In a bid to address the financial challenges facing Nigerian electricity companies, estimated at a staggering N2 trillion ($2.5 billion) in capital shortfall, the sector is actively seeking new investors to revitalize an industry struggling to meet the power demands of its 200 million residents.

Olu Verheijen, an adviser to President Bola Tinubu on energy, highlighted the predicament, noting that the power companies in Nigeria are burdened by excessive debt and insufficient capital, severely limiting their ability to invest in the efficient distribution of electricity to households.

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The country currently generates and supplies between 3,500MW and 4,500MW to its citizens spread across 36 states and the Federal Capital Territory.

For instance, on a recent Thursday, the nation’s power generation reached 4,582.49MW as of 6 am.

Compounding the challenges are issues such as inadequate pricing, inconsistent revenue collection, and an aging national grid, forcing many residents in Africa’s most populous nation to resort to using noisy generators for their power needs.

Examining the situation in Lagos, the grid only delivers 1,000MW to a city of 25 million people. In contrast, Shanghai, with a comparable population, provides more than 30,000MW at peak demand.

To address these issues, Verheijen emphasized the need for policies facilitating reorganization and recapitalization, calling for the involvement of new partners with fresh capital.

While specific details and dates for the plan were not provided, President Bola Tinubu pledged on January 1, 2024, to enhance electricity supply in the West African nation.

The proposed recapitalization is expected to accompany efforts to make electricity tariffs more reflective of costs, a move that aims to enhance the liquidity and viability of the power sector.

Despite the privatization of generation and distribution in 2013, tariffs are currently determined by the Nigeria Electricity Regulatory Commission, a government-controlled entity.

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The sector faces challenges as power firms are restricted from charging adequate fees to cover the costs of electricity distribution, with the government compensating the shortfall as a subsidy to companies in the sector.

Without a tariff review, the devaluation of the naira and escalating inflation could lead to energy subsidies reaching N1.6 trillion in the current year, up from N600 billion in 2023, according to the regulator.