Nigeria’s energy crisis killing business - Punch Newspapers

NIGERIA cannot seriously aspire to become an industrial giant, much less a $1 trillion economy, while businesses spend fortunes generating electricity that the economy should be supplying. Fresh reports indicate that manufacturers are paying more than N2,000 per litre for diesel in parts of Lagos and Ogun, while petrol has risen above N1,400 in many petrol stations. For factories dependent on generators because of an unreliable national grid, energy is becoming an existential cost. This is certainly how not to run an economy. The Manufacturers Association of Nigeria says production costs have risen by more than 400 per cent, while energy-related expenses that previously represented about 40 per cent of operating costs have climbed beyond 50 per cent. Manufacturers spent N782 billion on alternative energy in 2023, N1.1 trillion in 2024 and N1.34 trillion in 2025. Indeed, MAN says expenditure during the first half of 2026 was already comparable with the whole of 2025. That is a massive amount of capital being diverted from machinery, expansion, research, employment and productivity into simply keeping machines running. Small businesses are also reeling from the devastating effects of this persistent energy crisis. The Association of Small Business Owners of Nigeria says energy can consume as much as 60 per cent of SME profits, compared with about 40 per cent previously. Its president, Femi Egbesola, says the consequences include higher prices, shrinking margins, reduced production, layoffs and business closures. The human arithmetic behind those statistics is forbidding. A vulcaniser, mechanic, food processor, barber, cold-room operator or small manufacturer cannot simply absorb another increase in diesel or petrol. Yet neither can such businesses indefinitely raise prices when consumers themselves are struggling with falling purchasing power, with inflation hovering around 15 per cent. The result is the vicious cycle now spreading through the economy. Higher energy costs produce higher production costs; higher production costs produce higher prices; higher prices weaken demand; weaker demand reduces production; reduced production destroys margins and jobs; and shrinking businesses further weaken the tax base and economic growth. Even large companies are not immune. An analysis by The PUNCH of the unaudited first-quarter 2026 accounts of listed companies found that 24 firms spent N400.83 billion on diesel, gas and other alternative energy sources in only three months, up from N386.67 billion a year earlier. Companies that separately disclosed electricity expenses recorded an 81.5 per cent increase in those costs. This amounts to an economy-wide productivity tax. A manufacturer in Nigeria must effectively pay twice for electricity: once through the grid and again through diesel, petrol, gas, batteries, maintenance and generator replacement when the grid fails.See more Punch stories on Google.Add Punch on Google The World Bank has estimated that unreliable electricity costs Nigeria billions of dollars annually. Its power-sector assessments have put the economic losses at about $28 billion to $29 billion a year, equivalent to about 8.0 per cent of GDP. Worse, this problem is not new. Nigeria has spent decades promising that electricity reform will deliver reliable power. The 2013 privatisation of generation and distribution was supposed to attract private capital, improve efficiency, reduce losses and make electricity commercially sustainable, according to the Bureau of Public Enterprises. Thirteen years later, the central promise remains substantially unfulfilled. The International Monetary Fund noted that the 2013 privatisation failed to close the sector’s infrastructure financing gap or deliver the expected improvement in service. DisCos struggled to invest, technical and commercial losses remained high, and their inability to meet payment obligations weakened the entire electricity value chain, including generation and gas supply. The problem, therefore, is that privatisation was never accompanied by the institutional discipline, investment, regulation, infrastructure and market liquidity necessary to make the model work. The result has been a sector mired in over N4 trillion debt, which the government is still struggling to address, even as more piles up. The government also failed to ensure that the transmission backbone expanded fast enough. It permitted generation, transmission and distribution to remain trapped in a chain in which weakness at one point crippled the others. The World Bank has previously noted that only 4,000 MW to 4,500 MW of the about 13,600 MW of installed generation capacity is effectively available and that up to 50 per cent of electricity is lost in transmission and distribution. Businesses consequently retreat into private generation at vastly higher costs. Dangote acquires 4,000 machines for refinery expansion N2tn goods unsold as consumer spending falls Foundation presses Tinubu on Federal Audit Service Bill It is a painful irony that a country sitting on enormous energy resources has forced its productive sector to burn imported or expensive refined fuel to manufacture basic goods. As Aliko Dangote put it last week, inadequate electricity and inconsistent government policies remain two of the greatest problems confronting Nigerian businesses. His warning that “you cannot manufacture goods with diesel” captures the absurdity of the present arrangement. The government’s response cannot simply be another tariff adjustment. Cost-reflective electricity is necessary for a viable power market, but consumers cannot reasonably be expected to pay more for electricity while receiving unreliable service. NERC’s own service-based tariff framework links customer bands to specified minimum supply hours, which are still not delivered. The government must stop treating electricity as just another regulatory sector. It is foundational economic infrastructure. Some stakeholder-proposed solutions to this crisis are clear enough. Transmission must receive emergency-level investment, with clear performance targets and public reporting. Generation stranded by inadequate transmission is economically as useless as fuel sitting in a refinery without distribution infrastructure. States should exploit the opportunities created by the Electricity Act to develop industrial microgrids, embedded generation, and captive power systems. Nigeria does not have to wait for the national grid to become perfect before giving industrial clusters reliable electricity. Gas-to-power projects should receive priority, while solar, battery storage and other renewable systems should be supported through targeted tax and financing incentives. Industrial users should be able to move away from diesel without facing prohibitive upfront capital costs. The government must insist on accountability from DisCos and GenCos. Privatisation cannot mean private ownership without corresponding performance obligations. Where contractual obligations are persistently ignored, regulators must enforce penalties and, where necessary, trigger restructuring or ownership changes. The country needs a serious programme for industrial energy finance. Low-cost credit for solar systems, efficient captive generation, batteries and CNG conversion could help businesses escape the diesel trap rather than repeatedly subsidising its consequences. The private sector, for its part, must invest in efficiency and collective solutions. Industrial clusters can pool resources for embedded generation, while manufacturers should explore long-term power purchase agreements, renewable generation and energy-efficiency technologies where commercially viable. Geometric Power in Aba has demonstrated that this is possible. But government cannot outsource its responsibility to entrepreneurs. Nigeria’s official ambition is to build a $1 trillion economy. The Federal Government itself acknowledges that achieving that objective requires rapid, sustained growth, industrialisation, investment and productivity. But those objectives are incompatible with an economy in which manufacturers devote more than half of production costs to energy, listed companies spend hundreds of billions of naira every quarter on alternative power, and small businesses surrender enormous proportions of their profits merely to remain operational. Obviously, Nigeria has an energy problem because the country has normalised generators as infrastructure. For years, entrepreneurs have demonstrated extraordinary resilience by building a parallel electricity system or shadow grid out of diesel generators, petrol engines, solar panels and private power plants amounting to an estimated 40 GW of power at a cost of N15 trillion. But resilience has limits. A business cannot remain globally competitive while carrying the cost of a national infrastructure failure on its balance sheet. Money spent unnecessarily on diesel is unavailable for expansion. Every small business that closes is a lost employer, taxpayer and customer. Every manufacturer that relocates production is a lost industrial capability. Every price increase forced by electricity costs makes Nigerian consumers poorer. And every year this continues, the $1 trillion ambition moves further away from the productive economy required to make it real. The choice is no longer between cheap electricity and expensive electricity. It is between building an electricity system capable of powering industrialisation and continuing to make Nigerian businesses pay for the failure of the one they have. Punch Editorial Board

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