Anozie Awambu
With peak supply capacity of 3,804 Mega Watts (as at August 2010) to a hundred and fifty million people, Nigeria’s per capita electricity consumption remains one of the lowest in the world; only 7% and 3% to those of Brazil and South Africa respectively. Endemic low per capita consumption of electricity has been a cause as well as a consequence of Nigeria’s persistent poor socio-economic performance: The result has been perennial low Gross Domestic Product.
But let us spare economic theories here. There should be no proceeding on esoteric analyses for Nigerians to know that they have been worse off with the poor performance of the country’s electricity sector. These are the aged women and young children in the rural areas who under backbreaking labour forage for firewood and palm kernel fibre for cooking and home lighting. They are dwellers of mega cities in rolling blackouts, inhabitants of the Abujas and Lagoses of this world; struggling men and women of diverse callings, united by their disappointment in their leaders: The Hair-dresser sitting idle because she has not bought a generator, the university student studying with candle light, the nursing mother standing on a kerosene cue. The family, who saved for months, may be years, to buy a generator and continues to spend substantial parts of their income buying petrol for a generator which disturbs the peace of humble neighbours and exposes all nearby lungs to carbon monoxide.
It was, therefore, in the hope for a positive change from this situation that many Nigerians, this author inclusive, waited anxiously for the details of the Roadmap for Power Sector Reform which the Presidency just unveiled in Lagos on Thursday, 26th August 2010. The promise made by the President, Goodluck Jonathan, in is his keynote speech to the unveiling of the Roadmap was profound. President assured Nigerians that the lingering ills in the power sector will be fixed. He guaranteed Nigerians stable power supply by December 2012.
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Unfortunately, several years of bad governance has seared into the genetic makeup of the average Nigerian a psyche of cynicism, such that no new policy is ever welcomed with positive expectations. As a result, even before the Roadmap was unveiled, many Nigerians had classified it as a one of the many past policies that made no positive impact on their lives. But the presidency says that the Roadmap is a ‘revolutionary policy’ and not business as usual.
This article therefore examines the prospects for the success of the reforms. It conducts a critical analysis of the major provisions of the Roadmap to test whether Nigerians should indeed be as optimistic as the presidency with the Roadmap for power sector reforms. Overview of the Roadmap The Roadmap for Power Sector Reform (hereinafter ‘Roadmap’) is a set of policy plans for engendering a reliable electricity sector which guarantees stable power supply to Nigerian homes and businesses. It was put together by the Presidential Action Committee on Power (PACP), headed by the President himself, to which another committee, the Presidential Task Force on Power (PTFP) is its think-tank. The PTFP developed the Roadmap and also has the responsibility for monitoring its implementation.
The Roadmap does not, in essence, introduce new policies but rather sets strategies to accelerate actions for achieving the objectives of the National Electric Power Policy (2002), as enshrined in the Electric Power Sector Reform Act (EPSRA)2005, at the heart of which is creating a private-sector-driven electricity industry. This set of actions prescribed by the Roadmap covers two cardinal objectives: To fulfil the imperatives of the EPSRA 2005 and; to improve service delivery during the transition period of the reform agenda, in essence, that Nigerians will begin to see the benefits of the reform even as it is being implemented.
Towards fulfilling the imperatives of the EPSRA 2005, the Roadmap outlines actions on the following strategies: (i) removing the existing obstacles to private investment; (ii) setting a clearer strategy for divestiture of 17 out of the 18 successor-companies to PHCN and; (iii) reforming the fuel-to-power sector, that is, reforming policies at the upstream energy sector which affect power generation, especially gas. The Analyses in this article are on the major steps outlined for achieving the above three strategies.
Key Provisions of the Roadmap 1. Increase in Electricity Price Nigerians should expect an upwards change in the price of electricity in the coming months. As one of the steps towards removing obstacles to private sector investment, the Roadmap outlines the establishment of a commercially viable electricity pricing regime which will be cost reflective. This pricing regime is expected to come into effect anytime from the first quarter of 2011.
The uniform price of electricity which currently stands at N8.5/kWH (per kilowatt hour) will be replaced with a ‘cost reflective’ tariff regime where prices will vary according to whether the consumption is for residential, commercial or industrial purpose. Consumers will pay for power according to the cost borne by the various generating plants which supplies to them. In essence, government subsidy will be removed and there will be some measure of market system, such that end-use prices will be determined by production cost and not by a regulated or ‘levelised’ rate. It is estimated by the Roadmap that under the in-coming pricing regime, average tariff will be about N22/kWH that is, about 250% increase from what is currently paid by consumers.
This step was formulated on the premises that only such a commercially viable pricing regime can attract private investment. But question is, how credible is this argument and how does the implementation of such policy affect the common Nigerian? On one end of the spectrum, it can be argued that Nigerians are better-off with the price increase.
Statistics with which the PTFP worked have it that, though current electricity rate is N8.5/kWH, the poorest Nigerian spends about N80/kWH burning candles and kerosene, whilst the average Nigerian spends N50-70kWH on diesel and petrol for generators, not to talk of the hazards to carbon monoxide from such alternatives. Therefore, the increase to a price somewhere in the region of N22/kWH is a better bargain. On macroeconomic considerations too, this argument can further be stretched: The lost GDP as a result of low electricity consumption far outweighs the higher cost to be paid for electricity, if paying that high cost would make power available.
But on the other end of the spectrum there is equally a macroeconomic consideration which defeats the argument in favour of price increase. It is the argument which derives from the bare fact that the purchasing power of the average Nigerian is quite weak in relation to N22/kWH. Those who pay relatively higher kilowatts rate on generators, candles and kerosene mainly do so at the peak demand times in their homes or businesses, not all the time. But in the anticipated reforms, private investors are expected to run their generating plants all the time – at base demand periods and at peak demand periods. This will cause some redundant capacity as is inherent in electricity. Without any subsidy from government the masses might be unable to pay such cost reflective rates covering unused and used capacities at base and peak demand periods. This is an investment risk which a prudent private investor would not be prepared to take, especially when the investment will be financed by banks.
More so, electricity being a derived demand, a commodity on which the use of many other products depend, increase in its price will mean increase in the variable cost of virtually all assets, every production and service process, and will lead to cost optimisation of all goods and services in the country, causing an outrageous distortion in market equilibrium. This makes the environment even more risky for the investors. It is one important factor which the framers of Roadmap did not avert their minds to or deliberately decided to ignore.
Largely still, Nigeria is an underdeveloped electricity sector. If our policy makers want things to work, this author is of the opinion that government should still remain in the gap between actual cost of power and what consumers can pay. Whilst it is conceded that subsidy may be a source of fiscal strain to a country, it is necessary in a developing economy like ours. The major problem we have had with government spending in the power sector is that the money ends up in the wrong pockets. It is remarkable that the Roadmap did not mention elimination of corruption as one step that needs to be taken. Such omission renders the Roadmap suspect.
