For decades, the power sector has been a drawback in Nigeria’s quest for sustainable economic progress and a major impeder of SME growth in the country. Despite substantial capital regularly expended on upgrades and expansion projects, the West African giant still produces just below megawatts (MW), the sixth highest in Africa. However with a population that dwarfs that of countries above, the gaping deficit between supply and consumption becomes greatly emphasized.
Nigeria houses more than 170 million people and millions of businesses, meaning every citizen allotted only 0.025KW (0.000025MW) of energy, excluding the consumption needs of businesses, which requires a larger amount to effectively power production plants, machineries and warehouses.
To get a better perspective, South Africa has an estimated population of 52.9 million but generates 44,000MW of electricity; ten times that of Nigeria with less than half the population size. West African neighbors, Ghana also produces 19800megawatts for a group roughly above 24 million while North African giant Egypt produces 24,670MW for 80 million people and Algeria generates 10,380MW for a population of 38 million.
Prior to 2013, Nigeria’s power industry had been operated solely by the government, with the Power Holding Company of Nigeria (PHCN), formerly and still popularly known as NEPA (National Electricity Power Authority), managing the entire electricity value chain.
Under PHCN’s management, Nigeria’s power industry has experienced a stagnated growth, recording only marginal increases in output. Efforts employed to adequately address this deficit have returned marginal results with epileptic service delivery, riddled with frequent power outages and unstable voltages still a mainstay. The prevailing public notion suggests that the bureaucratic nature of government activities greatly impedes efforts to nip the issue in the bud, and a shout for a change in approach is needed.
Confirming the need for a change of strategy, the Nigerian government set out to minimize its participation in the sector, opting rather to relinquish majority of the assets to private hands assured of managing them as profit-seeking ventures, thereby ensuring service delivery is optimized.
November 1, 2013 saw the privatization process concluded as assets where officially handed to private buyers. Overall 18 generation (GENCOs) and distribution companies (DISCOs) were unbundled and sold to the highest bidders in a deal worth an estimated $3.3 billion, marking one of the largest privatization deals in the world.
Following the handover, signs of a positive turnaround are awakening. Distribution companies have started rolling out new prepaid meters to replace outdated meters, while agreements have been reached between investors and technical partners to enhance generation capacities. One firm championing the renewed push is indigenous conglomerate, Transcorp.
Transcorp’s Power Push
Nigeria’s multi-business conglomerate, Transcorp acquired the Ughelli power plant, the largest gas-fired plant in the country, for a reported $300 million following the completion of the privatization process, subsequently renaming it Transcorp Ughelli Power Limited (TUPL).
Built in 1964 with an initial capacity of 72MW, the plant is one of the 6 generation companies unbundled from PHCN, with a single station named Delta I. It has since grown into a mega station with further expansion projects adding 3 more stations, Delta II, III, and IV, though Delta I is currently retired. It services neighboring cities within Delta State including Eku, Patany and Warri, the state’s commercial hub, as well as parts of Edo’s capital city, Benin.
Prior to its acquisition, the plant was generating 160MW of electricity, despite an installed capacity of 1000MW.
Since its takeover, Transcorp, in partnership with American energy giant, General Electric (GE) has doubled output to 362MW, and recently announced plans for further upgrades and expansion.
In a recent statement, the diversified conglomerate revealed an agreement with GE to expand capacity by an additional 1000MW within the next 3 -5 years, raising total capacity 2000MW – half the country’s current total generation and the largest expansion project announced by any power investor in the country.
In addition, to increase short term output, Transcorp has signed a separate deal to raise current capacity to 700MW before the year end, double the current 362MW.
According to TUPL’s CEO, Adeoye Fadeyibi, the 700MW upgrade will gulp over $46 million, enhancing the country’s ability to achieve its short term target and laying the foundation for massive future expansion.
“Nigeria has a target of generating 40,000MW by the year 2020. Our 1,000MW new installation as well as our Legacy plant generating at circa 1,000MW will go a long way in helping Nigeria meet this target,” Mr Ade said in response to our enquiry.
Both short and long term pronouncements are part of a $2.5 billion commitment offered by Tony Elumelu, Chairman of Heirs Holdings – Transcorp’s principal investor – shortly after US President Barack Obama unveiled a $7 billion plan last July, designed to tackle the continent’s power deficit. The billion-dollar commitment by Transcorp’s Chairman is the single largest investment to be included in the white house initiative.
Nigeria is primed to become Africa’s largest economy within the decade, leading the continent’s economic growth bandwagon at an average rate of 7% in the last 5 years. Foreign investment inflow is at an all time high with direct investment stock portfolio exceeding $85 billion.
Investors are spotting huge potentials for profitability in a country that boasts a consumer base of over 160 million, the largest Africa and 4-times the market size of Africa’s number 1 economy, South Africa. However, such rise in investment flow cannot be sustained without the development of critical infrastructure particularly in meeting the nation’s energy needs.