Africa’s biggest oil producer, continues to experience challenges within the
power sector despite the huge outlay of funds and unprecedented reforms in the
power sector. The bottleneck in the power sector adds to already existing
issues such as the slump in oil prices and the foreign exchange issues that are
currently threatening Nigeria’s role as a destination for investors. The
challenges in the power sector are largely attributed to a lack of funds on the
part of the generating companies (GenCos) and the distributing companies

is incontrovertible that another major challenge is the shortage of gas supply
to power plants as a result of the impact of pipeline vandalism in the
Niger-Delta region of the country. The power sector reform is anchored on the
use of gas-to-power systems in order to meet the power needs of the country.
The availability of gas to ensure consistency in power supply has been a great
challenge. This challenge is a result of inadequate infrastructure needed for
gas gathering, processing and transportation. The negative effects of saboteurs
and vandals in gas production affect the availability of gas. This presents a
major challenge to power generation growth projections.
the one hand, sabotage is a plague that continues to hamper the growth of the
Nigerian power sector. On the other hand, there is an ever-increasing need for
the DisCos to generate funds to improve infrastructure – i.e. their
distribution and transmission equipment. Therefore, in addition to raising
funds there are security challenges faced by the GenCos and DisCos.
challenge of adequate funding for the GenCos is best illustrated with the
challenges currently being faced by the Nigerian Bulk Electricity Trader
(NBET). NBET has recently entered into about 14 Power Purchase Agreements
(PPAs) with the GenCos. The NBET is indeed over-stretched as evidenced by the
huge debt portfolio it has with the GenCos. 
the backdrop of the many challenges facing the Nigerian power sector, it has become
imperative for the GenCos to significantly improve power generation while the
need to ensure supply of sufficient gas to bolster power generation cannot be
over-emphasised. Similarly, for the DisCos, there is a need to improve
liquidity to utilize improved technology for power distribution. To achieve
these objectives, it is pertinent that the stakeholders in the value chain
reach a consensus on probable solutions to the conundrum facing the sector. The
writer has attempted, in the following paragraphs, to provide some options that
may be adopted as a panacea to the many issues hampering the projected growth
of the sector.
Internal Corporate Governance
Power sector is made up of three mutually exclusive, but necessary parts –
generation, transmission, and distribution. In Nigeria, the GenCos and DisCos
have been privatized, while transmission of power is still managed by the
government. There is an increasing need to ensure that the GenCos and DisCos
are efficiently and effectively managed. It will, therefore, be helpful if the
management board of the GenCos and DisCos consists of at least one
representative of some of the key multinational oil companies – the end buyers
of power or gas. To the extent that they are a vital part of the value chain as
the users of power and gas, it is in their best interest to
ensure that the GenCos and DisCos are efficiently managed to achieve the
set targets for the GenCos and DisCos in the value chain.
Infrastructure Improvement
efficiently and effectively generate electricity, the GenCos and DisCos need to
improve the quality and capacity of existing infrastructure. It is also
imperative for the DisCos to identify key equipment required to generate and
distribute power to meet capacity and demand. A proper metering system with
improved standard of meters needs to be utilised. To adequately reach the
capacity of the power plants and meet the distribution needs of end users, it
is germane that the generation, transmission and distribution equipment are
updated to meet international industry standards. There is no doubt that
achieving this requires adequate funding as the GenCos and DisCos are already
financially stretched after having to use a larger portion of initial funds received
from financial institutions to acquire assets and licenses from the regulatory
Funding and Liquidity Improvement
key challenge in the power sector is inadequate funds for the GenCos and, to a
larger extent, the DisCos to effectively meet generation and distribution
targets. It has become apparent that there is a pressing need for the GenCos
and DisCos to seek alternative sources of funding. Notwithstanding, the fact
that the N300 Billion intervention fund of the CBN has as its objective, fast-tracking
the development of electric power projects, especially in the identified
industrial clusters in the country; and serving as a credit enhancement
instrument to improve the financial position of the Deposit Money Banks (DMBs),
the DNBs are unable to provide adequate funding to service the investment needs
of the power sector. This is largely attributable to the fact that the bulk of
funding received from the DMBs was used for the acquisition of different power
assets with little or no funds left for operations and infrastructure
improvement. With the benefit of hindsight, perhaps a better strategy to have
been adopted by the Nigerian government would have been to conduct a financial
due diligence exercise on the GenCos and DisCos with a view to ensuring that
they had sufficient funds to: (i) purchase the relevant assets; and (ii)
adequately fund their operations. As security to ensure that the funds are not
utilised for purposes other than declared, the funds could have been housed in
an escrow account with the mechanics for disbursement from such account agreed
upon issuance of the relevant licenses.
forward, the DisCos will have to do the following where they intend to put
forward proposals to international and domestic financial institutions to
provide facilities:
·  Ascertain
the load within their distribution network;
· Ascertain
the amount of power required to be generated and distributed to meet the power
demands within their distribution network;
·  Ascertain
the source of power to be distributed;
help to develop a good project model to attract both equity and debt investment
in the GenCos and DisCos.
is no doubt that the attempts by successive Nigerian governments to reform the
power sector are bold steps towards the rapid development of the economy.
However, the challenges and issues examined in the foregoing paragraphs will no
doubt significantly affect the aims and objectives of the reform. It is,
therefore, imperative that the government tackles these issues and challenges.
The challenges and the proposed solutions mentioned here are by no means
exhaustive, however, implementing the few options mentioned above will create a
peaceful environment for new investors to operate.

Chukwudi Ofili is a Senior
Associate in the corporate and commercial, banking and corporate finance; and
energy and natural resources practice groups of Bloomfield Law Practice.
He advises on matters such as local and foreign currency syndicated
lending, leases transaction/structured/project finance, structured trade
finance, energy and natural resources, due diligence issues and advisory
services, foreign investment advisory services, taxation and real estate.
 Ed’s Note – This article was originally published here.