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Nigeria’s Gas Supply Problems Needs Urgent Fixing – Agusto & Co
Nigeria needs to urgently fix its natural gas supply constraints, according to Agusto & Co in a recent research note.
The Pan-African Credit Rating Agency said that 25 of the country’s 29 generating companies (GenCos) are natural gas-powered, which makes it important for stakeholders to fix problems.
Over the years, Nigeria has lost funds to natural gas supply constraints. In a 2020 report, the Nigerian Electricity Regulatory Commission (NERC) stated that gas dominates the electricity generation mix accounting for 81.53 percent of the electricity generated during the second quarter of 2020.
This means that 8.15 kilowatt per hour (kWh) of every 10kWh of electric energy generated in Nigeria in the second quarter of 2020 came from natural gas.
Gas supply constraints are finance related. If electricity consumers are unable to pay their bills to distribution companies (DisCos), DisCos can’t pay the Nigerian Bulk Electricity Trading Company (NBET).
In turn, NBET is unable to pay generating companies (GenCos), who are unable to pay gas suppliers. So, the entire value chain is not liquid, at least not yet. Also, some stakeholders believe transmission issues contribute to the challenges.
The weakest link
According to Agusto & Co, the weakest link in the Nigeria Electricity Supply Industry (NESI) value chain is the Transmission Company of Nigeria (TCN), which is still entirely government owned.
Agusto & Co say that even with an increase in the generating capacity of the grid-connected Independent Power Plants (IPPs), the TCN is still unable to evacuate more than 8,100 MW, which is a critical bottleneck in electricity supply.
Meanwhile, TCN continues to blame load rejection by distribution companies, for the high frequency of grid collapses.
Agusto’s electricity sector outlook
Agusto & Co anticipates that some projects and a more efficient TCN will stimulate some growth in the NESI. These include:
- The Nigerian Electricity Grid Maintenance Expansion and Rehabilitation Program (NEGMERP), aims to expand Nigeria’s grid network through network expansion projects.
- The Presidential Power Initiative was signed with Siemens AG, which is expected to add 25,000 MW of operational capacity from the national grid.
- The Electricity Constitutional Amendment, allows states to generate, transmit, and distribute electricity in areas covered by the national grid. The bill could lead to more efficient and effective management of the power sector, as states will have greater control over their power supply. This could increase investments in power infrastructure.
However, Agusto & Co believes that the electricity amendment raises concerns about the potential for fragmentation of the power sector, as different states may have different priorities and approaches to power generation and distribution, leading some, to possibly bypass the national grid entirely.