Experts have revealed that the unstable power industry in the country could experience an imminent collapse. This is due to the acute cash shortage that the sector now faces. This new challenge has brought with it new mounting pressure on the government of President Bola Tinubu. The tottering sector has seen electricity generation fall below the worst levels during the tenure of Muhammadu Buhari. According to media investigations, electricity supplied to the national grid is now as low as 3,700 megawatts.
When exports are excluded, Nigerians are simply being supplied less than 3,000 megawatts to their homes and businesses. The electricity market shortfall has now skyrocketed to a hefty N90 billion monthly or over N1 trillion a year on account of the massive devaluation of the naira. This has led to an unprecedented surge in the price of gas, which is a key energy input in the country. Also, Nigerians who are already hammered by the rising price of petrol, a devalued naira with resulting inflationary pressures, and an erosion of purchasing power now get electricity less and less lately.
Controversial energy subsidies seem to have sprung up again.
So, consumers could now be asked to pay as much as N110 per kWh or a 50-percent increase in some of the premium bands to cover for the market shortfall that has now emerged and to make the sector cost-reflective. It seems that the controversial energy subsidies, which created a national crisis months ago, have come up again. According to an energy economist, this is largely due to the massive devaluation and floating of the naira.
Stakeholders in the industry have told the media that the electricity sector is facing a liquidity challenge driven initially by the six underperforming distribution companies. Until the devaluation, they had been unable to meet their market obligations to the tune of about N30 billion each month. With the devaluation and floating of the naira, estimates show that the shortfall may have reached N90 billion per month. This is easily the highest shortfall in the history of the market.
Subsidies could hit a record N1.2 trillion annually.
Senior officials have said that the shortfall is mainly driven by the abrupt naira devaluation causing significant hike in the gas pricing and the price of generation contracts (like Azura) that are pegged to the US dollar. It is more worrisome because the administration of Muhammadu Buhari had reduced subsidies from a peak of almost N600 billion in 2019 to just about N100 billion in 2022. At the current trajectory, officials say that the subsidies would hit a record N1.2 trillion annually in just two years.
Unfortunately, this new subsidy is unfunded and unplanned for by the administration. An official said that the government did not assess the full impact of the naira devaluation on the power sector at all. “The key problem for the government and the sector now is how do you pass on such a high cost of electricity to consumers that are receiving the lowest amount of energy since the privatization in 2013,” he said. With the persistent liquidity issues, generation and gas supply are grinding to a halt as generation companies (GenCos), especially those powered by gas, are complaining of mounting debts.
Mounting debts and shortfall would soon crash the market.
With the inability of the government to modulate the pricing of petrol as frequently as needed because of the volatility of the naira, it is feared that billions will now be spent to cover the emerging subsidy of petrol consumption. One expert had told news correspondents that the magnitude of mounting debts and the record-breaking shortfall, it is only a matter of time before the market crashes. Current investors are also concerned. A GenCos investor said that the debts will make anyone think twice about putting any new money in Nigeria because the model is unsustainable.