It’s an honour for me to be here today for the first high-level gathering under President Adesina’s leadership. When I heard him give his inaugural address a few weeks ago, during which he stated that expanding access to electric power to millions of Africans was one of the cornerstones of his first term, I was very pleased and encouraged. The speed with which he has now set out to implement this vision for Africa’s power sector is a testament to how central this issue is for Africa’s overall economic transformation.
My role here today is to provide the private sector perspective on Africa’s power deficit and offer suggestions as to how business can play its part in expanding access to electricity across the continent.
My point of view is shaped by my experience as a banker, entrepreneur, and investor and through my active participation in several formal efforts to accelerate a resolution to this critical challenge. On the national level I serve as the chairman of the association of power generation companies, at the continental level as founding co-chair of the Africa Energy Leaders Group, and at the global level as a board member of the UNSG and World Bank President’s Sustainable Energy for All Initiative. I have also testified to the US Senate on the Electrify Africa Act to provide the African voice, and have addressed the UN General Assembly on the importance of energy as a development priority as part of the new Sustainable Development Goals.
During the power sector privatization in Nigeria, we took a strategic decision to invest in a big way in the Nigerian – and eventually African – power sector. This was driven by our confidence that the sector had the potential for a great financial return, while it would also contribute significantly to Africa’s economic and social transformation.
So, very much at the sweet spot for my investment philosophy of Africapitalism.
We entered the space with such confidence, that in July 2013, I made a commitment to President Obama’s Power Africa initiative that we would invest $2.5 billion in the sector.
This bold commitment started becoming a reality when we invested in a 1000MW capacity gas generated power plant in Ughelli, Delta State in late 2013. The plant was acquired from the Nigerian government as part of the power privatization process by Transcorp, a listed Nigerian conglomerate that I chair.
When we acquired the plant from the government in November 2013, it was generating only 160 MW – a fraction of its installed capacity of 1000MW. Within one month, generation capacity was increased to 340MW and by the end of 2014 we were generating 610MW. This represents a 78% increase year-over-year and a 300% increase from takeover.
What we saw in play was the best that the private sector had to offer and the great potential the power sector in Nigeria had to generate a healthy return while creating social impact.
Our strategic intent was to increase the capacity of the plant to 2500 MW in partnership with GE and others over a three year period. This and other targeted acquisitions were set to fulfill the bold Power Africa commitment.
However, what started brightly has now been stalled significantly. Today, the plant can generate up to 850MW, though due to various issues in the power sector ranging from gas supply, to transmission capacity, to offtake payments, the average output is about 350 MW.
These issues have also forced us as investors to put on hold our ambitious expansion plans, essentially meaning there is about $1.5 billion that is still waiting to be deployed. Not because Nigeria does not desperately need more power – but because at the end of the day we are not a charity and if the potential for profits are threatened by government stumbling blocks, as investors we must pause.
Let’s now step back to put all this in perspective. Fifty percent of people in the world living without power reside here in Africa.
In sub-Saharan Africa, that’s 600 million people without access to electricity.
The installed electricity capacity in all of Sub-Saharan Africa, excluding South Africa, is only 28,000 megawatts, which is equal to the capacity in a single country – Argentina.
Perhaps most disconcerting is that despite a sustained focus on addressing this challenge by many stakeholders, in 37 sub-Saharan African countries the number of people without electricity has actuallyincreased since 2000 as their populations are growing faster than electrification efforts.
Adding insult to injury, one-quarter of Africa’s existing electric generation capacity is inoperative because of aging plants and poor maintenance.
The power deficit is not an abstraction. The lack of reliable energy in Africa costs lives: 730 million people in sub-Saharan Africa heat their homes and cook using traditional fuels such as wood, charcoal, and other types of biomass. Studies have shown that inhalation of the smoke and fumes results in an estimated four million deaths per year, mainly among women and children. That’s more deaths than from malaria and HIV/AIDS combined.
The impact of the energy deficit can be repeated in sector after sector – from healthcare to education, and, to something I am particularly passionate about – the ability of entrepreneurs to turn dreams in to reality in the face of exorbitant power costs.
On the flip side, increased power supply can have a massive impact on addressing the current youth job crisis in Africa. If African industries can operate at full capacity and compete globally, tens of millions of new jobs will be created across the continent. In addition, the power sector itself can generate 3 million new jobs.
The size and scope of the challenge we face is clear: whatever has been done in the past to electrify the continent is insufficient. We need new players, new partnerships, new policies, and new platforms to succeed – and what President Adesina is introducing here will help provide some much needed impetus.
Power and the Private Sector
It is my strong belief that the private sector must be an integral part of Africa’s energy future. To begin to address this problem, 7,000 MW of new generation capacity must be built each year—seven times the annual average of the last 10 years – which equates to US$300 billion in investment if sub-Saharan Africa is to achieve the previously agreed upon goal of universal electricity access by 2030. Only the private sector has the capital and the capacity to invest at such a scale over a sustained period of time.
As an investor in the power sector, there are a number of practical points I would like to make.
First, as can be seen from our Transcorp Power experience, capital is not the issue. We have capital to deploy, but due to government policy, non-payment of offtake agreements, poor transmission infrastructure and other issues, we have had to put expansion on hold. This is the case faced by many other investors like myself. With the right frameworks in place, the capital will follow. Even more importantly, success begets success and other investors will follow.
Second, considering the scale of the energy deficit, we cannot put too much emphasis on renewable energy as opposed to more traditional power generation sources. Africa has an abundance of sources for renewable and non-renewable energy and so we should use both in abundance as and when appropriate. As Africa contributes to less than 2% of global carbon emissions, it is not right to push Africa towards a low carbon development path considering the social and economic cost of insufficient power supply. Any solution, and any platform to address the African energy deficit must include all types of power generation if we are to really make an impact at the scale required.
Third, we need less political interference in the power sector. In the early days of the telecommunications liberalization across Africa, for the most part governments did not mandate tariffs. While the costs were initially exorbitant, over time market forces led to an adjustments so that, for example, instead of paying large sums for SIM cards, they are now given out for free. The power sector should be reformed with a similar approach.
Fourth, and finally, I call on the African Development Bank to play a bigger role in Africa’s power sector than capital provision. The AfDB provides a unique and powerful pan African convening platform and bully pulpit that can be leveraged for greater effect across Africa.
The bottom line is that hundreds of millions of Africans need more from all of us if they expect to have consistent access to electricity in their life time. And it will take a concerted effort by government, business, international organizations, and NGOs alike to make it happen.
The barriers to developing the energy sector in Africa are not just about money and skills but also a lack of political will. Public leaders need to be willing to make the hard choices, and learn from successful privatization and liberalization processes in the past. This is something that the AfDB is uniquely suited to address.
And all of us need to work together, regardless of whether we are in the private, public, and social sector, and regardless of what type of development path we believe is best for Africa.
Despite the challenges we face to bring power to millions of Africans, I am hopeful. What we have been able to achieve with the Ughelli plant in a short period of time is encouraging. But it is also emblematic of the amount of work that is left to be done.
We are all fortunate to have the leadership of President Adesina bringing us together in a forum like this to find lasting solutions for the short and long term benefit of all Africans. This seemingly insurmountable task for Africa is achievable so let’s work together to create the Africa of our dreams.
And to President Adesina – success with the power sector is success in enabling Africa to assume its rightful position in the comity of nations.
Good luck. The African private sector is ready to work with you to make this a reality.