Chief Investment Officer at Zrosk Investment Management, Samson Esemuede, has said Nigeria’s current power system cannot support a $10 billion investment without significant reforms across the electricity value chain.
Speaking during an interview with ARISE News on Tuesday, Esemuede said Nigeria’s electricity market is not currently structured to support such a large investment.
“The chain today in Nigeria is not optimal. So it will be difficult under the current construct to deploy $10 billion into the system.”
He identified the absence of a cost-reflective tariff system and inadequate metering as key challenges limiting investment in the sector.
“What I mean by that is, firstly, people, we don’t have a cost-reflective tariff pricing system. Even the discounted tariffs that we have, we are not metering properly.”
Esemuede said the challenges also extend to the transmission grid and the bulk electricity market, creating liquidity constraints across the power value chain.
“We have a relatively inefficient transmission grid. And then you have the bulk trader, right, that is basically unable to provide the necessary liquidity in the system.”
He said the liquidity problems eventually affect generating companies, which are unable to meet their obligations to gas suppliers.
“What that does is that it then flows into the generating companies that then are unable to pay the gas suppliers. So you see that there’s a system break.”
Esemuede was responding to plans by industrialist Aliko Dangote to invest $10 billion in Africa’s power sector, saying such an investment would require the electricity system to support adequate returns.
“In order for you to actually deploy, because if you deploy 10 billion, if Aliko is telling me he wants to deploy 10 billion, assuming a 15% to 20% dollar IRR, which you would expect for a project of this nature, you can do the math and figure out how much he thinks is going to come out of that system.”
He said the investment would require improvements in tariffs, transmission infrastructure and metering, as well as financially credible intermediaries capable of purchasing electricity and paying across the value chain.
“So you just reverse engineer it and say, what is the tariff that I’m going to need to charge? What is the investment in transmission that needs to be made? How do I improve metering? How do I ensure that we have intermediaries that are credit worthy that can offtake this power and also pay the entire chain?”
Esemuede, however, said Dangote’s ability to influence systems could help create the conditions needed for such an investment to succeed.
“But this man is a man that can change systems, right? So before he does that, I’m sure they will look at the system to ensure that the system is able to absorb 10 billion and we can get bankable projects that can generate decent economic return.”
Goodness Anunobi
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