In a move aimed at increasing local supply, Nigeria’s power regulator has directed the grid operator to reduce supplies to consumers abroad.

The Nigerian Electricity Regulatory Commission (NERC) said in a directive last Friday that the grid operator’s current supply management strategy has severely harmed Nigerians since supply under bilateral contracts—including export to foreign customers—takes precedence over supply to domestic customers.

With effect from May 1, the regulator announced that it would cap the total amount of grid generation accessible to foreign off-takers at 6% for the following six months.

Nigerian power companies have electricity delivery contracts with neighbouring African nations, which provides them with foreign exchange to cover sub-economic tariff revenue. These businesses haven’t always paid their invoices on schedule, though.

Because of a lack of electricity, power outages are frequent in Nigeria, but they have recently gotten worse. Power companies have increased their rates for certain household customers who are expected to receive 20 hours a day or more of power, but the supply cannot keep up with the demand.

Nigerian power companies have bilateral contracts with large domestic users, including industry and government offices, which give them priority supply over normal customers, in addition to agreements with nations like Niger, Togo, and Benin.

The foreign sales cap, according to analysts, may confuse the industry. According to Mikolaj Judson, an analyst with international risk consultancy Control Risks, “operationally, it will require power generation companies to adjust production and distribution, and potentially modify contracts on short notice.”

He added that it will probably make things more difficult financially because it will mean less money coming in from foreign clients and more work for power distribution businesses, many of which already owe big sums to power-producing corporations.

Following the decision on Saturday, the national system’s electricity supply has surged beyond 4,700 megawatts, according to grid service data, after remaining below 3,000 megawatts for a few weeks. On typical days, local customers often receive less than 4000MW.

According to the regulator, off-takers regularly went beyond their agreed levels during peak operations at the expense of other grid users, and current bilateral and international contracts have loose conditions. It further said that penalties for breaking grid rules are not applied.

For 15% of consumers who should have received greater supply but the power companies have not been able to satisfy the stipulated 20 hours, NERC increased prices by 230% last month.

The incapacity of such clients to make timely debt payments may have also played a role in the regulator’s decision to reduce supply to foreign clients.

International consumers owe Nigerian power firms a total of $12.02 million in unpaid debt for services delivered, according to a report released by NERC in the fourth quarter of 2023.

According to the Manufacturers Association of Nigeria (MAN), the ability of local manufacturers to compete on the continent is crucial for obtaining market access under the terms of the African Continental Free Trade Area (AfCFTA) agreement.

The Guided Trade Initiative (GTI) under the AfCFTA has begun with a few countries’ participation, except Nigeria, which is about to sign off for the guided trade, even though the trade deal has not yet fully taken off.

To match businesses and products for import and export between interested state parties who have complied with the minimal requirements for trade under the AfCFTA, GTI was introduced in September 2022.

Nigerian manufacturers have frequently expressed their regret over the different issues limiting the industry’s competitiveness and warned that if these issues are not resolved, their nation will suffer due to the continental trade agreement.

Mr. Segun Ajayi-Kadir, Director-General of MAN, stated that the manufacturing sector lacks the infrastructure and microeconomic support necessary for growth and competitiveness.

He stated: “The manufacturing sector is already beset with multidimensional challenges.

“We now have AfCFTA that allows us to compete around the African continent. But if we are not competitive, and we cannot grow the sector within the country, your guess is as good as mine as to the millage in terms of market access that we should be able to enjoy.

“So, I believe the manufacturing sector has good growth prospects, but it needs supportive policies that would aid its growth in all ramifications.

“What local manufacturers are yearning for are supportive policies that will aid the growth and competitive capacity of the country’s industrial sector in all ramifications,” he added.