Adebayo Adelabu, the minister of power has said that Nigeria would require at least $10 billion every year for the next 10 years to revive the power sector, a critical aspect of driving the country’s economy.
Adelabu said this when he appeared before the Senate Committee on Power for an investigative hearing on the electricity tariff hike on Monday in Abuja.
Adelabu, while describing as shameful the state of Nigeria’s “underperforming” power sector with only 4000 megawatts generated for decades, pointed out that the government cannot provide the needed funds, hence the need to make the sector attractive to investors and bank lenders.
“For this sector to be revived, the government needs to spend nothing less than 10 billion dollars every year for 10 years, because of the infrastructure requirements for stability in the sector, but the government cannot afford to do that, it must make the sector attractive to investors and to lenders. The business must be attractive, there must be commercial pricing,” he said.
He noted that the $2.9 required for subsidy is only a paltry sum. He noted that the tariff hike for band A customers will generate about N1.15 trillion, which still leaves the government with about N1.7 trillion to cover the subsidy shortfall, as only N450 billion was provided in the budget for 2024.
The minister emphasized that the hike in tariffs was crucial, especially as the government was not paying the required subsidy for the sector, but said it was only the beginning of reforms needed in the sector.
The Nigeria Electricity Regulatory Commission in early April raised electricity tariffs for customers enjoying at least 20 hours of power supply daily, categorised as Band A. The increase saw customers pay N225 kilowatt per hour, up from N66, a development that has been heavily criticised by many Nigerians.
“Investors will not come if the tariff is still at N66 and the government is not paying subsidy, they will not come, but now that the tariff for band A has been increased, interest is being shown,” Adelabu said, but noted that raising the tariff is not enough to address the liquidity gap, which he identified as one of the biggest factors responsible for the power sector crisis.
He stressed the need for the government to pay off the indebtedness of N1.3 trillion to generating companies and 1.3 billion dollars owed to gas companies.
The minister stressed the need to resolve the liquidity crisis, develop infrastructure, revive all generating companies, encourage private generating companies, invest in hydroelectric power, and diversify into renewable energy.
The minister also mentioned plans to unbundle DISCOs along state lines and introduce franchising. “If there are some areas where discos don’t want to invest, we can get an interested investor,” he said.
According to him, if all these are done, there will be an impact on the sector within the next 24– 28 months.
Adelabu further informed us that the government is working on increasing electricity generation from 4,000 megawatts to 6,000 megawatts by the end of 2024. He also said the government is working on improving power distribution and addressing inequitable access to power so that all consumers in the sector will eventually be in band A, enjoying up to 20 hours of electricity.
Eyinnaya Abaribe, Chairman of the Committee and other members of the committee, however, called for a review or reversal of the tariff.
Aliero Adamu, a member of the Senate committee, decried that consultation for the tariff hike was not properly done and described the tariff as unrealistic, and unacceptable.
“There should be a reversal, there is no way we can compete favourably, manufacturers are relocating, we need power too and manufacturing is the way, while power is the key. This increase is counterproductive and should be reversed in the interest of the country,” Adamu said.
Sharing similar sentiments, Segun Ajayi-Kadir, the director general of the Manufacturers Association of Nigeria, who was also present at the investigative hearing, decried that the tariff hike will put manufacturers out of business, noting that power constitutes 28–40% of the cost structure.
He therefore demanded a reversal of the tariff.
However, the minister said the tariff was crucial, without which the power sector would be grounded in the next three months.
“The reform is painful but necessary. Without the tariff, the power sector will be grounded in three months. I agree that what we have is painful and hurtful, but if the alternative is doing nothing to the tariff, then I can assure you that the entire sector will be grounded, and the generators will not be able to do anything.
“We need to make progress; the progress is upward review. We don’t intend to punish Nigerians unnecessarily”, Adelabu said.
Insists on tariff hike as lawmakers, manufacturers demand reversal
He, however, noted that the tariff is also influenced by the exchange rate, and if the naira strengthens significantly against the dollar, the tariff will reduce
“The tariff we reviewed to N225 was based on the exchange rate of N1,400, if the exchange rate reduces, and if any other parameter shows positive movement, the tariff will also come down”, he said.
