The Niger Delta provides not only the bulk of the nation’s crude oil exports, but also the gas that powers Egbin’s generators about 300 km (180 miles) away in Lagos. A militant strike on a sub-sea pipeline that shut down oil production at the Forcados field in February also curbed the flow of gas to Egbin. “Gas supply has been a major constraint for us from the standpoint of the Niger Delta crisis,” said Kola Adesina, the plant’s chairman. Built in the 1980s, Egbin has a generating capacity of 1,320 MW, enough to provide a third of Nigeria’s electricity, and yet it is now producing just 606 MW.
Nigeria’s Sahara Group, which with South Korea’s KEPCO bought a 70 percent stake in Egbin when it was privatized in 2013, has plans to double its capacity.
But executive director Tonye Cole said in September 2016 that power tariffs did not cover its costs, and complained that the government, via its bulk electricity purchaser, owed it huge sums. “We’re not going to pour in huge amounts of money until we can correct all these things,” Cole said.
Egbin’s owners say they are owed 90 billion Naira ($295 million) in back payments. This is part of a much wider problem. According to the Association of Nigerian Electricity Distributors, total market revenue shortfalls were projected to be 809 billion Naira by December 2016.
Minister of Power Babatunde Fashola says he is working with government colleagues, the president’s office and the Central Bank to resolve the problem of unpaid bills, some of which pre-date privatization. “We will find a way … and ensure that going forward they will not accumulate again,” he said. Still, the power generators face a litany of other problems linked to the industry’s structure. The bulk of their costs – including for gas, maintenance, and imported spare parts – are in dollars but customers pay for power in Naira.
With Nigeria hard hit by the weak world oil market, the Central Bank effectively devalued the naira by 30 percent against the dollar in June. The power producers must therefore buy dollars with devalued naira income. “The forex differential is huge,” Cole said. Often the producers cannot find dollars at anywhere near the new official rate of 305 Naira to the dollar due to the foreign exchange shortage and the devaluation was supposed to ease. The alternative is the black market, where the rate is around 460. Egbin could run at least partly on fuel oil or liquefied natural gas brought in by ship, but all these problems mean the option is unfeasible at the moment.
In June 2016, the government agreed to a ceasefire with the main militant groups in the Niger Delta. But with attacks resuming, it is unclear whether this will hold, highlighting the need to avoid relying so heavily on gas from the region. Fashola said the long-term diversification plan is to develop a network of power plants funded by private investors, with a focus on solar power, hydro-electricity and wind farms.
Nigeria sealed its first solar power purchase deals in July, and has also signed agreements with the World Bank to add more than 500 MW of generating capacity.
The government needs $150 million of investment to provide electricity in rural areas alone through nine new gas and 28 solar plants with a combined capacity of 128 MW, Fashola said.
But even if Egbin and other plants operate at full capacity, the dilapidated transmission network could not handle the power. Rolake Akinkugbe, head of energy and natural resources at FBN Capital, said it “requires significant rehabilitation at least, due to system losses which result in up to 40 percent wastage”.
Experts estimate that it would take $2.3 billion a year for a decade to expand grid access, which could probably be achieved only by partial or full privatization. To date, the government has not announced clear plans to update the grid or attract private investment by selling the transmission company.