The Federal Government’s policies are designed to strengthen investor confidence and enhance liquidity across Nigeria’s power sector.
This is the view of the Special Adviser to the President on Energy, Olu Verheijen who made this known while speaking in an interview with Arise TV.
According to Verheijen, about 60-70% of Nigeria’s domestic gas consumption is allocated to the power sector, creating a concentration of risk.
She stressed that diversifying the sector is necessary but cannot be achieved without first addressing the underlying challenges from gas to power.
“When you look at the power sector, especially on-grid… we’ve made significant progress in driving off-grid access. However, you cannot industrialize, grow income, or transform your economy without improving the reliability and expanding energy consumption at economic levels. This requires strengthening the on-grid system,” she stated.
She pointed out that for investors to deploy capital, they must have confidence in the sector’s cash flows and financial liquidity. The lack of financial viability in the distribution segment has been a key barrier to attracting investments.
She said:
“The first approach is to ensure that DisCos have the cash flows that are required for investments in reliability and growing access. The second piece is to say because of the history of making sure that there is been a market shortfall that the distribution companies don’t collect revenues that they are allowed to collect, and what their actual costs are, the combination of those two shortfalls has led to illiquidity because sometimes, government cannot pay what it has promised to pay and the DisCos aren’t collecting what they are supposed to collect. That means that generation companies aren’t paid, transmission companies don’t have enough cash flow coming back from the DisCos, and then, the gas suppliers do not have the reliable cashflows that they need from their offtaker. And that has piled up a history of debts from 10 to 15 years that have accumulated. The government has decided to take a holistic approach to say ‘We’ll clear those legacy debts and make sure that GenCos, GASCos are paid what they are owned’ so that you can boost investor confidence across that sector and make sure that there is again more incentives to invest.”
Privatization Shortcomings and Policy Interventions
Verheijen noted that Nigeria’s power sector privatization did not follow the same rigorous standards applied to the upstream oil and gas sector. Many of the private sector players who acquired distribution companies (DisCos) lacked the financial and technical capacity to make the required investments to improve reliability and expand access.
“When privatization happened, we unbundled our power sector, but we didn’t conduct the rigorous evaluation of buyers that we did in the upstream oil and gas industry. As a result, distribution capacity has largely stagnated over the past ten years, except for one or two DisCos,” she explained.
To rectify these issues, the Federal Government is implementing regulatory and policy interventions to ensure transparency and set clear standards for ownership, financial capacity, and technical competence of stakeholders in the power sector.
Addressing Liquidity Challenges
A major issue affecting the power sector is illiquidity, primarily caused by:
- Revenue shortfalls—DisCos are not collecting the full revenues they are entitled to.
- Market shortfalls—Government commitments to subsidize shortfalls have not always been met.
- Historical debts—Unpaid debts in the power value chain, including to generation companies (GenCos), gas suppliers (GasCos), and transmission companies (TCN), have accumulated over 10 to 15 years.
Verheijen revealed that the government has decided to take a holistic approach to resolving these issues by clearing legacy debts and ensuring that all players in the value chain receive their due payments.
“The government has decided to clear these legacy debts and ensure that GenCos and GasCos are paid what they are owed. This will restore investor confidence and create fresh incentives for investments in the sector,” she added.
