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PwC proposes possible solutions to the biggest problem facing Nigeria’s electricity sector

Anyone living in Nigeria can testify that insufficient electricity production/distribution is the biggest infrastructural challenge facing the country.

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GencosArnergy secures $9 million from investors, Electricity poles, Transmission Company of Nigeria, TCN to ban Ikeja Electric Eko Discos and Enugu Discos, Discos, power supply in Nigeria, Association of Nigerian Electricity Distributors,ANED, PwC proposes possible solutions to the biggest problem facing Nigeria’s electricity sector, GenCos to shut down over NBET's administrative charge  , DisCos fail to distribute 8,848.24 megawatts of electricity - TCN , Crisis rocks SSAEAC as association leaders accuse each other of sabotaging power grid, Power: No solutions yet   

Anyone living in Nigeria can testify that insufficient electricity production/distribution is the biggest infrastructural challenge facing the country. This problem has lingered for many years, adversely affecting the country’s economy. In the meantime, countless attempts have been made to resolve the problem. These attempts have, however, failed to yield any result. Now, PwC Nigeria is joining the effort with a recently published white paper titled, ‘Solving the liquidity crunch in the Nigeria Power Sector’.

The key observations  

The report by PwC Nigeria noted that the situation in Nigeria’s power sector is rather abysmal. The country’s operational capacity of less than 4,000MW is far less than the set target prior to the privatisation of the power sector in the early 2000s. The report also noted that only 60% of Nigeria’s population has access to electricity, meaning that the remaining 40% are completely cut off. Interestingly, even the 60% do not get quality service because electricity supply is epileptic.

[READ MORE: Federal Government spends N2.3 trillion on Subsidies in 3 years – PwC]

power, Gencos want Discos’ job as it seeks to sell electricity directly to customers 

The main challenges 

As one can expect, there are many problems facing the Nigerian power sector. A lot of these problems bother on inadequate production. Also, the means via which generated electricity is transmitted also presents another major challenge. See the problems highlighted below:

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  • Inadequate gas supply
  • Limited transmission lines
  • Operational inefficiencies
  • Poor water management at hydropower plants
  • Inadequate and obsolete distribution infrastructure

“Gas-fired power plants account for more than 77% of total electricity generated (Q4’2018: 71%) while hydro sources accounted for 23% (Q2’2018: 29%). Insufficient gas supply and variability in rainfall and water level at hydro plants, among other challenges, continue impact power generation in Nigeria.”

Besides these problems, PwC Nigeria noted that liquidity crunch is the most worrisome challenge facing the power sector. According to the company, the tariff framework (I.e., the electricity pricing structure in Nigeria) is non-cost reflective. This is because “industry participants often complain that electricity charges to customers do not reflect the cost of generation, transmission, and distribution…” As such, this predisposes the operators to liquidity constraints.

“Liquidity crunch is the biggest challenge of the Nigerian electricity sector today. The 11 DISCOs have been struggling to meet their obligations to the Nigerian Bulk Electricity Trading Plc (NBET) and Market Operators (MO) as evidenced in their low remittances to NBET and MO. 

“In Q1’2019, only about 28% of the N190 billion invoice (comprising invoice of 161.4 billion for energy purchased from NBET and an invoice of N28.8 billion for administrative services from MO) of DISCOs were remitted.”

The ripple effect of these challenges 

Electricity is a vital component of the industrialisation process. Any country that wishes to industrialise without first sorting out its electricity challenges will keep on going around the same circle without accomplishing its set agenda. This is the situation Nigeria has found itself in – a situation whereby companies are struggling to remain in operation because the cost of production is unusually high, execrated by the high costs they incur from powering their generators because electricity supply from national grids is epileptic. Unfortunately, the DisCos cannot perform optimally because they too are grappling with the challenges highlighted above.

[READ ALSO: PwC’s Taiwo Oyedele critiques CBN’s newly-implemented cashless policy]

PwC proposes possible solutions to the biggest problem facing Nigeria’s electricity sector

What’s the forward? 

According to PwC Nigeria, a possible solution to the problem of liquidity crunch facing the DisCos is to start supplying 50% of distributable electricity to Nigerian companies. This, the white paper suggests, should be done provided these companies are willing to pay N80 per kilowatt. The remaining 50% can then be shared among residential consumers.

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The paper went further to explain that doing this will help solve the liquidity problem facing the sector. This suggestion is based on the assumption that Nigerian companies would be willing to pay for stable electricity supplied by DisCos instead of expending more to generate electricity for themselves. And if these companies pay N80 per kilowatt for a collective 50% of Nigeria’s generated electricity, they would eventually be paying an estimated N400 billion to the DisCos. This would go a long way towards solving the main problem highlighted above.

“To revitalize liquidity in DISCOs, we consider 50% of energy received by DISCOs is transmitted to industries at a cost-reflective rate of N80/Kwh… At N80/Kwh charged to industries, an estimated N400 billion will be injected into the power sector annually.”

To read the full report, click here

Emmanuel is a professional writer and business journalist, with interests covering Banking & Finance, Mergers and Acquisitions, Corporate Profiles, Brand Communication, Fintech, and MSMEs. He initially joined Nairametrics as an all-round Business Analyst, but later began focusing on and covering the financial services sector. He has also held various leadership roles, including Senior Editor, QAQC Lead, and Deputy Managing Editor. Emmanuel holds an M.Sc in International Relations from the University of Ibadan, graduating with Distinction. He also graduated with a Second Class Honours (Upper Division) from the Department of Philosophy & Logic, University of Ibadan. If you have a scoop for him, you may contact him via his email- [email protected] You may also contact him through various social media platforms, preferably LinkedIn and Twitter.

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Tech News

Facebook to open Lagos office in 2021

When the social media giant comes to Nigeria, it will be its second office on the African continent.

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Facebook set to award $3 million in Community Accelerator program, Facebook to invest $100 million in media houses as coronavirus crashes their revenue, Facebook to expand Coronavirus Information Centre to Nigeria, 16 other African countries

Social Media giant, Facebook announced it would open an office in Lagos in 2021, its second office in the continent and the first in Africa to house software engineers.

This was announced by Facebook Program Manager, Chimdindu Aneke on social media. “We are opening a Facebook office in Lagos, Nigeria later in 2021,” he said.

He added that the office would be the first in Africa by Facebook for the purpose of engineering and “building for the future of Africa and beyond”.

Media aide to the Presidency, Tolu Ogunlesi quoted Facebook saying, “As part of its continued commitment and ongoing investment in Africa, Facebook today announced it will be opening an office in Lagos, Nigeria – its second office on the African continent.”

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In 2019, Facebook’s biggest market in Africa was Nigeria with 33 million monthly active users.

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Business

Nigeria among countries to be worst hit by food crisis globally

Nigeria, others were listed as countries with the worst deteriorations in acute hunger in recent months.

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7 million Nigerians to experience food shortage

Nigeria has emerged as one of the countries to be most hit by food crisis across the globe in the face of the coronavirus pandemic which had worsened the already bad situation.

This disclosure is contained in a report by the United Nation’s Food and Agriculture Organization (FAO).

The report from the FAO also shows that the Democratic Republic of Congo is emerging as the country with the world’s largest food crisis in terms of absolute numbers, with Burkina Faso listed as the country with the worst deteriorations in acute hunger in recent months.

The food crisis is made worse in Nigeria by the longstanding religious and ethnic conflicts and even organized crimes by some bandits, which has greatly affected farmers working on their farmlands.

In addition to these, the farmers were already contending with the issue of flooding or drought, which has negatively been impacting on the agricultural sector in a period the country is desperate and very desirous of economic diversification. The coronavirus pandemic has triggered a surge in food prices as can be seen in the reports released by the National Bureau of Statistics (NBS), in a country that imports over 10% of its food supply.

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With a population of over 200 million people, Nigeria is the most populous country in Africa, which is regarded as the world’s most food-insecure continent. This is made worse as importers of food items struggle to gain access to dollars for their imports due to scarcity of foreign exchange which is triggered by the crash of oil prices and low foreign inflow.

This is expected to be exacerbated by the recent order by President Muhammadu Buhari to the Central Bank of Nigeria, to stop the allocation of foreign exchange to importers of food items.

The Governor of Niger State, Abubakar Sani Bello, warned in April, “We are heading toward famine and starvation.”

The FAO report which states that Congo has about 21.8 million people that are acutely food insecure, also points out that Burkina Faso has witnessed an almost 300% uptick in the overall number of people experiencing acute hunger since the start of 2020.

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Around the World

US government to ban WeChat and TikTok from app stores

Chinese-owned social media apps are facing a ban in the US over national security concerns.

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Reasons why a record number of people are giving up their US citizenship, US approves chloroquine as treatment for coronavirus COVID-19, Nigeria U.S. Donald Trump-oil prices

The United States government says it will ban the services of Chinese tech giants, WeChat and TikTok, from online mobile application stores in the U.S. It also plans to prohibit any funds transfer/payment services through the WeChat mobile application.

This was announced by the U.S Commerce Secretary, Wilbur Ross, in a statement on Friday, following President Donald Trump’s Executive Orders (E.O.) 13942 and E.O. 13943, on the 6th of August.

“In response to President Trump’s Executive Orders signed August 6, 2020, the Department of Commerce (Commerce) today announced prohibitions on transactions relating to mobile applications (apps) WeChat and TikTok to safeguard the national security of the United States,” said Wilbur Ross.

He added that the Chinese Communist Party (CCP), has proven it has the means and the motive to use Chinese tech apps, to threaten America’s national security foreign policy, and the economy of the U.S.

He said the following transactions will be prohibited from September 20th for WeChat and November 12th for TikTok

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  • Any provision of service to distribute or maintain the WeChat or TikTok mobile applications, constituent code, or application updates, through an online mobile application store in the U.S.
  • Any provision of services through the WeChat mobile application, for the purpose of transferring funds or processing payments within the U.S.

Mr. Ross said that with the Executive Order, the US government has taken a ‘significant action’ in fighting China’s malicious personal data breach on American citizens, and also promote democratic rule-based norms, and aggressive enforcement of U.S. laws and regulations.

The U.S government announced that further prohibitive measures, relating to both companies may be announced in the future.

“Should the U.S. Government determine that WeChat’s or TikTok’s illicit behavior is being replicated by another app somehow outside the scope of these executive orders, the President has the authority to consider whether additional orders may be appropriate to address such activities.”

President Trump has given until November 12, to resolve the TikTok security concerns of the US. He added that the prohibitions may be lifted, if they are addressed.

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