Challenges facing Nigeria's power sector

Nigeria's power sector continues to face significant challenges, hindering progress in the reforms that were initiated with the sale of generation and distribution companies in November 2013. These obstacles include liquidity issues, transmission challenges, and gas supply constraints. Ruman Dakha, Founder & CEO of ZKG Energy Partners and former head of the Nigeria Bulk Electricity Trading Company, sheds light on the sector's persistent struggles. Liquidity remains a key concern in Nigeria's power sector, affecting various segments of the value chain, including transmission. The current available capacity of the transmission company stands at 5,500 megawatts, with plans to increase it to 7,000 megawatts in the short term. However, the lack of sufficient revenue flow across the value chain hampers the company's ability to fund necessary projects and initiatives, exacerbating challenges within the transmission network. The government's ownership of the transmission company further complicates the situation, especially with the decline in oil revenues impacting its financial stability. Addressing the funding gap requires a commercial framework that supports cost-reflective tariffs. Dakha emphasizes the importance of establishing a commercial and legal environment that encourages investment and enables entities like the transmission company to secure capital funding through bonds or other financial mechanisms. Achieving a cost-reflective tariff regime remains a critical step towards sustainability and growth in the sector, despite previous setbacks in this area. The issue of subsidies also comes to the fore, with the government being called upon to intervene where necessary to bridge financial gaps and ensure the sector's viability. Striking a balance between consumer affordability, government support, and industry sustainability poses a complex challenge that industry stakeholders continue to navigate. While progress has been slow, incremental improvements in power generation are evident in some regions of the country, showcasing the potential for growth and development in Nigeria's power sector. Dakha underscores the significance of a robust legal and commercial framework as the foundation for addressing the sector's challenges and unlocking its full potential. The need for clear guidelines and a predictable operating environment is crucial for attracting investments and driving innovation and efficiency in power generation and distribution. As Nigeria strives to enhance its power infrastructure and expand access to electricity services, overcoming liquidity, transmission, and gas supply hurdles will be essential in achieving sustainable progress and meeting the growing energy demands of its population.