*Gencos, Discos, others to fund plan, as government hold out for capital subsidy
To meet its national target of providing electricity to all its citizens currently without any by 2040, Nigeria will need about N1.4 trillion, a federal government Rural Electrification Strategy and Implementation Plan, has disclosed.
Contents of the strategy document which OGN obtained in Abuja, stated that within the periods 2020 and 2040 the government will attempt to achieve electrification rates of 75 and 100 per cents respectively, requiring N525.8 billion and N1.4 trillion as well.
But this cost would also include the operational costs of the Rural Electrification Agency (REA), an agency of the government set up to manage Nigeria’s rural electrification processes.
It equally explained that the funding expected to be domiciled in a shielded rural electrification fund, would be contributed by a combination of sources comprising governments (federal, state, and local); companies in Nigeria; international donors and development banks; commercial banks (both domestic and foreign); and equity investors amongst others.
It also talked about the government emphasising on a shift away from subsidy on consumption of electricity, to subsidizing initial capital costs for investments in power production, especially renewable energy projects.
In it, rural electrification demand is projected to rise to 6038.1 megawatts (MW) by 2020, while 513,000 new rural households are expected to be connected to electricity every year until 2040 to meet electrification target.
“Achieving an electrification rate of 75% by 2020, in accordance with the stated government policies, will require a massive effort. It will involve extending service to an additional 1.1 million rural households each year from 2015 to 2020. To reach the target of 100% electrification by 2040, 513,000 new rural household connections must be made each year from 2020 to 2040.
“The cost of reaching these targets will be comprised of the cost of the rural electrification (RE) schemes themselves, and the cost of operating the REA. The cost of establishing RE schemes to reach the 2020 target will range from NGN311 billion to NGN519 billion. To reach the 2040 target of universal access, an additional NGN484 billion to NGN807 billion will have to be spent on rural electrification schemes in the subsequent 20-year period,” said the strategy document.
It then explained: “The cost of administering the REA will be an estimated NGN6.8 billion (total) for the period 2015-2020, and NGN23.2 billion (total) for the period 2020-2040.”
“Achieving the 2020 target of 75% electrification will require between NGN317.8 billion and NGN525.8 billion for administration and project costs combined. To reach 100% electrification by 2040, an additional NGN507.2 billion to NGN 830.2 billion will be required. The cumulative total of funding required to reach universal electrification by 2040 will be between NGN825 billion and NGN1.4 trillion,” it added.
Diverse funding sources
Considering Nigeria’s age long peculiar challenges of funding rural electrification projects, the document noted that a systematic plan had been created to ensure constant financial contributions to meet the target.
Governments; Discos; Gencos; donors and development partners; as well as commercial banks would be encouraged to contribute to the pool, the document noted.
It explained: “The required funding and investment will come from a combination of sources including the FGN, other Nigerian Government entities (e.g., State and Local Governments, relevant Ministries), electricity companies and customers, international donors and development banks, commercial banks (both domestic and foreign), RE scheme operators and customers (i.e., end- users), and equity investors.”
“The design of the Rural Electrification Fund (REF) and regulations for RE schemes were made specifically to encourage participation and funding contributions by a broad range of stakeholders. In its administration of the REF, the REA will strive to maintain transparency and accountability in its management and allocation of funds.
“The FGN and the REA in particular will endeavour to secure sufficient funds required to reach the government’s electrification targets. REA is to develop a comprehensive implementation plan giving details of projects to be implemented and the budgetary requirements,” it stated.