Government Addresses Electricity Supply Challenges
On March 25, 2026, the Minister of Electricity provided an optimistic update regarding Nigeria’s ongoing electricity supply issues. “Given the committee we have established, the commitments from gas suppliers, and the scheduled repairs to gas pipelines, we anticipate an improvement in supply within two weeks,” he stated. He also mentioned that the Commission is actively monitoring the compliance of gas companies with their domestic supply commitments to power plants.
Electricity Supply Deterioration Across Nigeria
For the past two months, Nigerians have faced a significant decline in electricity supply, with many experiencing daily access of less than six hours. While the electricity minister has been a focal point for public frustration, attributing the challenges solely to his leadership would be misleading. The reduction in electricity availability is primarily linked to a staggering 57% drop in gas supplies to the 19 gas-fired power plants that energize the grid. This situation underscores the widespread misinformation regarding the root causes and potential solutions to the crisis.
Complexities of the Nigerian Electricity Supply Industry
The Nigerian Electricity Supply Industry (NESI) operates like a multi-layered web where each segment must function effectively for the ecosystem as a whole to thrive. Following the privatization of Distribution Companies (Discos) in 2013, a critical assessment of the 30:70 debt-to-equity ratio necessary to buffer against external shocks was overlooked. These companies had relied on loans for capital expenditures, leading to a series of challenges, including:
Losses and Infrastructure Inefficiencies
Commercial losses have reached a cumulative average of 58% among 12 million customers operating under estimated billing. These losses are partially mitigated by subsidies from the World Bank’s International Development Association (IDA) and a government-established entity known as the Nigerian Bulk Electricity Trading Company (NBET), which addresses shortfalls in payments from Generation Companies (GENCOs) to market operators. Additionally, technical losses arise from inefficient grid infrastructure that cannot sustain full load generation, often leading to frequent, unanticipated system failures.
Challenges in Securing Financial Guarantees
The dual challenges of commercial and technical losses severely limit Discos’ ability to offer bank guarantees to market operators, inhibiting their capacity to absorb costs incurred. Additionally, existing ‘take-or-pay’ commercial models, which are designed to provide risk guarantees for GENCOs, have proven inadequate in ensuring financial sustainability. In response, the Federal Government of Nigeria (FGN) has proposed a power sector bond that would leverage government guarantees to attract private sector financing to cover tariff shortfalls, totaling approximately N6.2 trillion, although the initial tranche of N501 billion falls significantly short of the N3.3 trillion owed to GENCOs.
Gas Supply Issues and Market Disconnects
The gas aggregation system, responsible for capturing 60% of associated gas produced during crude oil drilling, is facing considerable challenges. The system supplies 1.6 billion standard cubic feet as mandated under Article 108 of the Petroleum Industry Act (PIA). However, ongoing payment arrears to GENCOs, compounded by market operator debts, have made it increasingly difficult to maintain adequate pressure in gas pipelines. Furthermore, electricity prices in Nigeria remain misaligned with the market, preventing necessary adjustments to respond to currency fluctuations, inflation, and interest rates, and risking public backlash against rising costs.
Strategic Recommendations for Sector Reform
The Nigerian Midstream and Downstream Petroleum Regulatory Authority’s (NMDPRA) recent adjustment of domestic gas benchmark prices from $2.13 to $2.18 represents a small step to encourage aggregators, but does little to resolve the foundational issues. A comprehensive analysis of the electricity supply value chain suggests several strategic recommendations for government action over the next decade:
- The government should consider re-privatizing key DISCOs to ensure financial stability and operational efficiency.
- A decisive move to merge NBET with the national debt could facilitate a more adaptive tariff structure that reflects market realities.
- Launching a national metering campaign aimed at achieving 90% metering penetration within five years is essential, supported by financing solutions for consumers unable to afford meters upfront.
- Privatizing Nigeria’s electricity transmission company or developing a modernization roadmap is crucial for enhancing grid reliability.
- Adjusting domestic gas pricing mechanisms in line with export parity will incentivize operators to prioritize domestic supply over flaring.
- Developing a dedicated financial regime for gas extraction is necessary to tap into Nigeria’s significant non-associated gas reserves.
Addressing these challenges is vital to enhancing the reliability and efficiency of Nigeria’s electricity supply, a cornerstone for industrial growth and economic recovery moving forward.
Kelvin Ayebaefie Emmanuel is a noted economist and serves on the President’s Commission on Fiscal Policy and Tax Reform, the Interagency Committee on Oil and Gas Fiscal Modeling, as well as various other committees focusing on energy and infrastructure development.
