Nigeria, one of Africa’s three largest gas producers, has endured several decades of challenges in its power sector despite its large gas reserves, the huge outlay of funds and unprecedented reforms in the sector. Very recently, however, the populace has reported improvements in public power supply via the grid.
Nextier Power was commissioned to assist in determining factors responsible for the shortfalls at the electricity generation level, particularly relating to the contractual instruments that underpinned power generation in Nigeria. Enforced agreements (involving gas suppliers, power producers and the bulk trader) and literature on power generation in Nigeria were thoroughly reviewed to make practical findings extant legislation. In addition, some government policies and comments from regulators were also helpful in making viable recommendations for adoption.
A primary challenge identified by the Nextier consulting team was the non-activation of industry agreements due to the non-fulfilment of the conditions precedent, particularly the provision of payment security. Apart from the non-activation of the agreements, other issues identified were gas pricing, demand and supply imbalance and insufficient negotiations of terms of the relevant contracts.
Apart from identifying the challenges, the team made recommendations, including partially activating some of the contracts. Historically, power sector contracts were not activated and performed only on reasonable endeavours, which woefully failed in real terms.
On July 1st, the regulator partially activated some of the contracts, leading to improved availability of power supply on the grid. Another recommendation by Nextier was the improvement of infrastructure, and we believe that the Siemens projects and the various transmission-distribution interface projects will address this recommendation.
Nextier also provided advice around the fourteen (14) utility-scale solar photovoltaic (PV) projects, seemingly in abeyance. Nextier recommended that the Independent Power Projects can novate the agreements with Nigeria’s bulk trader to credible distribution companies or even consider reducing the capacity for the generation sub-sector to capture power for selected communities. While this is not complete yet, various conversations could yield to the success or financial close of one or more of the 14 projects, which will be herculean given the moribund status.
Despite the generation sub-sector’s challenges, the collaboration between stakeholders has led to improvements in the power sector. Some of the recommendations highlighted above, and many more, have been implemented by the relevant MDAs. Nextier believes that the continuous efforts at fixing the sub-sectors would yield optimal improvements in power supply to homes, businesses and industries.
