Question: can better regulation improve Nigeria’s electricity sector?
My Response: Is the problem really regulatory or a lack of evidential investing opportunities in the broad distribution of electricity in Nigeria. Running a DISCO (distribution company) in Nigeria does not compound any real value if you run the regression analysis.
Why? The best energy consumers in Nigeria (Dangote Cement, BUA Cement, etc) are not connected to the national grid. Those major industrials take out more than 30% of the revenue. The second tier – top Commercials – have figured out solutions for themselves. You take out another 20%. So, any DISCO is losing potential revenue of at least 40% in its jurisdiction!
Tekedia Mini-MBA edition 16 (Feb 10 – May 3, 2025) opens registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
The remaining – low tier commercial and residential customers – hardly have resources to pay, making collection extremely challenging. You can argue on metering but the root cause is more than that.
So, if you look at the opportunity, more than 90% of the profits in the electricity sector today are captured at the Generation. So, Transcorp Power, Geregu Power, etc, are better businesses because they have one great customer – the Nigerian government via NBET which buys in bulk. Those firms are multi-trillion naira publicly traded companies. You get the idea: if there is clarity on the customers, investors will come to invest.
My point: you can regulate whatever you want, but it is about the economics, and DISCOs will struggle in Nigeria for decades! Nigeria should not expect the DISCOs to find those resources because those who are expected to give them the funds do not see the paying customers, especially considering the fact that the rate is not really reflective. I mean have the rates adjusted for the new USD exchange rate and prices of fuel since those vectors do affect the electricity sector?
That is why more than 80% of DISCOs in Nigeria are either bankrupt or already taken over by banks or just fading. Electricity distribution is catalytic for commerce, and governments must do it until we have companies with deeper pockets to run it.
---
Register for Tekedia Mini-MBA (Feb 10 - May 3, 2025), and join Prof Ndubuisi Ekekwe and our global faculty; click here.
It’s a productivity issue. There’s no joy serving poor people, you will only lose, no chance for winning.
Two contradictory issues: first is wanting to generate and distribute gigawatts of electricity and send same to poor people who obviously cannot pay. The second being charging fees that do not mirror market realities. Neither point is tenable, and both are mutually exclusive. If you ask the government to fund and subsidize to its poor citizens, well, the government is equally broke and irresponsible, so that option is as bad as the first two.
What happens then? Well, when you are in this kind of quandary, you will have to decide what you really want and then state what you are willing to give up. Without stating what you want, no good option will emerge. When serving poor people brings losses and you desperately need money, what do you do? The brains here are easily frozen, if they are warm without necessarily being hot, you will gradually see a pathway out of your quandary. Right now no advice or solution is valid, because neither the variable nor the constant has been communicated and validated.
When you capture power, in power, but have no power…