Nigeria Targets Private Capital Investors with $32 billion Electricity Reform.

Nigeria is implementing an ambitious electricity sector reform to make the industry more attractive to private capital investors. 

Why it matters: Poor tariff policies and ongoing challenges such as liquidity problems, substandard electricity supply, insufficient distribution infrastructure, and frequent power outages have made access to electricity in Nigeria a scarce resource. Despite having an installed capacity of 17.2 gigawatts, the electricity sector still fails to meet the energy demands of households and businesses, which hampers the country's potential for economic development.

• A major challenge for electricity distribution companies (DisCos) is the persistent discrepancy between the actual cost of electricity supply and the amount consumers pay. This gap has resulted in substantial debts for these companies and has made the sector less attractive to potential investors.
• In addressing these concerns the Nigerian government last year approved a threefold increase in electricity tariffs for Band A customers to reflect the actual electricity supply costs better. This adjustment is intended to attract private investment while ensuring a return on investment, ultimately improving reliability for both businesses and consumers.

The government hopes to generate sustainable revenue within the sector by moving to a cost-efficient and cost-reflective tariff structure, attracting investors, and protecting the poor and vulnerable populations.

The bottom line: Nigeria’s electricity sector has long suffered from inefficiencies, favouring certain players, such as generator suppliers and diesel vendors. An efficient electricity sector has the potential to boost Nigeria’s economy significantly. However, strict adherence to a tariff structure that accurately reflects the costs of power generation and distribution will enhance the appeal of private capital investments, especially if accompanied by robust regulatory frameworks.