REUTERS - Nigeria's biggest power station shows the huge problems that President Muhammadu Buhari must overcome if he is to fulfil his promise to tackle chronic electricity shortages and reform an economy in recession.

On the outskirts of Lagos, three out of six turbines lie idle at the Egbin plant, starved both of gas due to militant attacks on pipelines that supply the station - and of funds that would allow its owners to buy alternative fuels and even implement an expansion plan.

Buhari won last year's presidential election with pledges to increase power capacity exponentially during his four-year term and meet the demands of Nigeria's 180 million people entirely within a decade.

But an upsurge of the attacks in the Niger Delta and acute foreign currency shortages are frustrating his ambitions, along with older problems of back payments owed by the federal government to power station operators and an ageing power grid.

Buhari wants to diversify the economy away from oil, sales of which account for two thirds of government revenue. But frequent power cuts and soaring fuel costs are forcing many manufacturers to shrink, not expand their businesses. This, along with falling crude production at a time of low global prices, is deepening Nigeria's first recession in 25 years.

One such factory owner is Reginald Odiah, managing director of Bennet Industries which makes light fittings in Lagos.

Odiah, who set up the company in 1984, said he can no longer run his factory on the mains supply and instead has to use his own generators running on imported diesel, the price of which has soared due to a dive in the Nigerian naira currency.

"It makes me sick. It has run my business down," he told Reuters, adding that his power costs have risen by around 50 percent over the last year. "If it continues the way it is going, we may have to close."

Since January, Odiah has slashed his workforce from 150 to 18 and cut output to just three days a week. Now the factory switches to the generators for production runs because the national grid "fails you without notice", he said, complaining of power cuts up to 10 times a day.

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RENEWABLE ENERGY STRATEGY

In the summer, the government agreed a ceasefire with the main militant groups in the Niger Delta. But with attacks resuming, it is unclear whether this will hold, highlighting the need to avoid relying so heavily on gas from the region.

Fashola said the long-term diversification plan is to develop a network of power plants funded by private investors, with a focus on solar power, hydro-electricity and wind farms.

Nigeria sealed its first solar power purchase deals in July, and has also signed agreements with the World Bank to add more than 500 MW of generating capacity.

The government needs $150 million of investment to provide electricity in rural areas alone through nine new gas and 28 solar plants with a combined capacity of 128 MW, Fashola said.

But even if Egbin and other plants operated at full tilt, the dilapidated transmission network could not handle the power. Rolake Akinkugbe, head of energy and natural resources at FBN Capital, said it "requires significant rehabilitation at least, due to system losses which result in up to 40 percent wastage".

Experts estimate it would take $2.3 billion a year for a decade to expand grid access, which could probably be achieved only by partial or full privatisation. As yet the government has announced no clear plans to update the grid or attract private investment by selling the transmission company. ($1 = 304.5000 naira) (Additional reporting by Anamesere Igboeroteonwu in Onitsha; Writing by Alexis Akwagyiram; editing by David Stamp).

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