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Time to solve Nigeria’s electricity challenge

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 With the conduct of the governorship and houses of assembly elections on March 9, the curtains are being drawn on politics and preparation for governance should begin in earnest. For the Buhari regime, the next four years will give it opportunity to correct mistakes of the past and solve Nigeria’s most existential problems.

One of such problems is fixing the power sector. More than five years after the privatisation of the sector, there has been no noticeable improvement in the power situation in the country and almost all analysts of the sector are in agreement that the privatisation of the sector is yet to translate to power for consumers.

Last time out, the minister of power, works and housing, Babatunde Fashola, sought to absolve government of blame saying since the sector has been privatised and so it is no longer the responsibility of the government to supply electricity. While this is technically true, the honourable minister knows it is not the entire truth and he was only playing politics with the issue.

Despite the privatisation of the sector, the government has refused to let go, bugging the sector down with over-regulation and tariff caps that discourage investments and continues to keep Nigerians in darkness. There is nowhere in the world where you ask a company to sell its product below cost price without appropriate subsidy to make up the cost and provide profit for the producer.

The same government that now wants us to believe it is not responsible for power outages is still the same government that has put an arbitrary cap on tariffs, forcing the Discos to sell electricity below the cost price of producing it, making power generation and distribution much more expensive than what is being charged.

We believe the government took this route for populist and political reasons; not to be seen to be increasing or allowing the Discos increase power tariffs, especially close to election time. Now that the elections are over, it is the right time to allow proper costing of power and the review of electricity tariffs to reflect the cost of production of electricity.

 

The cost reflective is good for Nigeria on several fronts. The obvious advantage is that it will enhance power delivery as it will enable distribution companies (discos) pay the generation companies (gencos) for power generated. Gencos too will be able to pay gas suppliers to enable them generate more power. Besides it will also enable both the discos and gencos to make more investments in their networks and in power generation. Gas suppliers also will be able to invest in more gas production. Similarly, it will enable the Transmission Company of Nigeria (TCN) to strengthen their weak transmission lines so that they can be able to evacuate more power.

We understand the misgivings of many Nigerians and especially the labour unions who are arguing that there should be an improvement in power supply before the tariff increases take effect. In fact, in a normal market economy, that should be the order. Payments are made for services delivered and not promises. However, the unique problem with the power sector is that without a cost reflective tariff plan, it is difficult to secure funding with which the needed investments that will guarantee regular power supply can be made. The banks are generally not willing to fund projects without a clear cut recovery price.

 

The situation in the power sector mirrors the situation in the oil and gas sector where several dozen licences have been issued for the construction of refineries since 2003 and yet no refinery has been built. The simple reason was that banks – who were the major financiers of the projects – refused to finance the building of refineries without a proper pricing of petrol and diesel. Nigerians, on their part, refused to allow for the removal of subsidy and for petrol to be sold at market price. The effect was that for more than 20 years after the return of civil democratic governance and the determination of the government to make Nigeria self-sufficient in refined petrol, the country still continues to import almost all its refined petrol spending billions of dollars in the process. What is more, billions of dollars – monies that could have built several refineries many times over – have been spent on subsidising of petrol. Nigerians must not allow the same thing to happen again with the electricity sector.

 

The need for regular power supply cannot be over-emphasised. The multiplier effect on the economy – job creation, businesses and improvement in the quality of life of the people – are too obvious to ignore. With the privatisation of the distribution and generation companies, a progressive tariff plan that adequately reflects the cost of generation of electricity is required to get banks and other investors to finance the massive investments in generation and transmission of electricity that Nigerians demand.

 

 

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