Power sector hindered by gas, credit as blackouts spread

The progress of Nigeria’s electricity sector is being hindered by a scandalous shortage of gas, as the country continues to suffer from persistent blackouts and the resulting increase in production cost for its industries.

Meanwhile, the power sector currently gets about 900 million standard cubic feet (scf) of gas per day, while it requires about two billion bcf per day, leaving a shortfall of 1.1 billion bcf, according to industry analysts.

The gas woes have been worsened by the inability of the power companies to finance asset upgrade and procurement required to boost power generation and distribution following the hugely successful privatisation.

While Nigeria is the world’s fourth-biggest exporter of liquefied natural gas, it is struggling to meet local demand for the fuel used by plants that generate at least 70 percent of the country’s electricity needs and many blame it on the failure of Dizeani Allison Madueke, the petroleum minister, to free gas from a strangulating control by government.

The nation holds Africa’s biggest gas reserves of more than 180 trillion cubic feet, but much of that sits idle underground, while the big oil and gas companies wait endlessly for the government to come up with the right fiscal terms to produce, process and pipe the gas to where it is badly needed.

“Nigeria is a country of paradoxes”, says Alex Daly, a power sector consultant who closely follows development in Africa.

“Nigeria imports petrol which it should be selling to the world and fails to get gas to its own power plants when Nigerian gas is powering plants around the world.

“Where the government is involved, it has failed and where it has allowed private companies like the Nigerian Liquefied Natural Gas (NLNG), it has a success story to tell. The puzzle is why the government won’t just empower private companies to go in and get the gas out of the ground.”

Peak electricity output of Africa’s biggest economy is about 3,800 megawatts on a good day, with another 1,500 megawatts unavailable, because of gas shortages, said Sam Amadi, chairman of the Nigerian Electricity Regulatory Commission (NERC), which oversees the power industry.

   South Africa, with a third of Nigeria’s population, has eight times more installed capacity. One megawatt is enough to provide energy to 2,000 average European homes, or about 333 in Japan. With industries in Lagos, the country’s economic and industrial hub receiving supply for an average of only two hours a day, the country is resorting to increased importation of diesel at a time its foreign reserves are crumbling.

“There are also issues of credit worthiness,” Amadi said in an interview with Bloomberg on Tuesday in the capital, Abuja. “Power generation is not coming on board because the distribution companies are weak, they’re not credit-worthy and can’t get financing.”

Distribution companies were struggling to get consumers to pay their bills and this means that their revenue was so poor they were unable to pay producers for power, he said.

Nigeria, beset by frequent blackouts, dismantled the state monopoly and sold hydro- and gas-powered plants to try and bring in investment needed to expand electricity supply. The industry requires $18 billion to $20 billion to boost supplies to 10,000 megawatts within six years, according to the nation’s privatisation agency.

“Power generation and distribution companies can now access a N213 billion ($1 billion) bailout announced by authorities in September to shore up struggling operators,” Amadi said.

The fund is supposed to help them pay off gas-supply debts and meet debt-service obligations to lenders on loans of almost 500 billion naira, on which some are falling behind.