"We cannot continue to operate a system where government agencies become dead beats. They have to pay. Every government agency has a budget for this, they simply don't pay," Power Minister Bart Nnaji told Reuters.
However Nnaji said by October the ministry would have completed the sale of 11 state-owned distribution firms and six generation companies, handing them over to private buyers who can invest to boost supply.
Through privatisation, the ministry is aiming to increase electricity supply from below 4,000 megawatts currently to 6,000 megawatts by year end.
He hopes this will rise to 10,000 megawatts by end-2013 and 40,000 by 2020. Privatisation was supposed to be completed last year and industry experts say the delays mean government power supply projections are too optimistic.
President Goodluck Jonathan laid out plans in 2010 to break up inefficient Power Holding Co of Nigeria (PHCN) and sell off generation and distribution units. But powerful vested interests, such as diesel generator and fuel importers, unions and power contractors, have delayed the sale.
PHCN has never been able to efficiently collect money for the electricity it provides and it is owed 110 billion naira, of which 20 percent is government debts.
The scale of the arrears among government agencies is yet another example of the mismanagement plaguing Nigeria's government. Parliament sent Jonathan a report this week recommending top officials be prosecuted for their part in fuel subsidy graft costing $6.8 billion.
PHCN owes around $500 million to gas suppliers, including Shell and Eni, and because it can't pay its bills, power output is dropping and debts are rising.
HIGHER PRICES
Nigeria holds the world's seventh-largest natural gas reserves but decades of corruption and mismanagement mean it only provides a population of over 160 million with enough electricity to power a medium-size European city.
Economists say solving power problems could launch Nigeria's GDP growth into double-digits and help Africa's second-largest economy diversify from its reliance on oil exports. It would also help alleviate poverty, inequality and unrest.
Jonathan could also garner a lasting legacy and if he chooses to run for re-election in 2015, higher power output would likely boost his campaign hopes.
Yet before privatisation can take place, the power ministry needs higher electricity prices, as current tariffs are not profitable for buyers. Nnaji said charges would be means tested.
"The urban poor and rural dwellers will see a reduction in tariff, the lower to middle class people would see about 11 percent increase in tariff. The rest will pay the actual tariff. A wealthy person would pay about double," Nnaji said.
Nnaji is negotiating with power unions over the 50,000 staff at PHCN who would lose their jobs under privatisation, although he says many would be re-hired by new private owners.
He said thousands of people would lose their jobs permanently and it would cost Nigeria 130 billion naira in severance payments, but it was a necessary step.
"Come what may the government's decision is that it's going to sell the assets and there is no turning around ... The union leadership cannot hold Nigeria hostage," Nnaji said.
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