Nigeria’s Electricity Sector Risks Total Collapse On Forex Scarcity, Debts

Nigeria’s power sector is facing a herculean task meeting the electricity needs of Nigerians as most of the equipment needed are imported.

All this, is due to inability of operators to get foreign exchange.

As at the time of compiling this report, the exchange rate between the naira and the United States dollar is N440/$ on the official market and N735/$ on the black market.

According to investigation, operators in the power sector are grappling with repaying foreign currency loans borrowed when the exchange rate was more than three times its current value with investors tethering on the edges of default as they struggle to find forex to repay loans from an investment that has been a colossal loss.

A senior staff of the Ikeja Distribution Company who craved anonymity told Blueprint that they are facing the daunting task of funding Capital Expenditure (CAPEX) hugely required to improve the state of power supply in the country mostly in dollars.

Explaining further, he said power transformers, distribution transformers, electrical conductors, meters, and most of the technological solutions which are needed to ensure a steady supply of electricity, are mostly imported.

An expert In the industry, Bayode Akomolafe, said with the low liquidity of FX in Nigeria’s open market and the high exchange rate in the parallel market, the cost of electricity production increases.

“The additional expense adds to the strain already caused by the lack of cost-reflective tariffs. The Naira’s volatility puts investors’ returns at risk rather than encouraging them to invest in Nigeria’s energy industry or the country as a whole,” he said.

According to Akomolafe, parts for equipment reliability are typically sourced from original equipment manufacturers (OEMs) who sell in foreign currency or at the most index to the black market exchange rate.

Also bearing his mind on the crisis in the sector, Chief Executive Officer of REEnergy Africa, Ezeocha Amudo, said for players in Nigeria’s renewable energy sub-sector, most of the off-grid components are imported and as forex rates increase, operators will need to adjust to the increased costs.

Amudo said the forex crisis could pose a challenge to the increased adoption of renewable energy technologies as the burden encountered by rising costs of imported technologies reduce the purchasing power of Nigerians at the end of the day.

The forex situation has limited the entry of new private participants in the industry. For most generating companies (GenCos), whose operation and maintenance (O&M) is dependent on imports, the forex crisis adds to the strain on their already precarious cash flow and poor bottom line.

In his own submission, an electrical engineer, Chukwuemeka Eze, believes the status quo could remain as the end of year approaches.

“Due to a lack of modern infrastructure, Nigeria still depends a lot on imports of processed natural gas, and equipment needed in the electricity sector. If the forex rate is unstable, it affects even the end consumers. That should be a source of concern for everyone that has the power and authority to do something. Nigerians are already dealing with a lot.”


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