yet to show appreciable improvement in the volume and stability of electric power supply, with operational generating capacity of circa 3,500MW from 25 generating plants, with less than 10 IPPs currently operational.
The weak contribution from the IPPs could be linked to factors such as the uncertainties regarding payments from the TCN for electricity sold to the national grid, as well as gas supply constraints. Nigeria is estimated to have over 182 trillion cubic feet in natural gas reserves, the ninth largest in the world, yet, gas remains one of the biggest challenges affecting electric power supply. This is due in part to regulatory obstacles (artificially low price of gas), which distort the economic viability of domestic gas production as well as gas pipeline vandalism.
The Industry’s financial condition is weak, characterised by insufficient revenues (due to poor cash collection), weak cash flows, high leverage and low liquidity, which cumulatively impair the credit quality of operators in the Industry. Consequently, many Nigerian banks have been reluctant to fund new power projects. The weak financial performance of the Industry is underpinned by gas supply shortages, high loss levels, unreflective tariffs and low generating capacity. Furthermore, weak policy implementation and poor track record of project delivery continue to hamper the ability of the Industry to attract much needed investments.
Nonetheless, we recognise that Nigeria boasts of all the potentials of a mass market with an estimated supply gap of over 25,000MW. In addition, the declaration of the ‘Eligible Customer’ regime should lead to additional investments in the Industry, particularly in the power generation segment. The declaration should also introduce competition in the generation segment and increase pressure for efficient performance by operators along the industry’s value chain which we believe will stimulate additional investments in the Industry.
Sources and Limitations of Data
This study is based on thorough primary and secondary research principles. Secondary data was sourced from third party research, journals, electronic and print media. The primary data and information sources include face-to-face and telephone interviews with industry operators and regulators.
The major limitation encountered is the dearth of financial information of companies in the electric power industry. Most of the Industry players are private companies not obliged to provide their financial reports to the public. However, we have estimated key financial figures based on our knowledge of the industry and interactions with key operators, where we have been unable to get detailed financial information. We believe that the estimates derived from the information made available to us are a good indication of the state of Nigerian Power Industry.