When you first arrive in Lagos, the noise of Africa’s
largest city is overwhelming. Horns blare in the endless
traffic, vendors bark at passersby, clubs blast music onto the
streets, and churches and mosques appeal to the faithful around
the clock from public loudspeakers. Worried that the din is
damaging the health of the city’s 17 million inhabitants,
the state government recently launched a crackdown, closing
more than 100 clubs, hotels and places of worship earlier this
year.
There is another, more insidious sound that you gradually
notice once you’ve been on the ground. It’s a
low-level hum, the chorus of the thousands of diesel generators
that keep the city going in the face of a chronic electricity
shortage. At shopping malls and hotels, generators the size of
shipping crates sit in parking lots, often secured in locked
cages; on the streets people carry briefcase-size models. At
outdoor markets such generators are passed from stall to stall
as the need arises, which is often: Nigeria gets an average of
three hours of electricity a day from the national grid,
usually in short bursts. The average Nigerian uses barely one
hundredth as much electric power as the average American —
just enough to keep a lightbulb on. When the grid goes dark,
the generators fire up with a loud roar before settling into a
steady background drone.
Solving the power shortage is arguably the biggest
development challenge for Nigeria, and for much of the African
continent. Now, after years of talk, there are glimmers of
progress. In a field of red dirt halfway between Lagos and the
country’s main oil and gas fields, a consortium of local
and international investors is building a gas-fired plant. The
$877 million Azura-Edo Independent Power Project, as it’s
called, is modest in scale, with an expected generating
capacity of 459 megawatts when it comes on line in 2018. (By
comparison, China installed 33 times as much capacity just in
solar power last year.) Yet the project, which brings together
an array of Nigerian entrepreneurs, foreign infrastructure
investors and multilateral development banks, promises to have
a much bigger impact by creating a financial and regulatory
model that can be replicated elsewhere.
The principal equity investors include Amaya Capital, a
Mauritius-based firm founded in 2008 to invest in energy
projects in West Africa; American Capital Energy &
Infrastructure, an Annapolis, Maryland–based private
equity fund headed by Paul Hanrahan, former CEO of U.S. utility
operator AES Corp.; and Aldwych International, a British
developer of African power projects. A variety of public and
private lenders are providing $622 million of debt finance.
They include International Finance Corp., the for-profit
lending arm of the World Bank, and Netherlands Development
Finance Co.; such foreign banks as Standard Chartered and South
Africa’s Rand Merchant Bank; and Nigeria’s
state-owned Bank of Industry, which is providing funds in naira
to cover the project’s local currency costs. The World
Bank Group has provided a political risk guarantee that has
been crucial for attracting private investors.
“This transaction has managed to get about 20 investors
comfortable with participating in the Nigerian power sector,
and we expect most of them will look at more
transactions,” says Richard Arkutu, manager of the
IFC’s Africa Special Initiative for Infrastructure.
Indeed, some of the participants in the Azura-Edo plant have
been working to get a similar project, a 550-MW plant in the
country’s oil-producing Niger Delta region, off the
ground; the backers are already in negotiations to sell the
project to Black Rhino Group, a Blackstone Group vehicle
created to develop infrastructure projects in Africa. Black
Rhino hopes to reach a gas-supply agreement with the government
and begin construction later this year.
Extending power in Nigeria, Africa’s largest country,
will be a major achievement. Roughly 42 percent of the
population of 180 million has no access to the electricity
grid. Such collaborative efforts could have a far wider impact
across the continent, where the needs are, if anything, even
greater: The World Bank estimates that as many as 600 million
of Africa’s 1 billion people lack access to electricity.
The
Power Africa initiative, launched by President Barack Obama
at a Washington summit meeting two years ago, set a target of
adding 30,000 MW of new generating capacity across the
continent and connecting 60 million more homes and businesses
to the grid by 2030. Overseas Private Investment Corp. (OPIC),
a U.S. government agency that’s playing a key role in
Power Africa, has provided $50 million in loans to the
Azura-Edo plant. The hope is that when enough power plants are
built, grids rehabilitated and payment-collection systems
overhauled, investors will no longer ask for help before
committing to build. The result will be more power, more jobs,
faster growth and higher living standards.
“Power is the missing link in Nigeria,” says Brian
Herlihy, CEO of Black Rhino. “It’s going to create
huge productivity gains once it’s there.”
The country badly needs the push that projects like the
Azura-Edo plant can provide.
Muhammadu Buhari generated high hopes for change last year
when he became the first challenger in the country’s
history to defeat an incumbent president in an election, but
Nigeria’s woes have intensified since he took office in
May 2015. The collapse in global oil prices has undermined the
country’s biggest source of hard currency earnings and
government revenue. Exports plunged by 40 percent last year,
pushing the current account from a slight surplus to a deficit
of 2.4 percent of gross domestic product and causing the
government budget deficit to double, to 3.7 percent of GDP. The
Central Bank of Nigeria initially spent a chunk of its foreign
reserves to defend the naira, then let the currency depreciate
by about 20 percent in late 2014 and early 2015 before
targeting a fixed exchange rate of 199 to the dollar and
imposing capital controls in April 2015.
Oil production has fallen further in recent months, touching
a 22-year low of about 1.7 million barrels a day in early May,
because of a resurgence in violence by militant groups in the
Niger Delta region. These groups had been quiet in recent years
thanks to an amnesty program that provided stipends and job
training, and a government initiative that gave them security
contracts to guard the pipelines they used to attack. But
Buhari has adopted a harder line, canceling the security
contracts, cutting funding for the amnesty program and
prosecuting a former rebel leader known as Tompolo, who may be
linked to the Niger Delta Avengers, the group behind several
recent bombings.
Contrary to the advice of the International Monetary Fund,
Nigeria refuses to let its currency float and has rebuffed the
Fund’s offers of financial assistance. Finance Minister
Kemi Adeosun defended the government’s stance at a panel
discussion during the IMF’s spring meetings in Washington.
“If we are sick, we have our own local medicine,” she
told the audience. IMF deputy managing director Mitsuhiro
Furusawa responded: “We aim to be a good doctor to you.
It’s better to have many doctors.”
Buhari has introduced some much-needed reforms, notably at
Nigerian National Petroleum Corp., the state’s famously
opaque oil arm. When Lamido Sanusi, former governor of the
central bank, alleged two years ago that NNPC had failed to
turn over nearly $20 billion in revenue to the Treasury, he was
removed from office by then-president
Goodluck Jonathan. Buhari has injected transparency into
the oil company. It now publishes a monthly newsletter with
production and revenue updates. A full audit and annual report,
the first since 2005, are expected later this year, says
Alexandra Gillies, director of governance at the George
Soros–funded Natural Resource Governance Institute. The
president has led a military campaign to reduce terrorist group
Boko Haram’s impact and has consolidated cash from the
various bank accounts held by ministries and other agencies
into a single one at the Central Bank of Nigeria, making
financial flows easier to track.
But in many areas the pace of change is slow because Buhari
appears reluctant to delegate matters to anyone he doesn’t
trust, says Soji Apampa, a businessman who helped found a
Nigerian anticorruption group called the Convention on Business
Integrity. If the president has a wider plan beyond intervening
in areas where he sees a need, he has yet to share it.
“The campaign machine repackaged someone considered to be
a brutal old soldier into the statesman Nigerians sought, but
he seems to have jettisoned that persona,” Apampa says.
Instead, Buhari is now popularly known as Baba Go Slow, a play
on the term Nigerians use to describe traffic jams.
Nigeria’s electric plants have the
capacity to generate up to 6,000 MW of electricity, or
about 80 percent of what it takes to power Los Angeles. The
system rarely runs at full capacity, though, typically
generating less than 3,000 MW. Dilapidated power plants and an
aging and inefficient power grid are major shortcomings.
Roughly 35 percent of the power generated is either lost in
transmission or effectively given away. Distributors in many
cases either fail to bill customers accurately or can’t
collect payment from them, a problem common to much of Africa
as well as to other developing countries, such as India. In
addition, the state regulator usually sets tariffs at levels
too low to leave room for investment, even if the operators
could collect all their revenue. Unpaid bills pile up, usually
on the balance sheets of state-owned utilities, crippling their
ability to borrow or attract outside investment.