International Association for Energy Economics | 15

The Cost of Electricity in Nigeria

T his article explores the cost of electricity in Nigeria, a developing nation with 140 million inhabit-
ants and an epileptic supply of electricity. It reviews the current state and future state of electricity
in Nigeria. In addition, it reviews the existing gaps between these states and in conclusion, it proffers
some recommendations regarding moving forward and resolving the current electricity impasse in the
country.
The Director General of Debt Management Office (DMO), Nigeria, Abraham Nwankwo, identified
four infrastructure areas in which Nigeria must invest over $100 billion to revive her economy. These,
according to him, are power ($18-20 billion), rail tracks ($8-17 billion), roads ($14 billion) and oil and
gas ($60 billion).1
This current state is well understood, accepted and shared by many. For the past three decades, inad-
equate quantity, quality and access to electricity service has been a regular feature in Nigeria, a country
with a majority living on less than US$2 a day.2 Generally, it is widely believed that over half of the
Nigerian population does not have access to electricity. Many articles and newspapers quote and estimate
that Nigeria requires a minimum of 10,000 MW of electricity; this is a far cry from the current production
capacity of below 3,000 MW. Although the installed capacity of electricity is much greater than 3,000
MW, infrastructure utilization has been very poor and power supply has been epileptic as result of a lack
of maintenance and unscheduled outages.
Presently, Nigeria has a retrogressing economy; the education and the health care systems are in
shambles; industries are collapsing; joblessness and crimes are multiplying astronomically, etc. Typi-
cally, people store electricity-generating plants that utilize petrol directly inside their homes. As a result
of this hazardous practice, property and lives have been lost because of fire accidents, and in some cases,
suffocation of occupants from smoke and CO2. In addition to this unenviable economic clime, the po-
litical and business climates have been unstable and unpredictable; many of these ills are attributable
to inefficient leadership, which is largely responsible for the inadequacy of quantitative and qualitative
access to electricity. Consumer demand has been reduced artificially and forcefully causing the need for
infrastructure development to appear inconsequential!
The cost of electricity in Nigeria is apparently far greater than the $20 billion estimate suggested by
the Director General of Debt Management Office. It is opined that the actual cost of electricity in Nigeria
will include, inter alia, the cost of creating employment; reviving distressed businesses and industries;
rebuilding lost property due to fire accidents; creating stable and ‘investable’ political and business cli-
mate; fighting crime and educating over 50% of her population; and the cost of addressing other risks
and contingencies.
Like the current state, the future or desired state is well understood, accepted and shared by many.
From informal conversations with friends residing in Nigeria, it is common to find people who spend the
equivalent of US$1,000 on petroleum per month to generate electricity for their personal use at home.
They claim this is not conducive for their respective family members, because it involves storing petro-
leum and diesel, for the generators, at home. They also indicated that they would pay whatever amount
to have public or investor-owned electricity transmitted to their homes. A few rural people I discussed
this with last April, during my visit to Nigeria, reported they have had electricity transmitted to their
homes for less than two weeks since January 2008. They have been in the dark, perpetually, and when
there is electricity supply, it is epileptic and voltage is either too high or too low, sometimes resulting in
expensive damages to electrical devices and appliances. They said if they could afford it, they would pay
the right amount to have consistent supply of electricity. In addition, in an article titled “Poor electric-
ity supply bane of Nigeria’s SMEs –Manufacturers” posted in Businessday, a Nigerian newspaper, on
August 21 2008, Duro Kuteyi, chairperson of Lagos State Chapter of Nigeria Association of Small Scale
Industrialists (NASSI) said “I spend an average of N400,000 (US$3,300) on diesel every month just to
remain in business. I still pay my bills in spite of the erratic power supply, and PHCN still disconnects
companies.’’3 In the same article, Mojisola Abbas, managing director, Lydin Pure Water, said “l spend
over N120,000 (US$1,000) weekly on diesel to meet the demand of customers. It seems the PHCN does
not want us to survive.’’
Generally, there is consensus about the future state. The expected future or * Adesiji Rabiu is a Senior Management Consul-
tant with Sierra Systems Group, Inc. Alberta,
desired state envisioned is a situation where electricity is available to every-
Canada.
one, in both urban and rural areas, at just and reasonable rates. In the desired See footnotes at end ot text.
16 |  First Quarter 2009

state, there will be adequate electricity for Nigerians, and perhaps some exportation of electricity to its
neighboring countries, including Benin Republic, Cameroon, Niger, Togo and Ghana; her education,
health care and industries will be up and running; and there will be jobs for the majority of the popula-
tion. This would result in a reduced crime rate since more people would be gainfully employed and foster
stable political and business climates that will attract foreign direct investments. The result will be a
buoyant economy and a healthy nation.
The future, or desired, state of Nigeria is known; her leadership is aware there is huge infrastructure
deficit in generation, transmission and distribution (GTD). Unfortunately, ineffective decisions have
been made to correct the situation and almost all incentives have been denied to potential investors.
PHCN is supposed to have the authority to govern the use of electricity in Nigeria; and the Ministry
of Energy (power) is supposed to ensure there is adequate GTD. However, it appears it is unclear who
makes the decisions pertaining to GTD. Who is the regulator of electricity? How is the Nigerian electric-
ity market operated? Where are the bottlenecks? Can the citizens afford electricity without government
subsidy? What incentives are in place to attract investment in the electricity market? These are some of
the key questions to consider when developing solutions to the current electricity issues in Nigeria.
In the province of Alberta, Canada, for example, the Alberta Utilities Commission (AUC) regulates
investor-owned natural gas, electric, and water utilities and certain municipally owned electric utilities to
ensure that customers receive safe and reliable service at just and reasonable rates [www.auc.ab.ca].
Building power plants and generating electricity involves large capital and long-term investments.
The Nigerian government needs to decide now how much it wants to partake in resolving electricity
problems. For example, in my opinion, because the vast majority of Nigerians are unemployed and those
employed are not buoyant enough to afford the electricity, it will be impossible to attract foreign invest-
ments in GTD without government subsidy and incentives.
Energy issues are global; the sources of electrical energy, or the energy mix, including choice of
Solar-, Hydro-, Coal-, Biomass-, coal gasification-, and wind-generated electricity, which are ideal for
a country, are largely influenced by the region in which the country is located and the resources readily
available. For example, about 70% of France’ electricity supply is generated by Nuclear Power Plants
because coal and natural gas are scarce. About 80% of Alberta’s electricity is generated by coal-fired
and natural gas power plants because coal and natural gas are in abundance in the province. Good en-
ergy policies provide economic incentives and drivers that ensure stability and security of supply, and
affordability of clean energy solutions. Moving forward, today must mark the turning point for Nigeria.
The journey of a thousand miles begins with a single step. The level of awareness, understanding and
acceptance of the Nigerian electricity issues are at a peak; and the magnitude of associated challenges
can no longer be misconstrued. Implementing solutions can begin today; in single steps, decisions and
positive actions can begin now.
Given the current state, future state and existing gaps outlined above, I think a good approach to solu-
tion should include the following steps:
Phase 1:
Do first things first. The government, leadership, must make a real decision to resolve the problem.
This would involve committing to positive actions, including:
- reviving dilapidated and ill-maintained electricity infrastructures (GTD)
- defining and strengthening institutional and regulatory jurisdictions
- Providing a required subsidy to those who need it
There are speculations there is agreement expressing convergence of will between the Nigerian and
German governments “to facilitate the supply of 6,500 megawatts of electricity between now and 2020
by Germany through the execution of various power supply projects, expansion of existing dams, reha-
bilitation of substations and construction of new power plants in different parts of the country.” [August
21, 2008, www.allafrica.com]. This is a positive move in the right direction although negligible com-
pared to what Nigeria should set as target in a 12-year (2008 – 2020) timeframe.
Phase 2:
Next, decisions must be made to identify generation options that are in line with National Energy
Strategy. Because of its geographical location and resources, suitable options for Nigeria include so-
lar-, natural gas- and wind-generated electricity. In addition, firm decision must be made to continue to
bundle, or to unbundle Generation, Transmission and Distribution.
 International Association for Energy Economics | 17

Phase 3:
Finally, once phases 1 and 2 have been implemented in the near-term, the next steps must include actions
and policies to further strengthen her National Energy Strategy in the long-term, such as:
- Creating incentives that would encourage the development of investor owned generation, trans-
mission and distribution
- Forming alliances and partnerships with local and foreign power generation and transmission
companies
A precise estimation of the amount of electricity required by Nigeria is a difficult endeavor; neither
is the task as simple as computing the amount singularly by her population. Other factors, such as the
level of development, the number of industries, current skills sets of her work force, current demand and
climate are key parameters to consider in determining or extrapolating how much electricity the country
requires today or in the future.
Conclusion
What is most important is to say YES to development
in rural and urban communities; to COMMIT resources to Developing & Delivering
repair existing infrastructure and develop a maintenance
culture; to develop realistic National Energy Strategy and Affordable Energy in the 21st
policies; and decide on the right energy mix. Century
Providing electricity in Nigeria is a huge challenge. Mon-
etarily, it is much more than the $20 billion estimate provid- 27th USAEE/IAEE North American Conference, Houston,
ed; it will also call for lots of person-hours, planning, good- TX, September 16-19,2007
Single Volume $130 - members; $180 - non-members
will and management of other contending issues and risks.
This CD-ROM includes articles on the following topics:
Footnotes . Crude Oil and Petroleum Product Price Dynamics
1
David Agba, “Nigeria Needs $100b Investment In Four . Economics of the LNG Industry
. Energy Efficiency and the Economy
Infrastructure Areas”, INDEPENDENT, August 8, 2008 . Large-Scale, Low Carbon Energy Technologies
2
Dr. Akin Iwayemi, “Investment in Electricity Generation and . Unconventional Fossil Fuel Resources: Challenges and Op-
Transmission in Nigeria: Issues and Options”, The Energy Journal, portunities
First Quarter 2008, Page 37 . Political Economy of Energy
. Energy Policy and Price Effects on Economic Growth
3
The Power Holding Company of Nigeria (PHCN) governs . Impact of International Environmental Agreements on Reduc-
the use of electricity in Nigeria. It was formerly named the Na- ing Carbon Emissions
tional Electric Power Authority (NEPA) . Global Perspectives on Electric Power Transmission Infrastruc-
ture
. Distributed Energy Resources & Renewables
. Price Impact on Upstream Petroleum Industry Investments
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