An integrated approach to tackling power sector challenges is key to resolving the crisis and achieving sustained growth.
In a financial quagmire, Nigeria finds itself grappling with a staggering debt owed to power generation companies (GenCos), with a projection to balloon to an overwhelming ₦6 trillion by the year's end. The situation places a spotlight on the Nigerian government's urgent call for more time to verify and validate these sweeping liabilities as it seeks to resolve them through a bond program. This debt issue, compounded by significant infrastructure challenges and strategic inefficiencies within the sector, threatens the very fabric of Nigeria's power stability.
Speaking to CNBC Africa, Adele O'Neil, a partner at Bloomfield Law Practice, shed light on the complexities facing Nigeria's power sector. He emphasized that infrastructure inadequacies play a pivotal role in the recurring challenges such as grid collapses and load rejection. He pointed out that although regulatory measures like the introduction of free governor control by the Nigerian Electricity Regulatory Commission (NERC) are steps in the right direction, they are insufficient without substantial infrastructural improvements.
'We may continue to have challenges,' O'Neil explained, 'because policies and regulations alone will not change the lack of infrastructure or address the issue of GenCos not being paid and gas producers reducing their supply.' The debt situation, he warned, is exacerbating as gas producers begin reducing the volume of gas available to the power sector due to unpaid dues.
As the year progresses, the subsidy liabilities are expected to climb steeply, potentially reaching ₦6 trillion. O'Neil observes that the band system currently employed is functioning relatively well. Improved electricity supply is partially attributed to large consumers moving off-grid and investing in self-generation. However, this system also creates a disparity where those who can afford higher tariffs receive better service, while others remain underserved.
Addressing whether the industry has the time to accommodate government's request for further delay in tackling the debt, O'Neil expresses skepticism. 'The industry doesn't have the time,' he asserted, 'as delaying means the situation will worsen. The government needs to accelerate its verification process to prevent escalating problems.' He acknowledged the government's position requiring validation to ensure debts are genuine, but urged that this process must be expedited.
The implications of unresolved power debts extend beyond the financial sector to Nigeria's broader economic landscape, threatening inflation and economic stagnation. 'Inflationary trends could worsen and affect the Consumer Price Index if everyone resorts to self-generation, impacting real economic growth,' warned O'Neil.
In light of these challenges, O'Neil recommended an integrated approach rather than tackling issues in isolation. By dealing with multiple challenges concurrently, Nigeria could better harness growth and stability. He noted that the West African Power Pool, an integrated initiative where hydrogenerators largely benefit, should inspire a comprehensive strategy to manage Nigeria's energy ecosystem.
As Nigeria battles this impending energy crisis, the call for swift and decisive governmental action is clear. The fate of the power sector and its broader economic implications hinge on the successful marshaling of resources and resolution of debts in the coming months.