RECENTLY-published World Bank statistics reveal that Nigeria’s federal government has borrowed a total of N1.3tn ($3.14bn) since 2017 to ensure that generation companies and gas suppliers received enough payments to continue generating electricity.
Nigeria has a chronic electricity supply problem, generating just 7,000MW of electricity, of which it can only distribute and transmit 4,000MW. Among the problems the industry faces is that the distribution companies, known as Discos are struggling to pay the generating companies, known as Gencos, thus leaving about 3,000MW idle.
Things would have been worse had the federal government not intervened and come to the assistance of the Discos by providing funding to enable them source power. In a recent report titled Resilience Through Reforms, the World Bank said the Nigerian power sector will cost the federal government an additional N3.08tn through 2023, if current performance levels and low tariffs persist.
“To ensure that Gencos and gas suppliers receive enough payments to continue generating electricity, since 2017 the Federal Government of Nigeria has borrowed a total of N1.3trn. In 2019 total federal government support reached N524bn ($1.7bn), 0.4% of gross domestic product, higher than the N428bn budget for health and just 20% less than the N650bn budgeted for education,” the report added.
Even though all Nigeria’s six generation companies and 11 distribution companies have been privatised, the federal government through the Nigerian Bulk Electricity Trading Company buys electricity from the Gencos and independent power producers before reselling to the Discos, the World Bank said. Its report noted that the government, through the Nigeria Electricity Regulatory Commission, regulates tariff in the sector rather allow market forces to determine it.
It added that the Transmission Company of Nigeria was still strictly government-owned. Nigerians pay less than the cost of production for electricity, the report said, adding that this resulted in a revenue shortfall.
From 2015 through to 2019, the Nigerian federal government paid N1.68tn as a cumulative tariff shortfall. According to the World Bank because of foreign exchange depreciation and rising domestic inflation, tariff shortfalls had also been on the rise.
“Every Nigerian who receives electricity from a Disco pays less for electricity than the cost of supplying it. However, 80% of the spending on tariff shortfalls benefits the richest 40% of the population and only 8% benefits the bottom 40% of the population and of this, less than 2% benefits the poorest 20%.
“Significant resources spent on funding tariff shortfalls disproportionately benefit the relatively wealthy who have access to the grid and use more electricity so that ultimately, a big chunk of government support goes to those who do not really need help with paying bills,” the report added. It said that 43% of the population or 85m people lacked access to grid electricity, making Nigeria the nation with the world’s largest energy access deficit.