One of the topics of national discourse that has recently dominated the polity within the past three weeks or thereabouts is none other than the issue of the hike in electricity tariff. In what many Nigerians perceptibly see as a harsh economic decision, the Federal Government declared a hike in electricity tariff. After a meeting with relevant stakeholders in the power sector, the regulatory body of the sector, Nigerian Electricity Regulatory Commission (NERC), announced what it called “Service Reflective Tariff,” which took effect on September 1, 2020. By that announcement from NERC, electricity tariff was successfully increased from N30.23 for 1kWh (kilowatt unit of energy per hour) to N62.33 per kWh, about a 100 per cent tariff increment.
However, on the public backlash of this policy, the government’s publicists argued that the tariff was only applicable to people that enjoyed a minimum of 12 hours’ power supply a day. In the classification of electricity consumers, NERC grouped them as: Band A users (20 hours), Band B users (16 hours), Band C users (12 hours), Band D users (eight hours), and Band E users (four hours). Consequently, by the government’s argument, the tariff increment is targeted at those who fall between the range of Band A, B, and C users, with Band D and E not included. Apparently, since the announcement and implementation of this new policy direction, many arguments have been made for the pros and cons. This article attempts to chart the way forward.
Coming at a time when many Nigerians are gasping to survive the economic hardship engendered by the COVID-19 pandemic, undoubtedly so, this new policy statement has not been a cheering one, to say the least. On the part of the government, however, many reasons have been given as to why the implementation of this policy would benefit the country in the long run, but are Nigerians buying into it? To many Nigerians, the Federal Government should have borrowed a leaf from the Ghanaian government that absorbed the cost of electricity and water supply for her people to enjoy for free without paying any bill for more than three months.
In this 21st century, it is needless to say that any nation desirous of economic development must, as a matter of necessity, make the power sector a priority. The power sector, economically speaking, is one of the most critical sectors of our economy that, if well harnessed, have the potential of propelling Nigeria to an enviable economic position in the comity of nations. Sadly though, the level of “cabalistic corruption” and inefficiency of companies within the value chain of this sector, coupled with ongoing government policy summersault, has seen the industry instead become a retardative force against the country’s economic development. But how do we pull out from this problem of the erratic power supply?
Starting with President Olusegun Obasanjo’s administration, successive Nigerian governments have implemented different policies, all hoping to reform the power sector. The National Electric Power Authority (NEPA) was notoriously seen as a lagging and inefficient government agency that Nigeria needed to get rid of if power supply must improve. Hence, through the National Electric Power Sector Reform Act of 2005, the Power Holding Company of Nigeria was established to replace NEPA. The PHCN was later unbundled by the Obasanjo government into 18 successor companies. Then, under President Goodluck Jonathan’s administration, the Federal Government’s majority stake in the 18 companies was subsequently withdrawn, with the unbundling of PHCN into this shape: six generation vompanies (GenCos), 11 distribution companies (DisCos), and the Transmission Company that is wholly owned by the Nigerian government. Nonetheless, despite the humongous amounts of money that government has poured into reforming the power sector, there is no yet much corresponding result to show for it. At this point, suffice it to say, government’s policies towards reforming the sector have, in any case, not been holistic. They are, in fact, rather treating the symptoms, instead of the disease.
One of the fundamental problems of Nigeria’s power sector is the generation and distribution of power. According to the United States Agency for International Development (USAID) April 2020 publication, GenCos generate about 4,000 megawatts, out of which about 500 megawatts are sent across to Niger Republic, Togo and Ajaokuta Steel, meaning that about 3,500 megawatts are left for the DisCos to distribute among Nigerians for local consumption. By implication, these number of megawatts, of course, are too meager to accelerate any kind of meaningful economic development, especially when you take into consideration that we are a country of about 200 million population.
Now, going by the 3,500 megawatts that GenCos generate, it would mean that, if the electricity tariff is hypothetically charged at N32 per kWh, it should be yielding about N80.5 billion monthly. On the contrary, the low revenue collection and other weak technical facilities mean that Nigeria loses about N4 billion monthly, according to a report by Business Day newspaper. The Minister of Finance, Zainab Ahmed, at a different forum, stated that the country loses over $1 billion annually due to technical and commercial inefficiencies along the electrification value chain. She said this while appreciating the $2 billion Siemens partnership deal with Nigeria to improve the power sector. If put differently, instructively, it means that DisCos’ revenue generation is not commensurate with the amount of power distributed.
Worst still, notwithstanding the poor performance of the DisCos in revenue generation, the Federal Government has pumped billions of dollars into the power sector, even when the DisCos have incompetently underperformed. Speaking in 2019 at a power sector roundtable meeting hosted by Mainstream Energy Solutions Limited (MESL) at its Kainji Hydropower Plant in Niger State, Vice President Yemi Osinbajo, who was represented by the Minister of Power, Sale Mamman, stated thus: “The Federal Executive Council recently approved the third round of intervention funding for the power sector, with a total of about N1.5 trillion in the last two years.”
Fundamentally, revenue loss in the power sector can be attributed to the inability of the DisCos to fully meter all electricity consumers. According to data released by the NERC, out of 10,374,597 registered electricity consumers, only 3,918,322, an approximate representation of 37.77 per cent, have been metered at the end of the fourth quarter of 2019. This is to say that about 62.37 per cent of consumers are still on estimated billing. Similarly, according to the DisCos, out of the four million metered customers, 5 per cent of the meters are old, obsolete, and compromised.
With the epileptic power situation in Nigeria, in essence, the recent hike in electricity tariff would mean that the government is shifting the cost of inefficiency of DisCos and other companies in the value chain to the final consumers. Again, it means that the government, through the DisCos, wants to increase marginal revenue, even when the supply of the product has not met demands.
In simple economic reasoning, a tariff should only be obtainable when supply meets demand, then you can charge tariff on demand to sustain supply. Thus, since the supply of power has not met demand, there is really no reason to surcharge tariff. No doubt, the disparity between the supply and demand of electricity in Nigeria is an indication that the power sector still has enormous room for growth.
Going further, the gross inefficiency of the DisCos in power distribution and revenue loss, in many quarters, raises an eyebrow about the privatisation process that brought them on board. Consequently, there might be a need for the Federal Government to review the privatisation of these DisCos and to check if they have the capabilities for power distribution. From our experience in privatisation, even when we have been pressurised to do so by the Washington consensus institutions, with the objectives that it will liberalise our economy, it has proven to be futile. In times past, many of the country’s national assets have been clandestinely handed over to cronies of top government officials under the disguise of privatisation.
In so far as privatisation is not in any way a bad economic decision, the prerequisite for a desirable result in it becomes problematic to Nigeria. According to a foremost development economist and Nobel laurate, Joseph Stiglitz, transparency and strong regulatory body are part of the major preconditions for successful privatisation. Perhaps, this is what has been lacking in our privatisation processes.
Given the fact that poor generation is the bane of Nigeria’s power supply, any attempt to reform the power sector must begin with diversifying the country’s sources of power generation. Attention, indeed, must be shifted to other technologically innovative ideas of generating power, aside from hydro. Many African countries who appear to be getting it right in their power sector are moving to other alternative sources of renewable energy like solar, wind and gas, et cetera. Ghana, for instance, aside from privatising her electricity company, embarked on a rapid expansion of power generation to overcome regular power shortages. Today, going by the capacity of the installed power plants, the power generating capacity of Ghana stands at about 5,080 megawatts, with the country no longer being over-reliant on the Akosombo Dam for hydropower generation.
It is worthy to note that Nigeria, under the present government, has embarked on multilateral partnerships to increase the capacity of power generation. There is an agreement with Germany’s Siemens AG, with plans to increase power supply to 7,000 megawatts within the next two years. Another multinational outfit, General Electric, is also working with the government and other key players in the power industry to generate 10,000 megawatts of power in the next 10 years.
But, while these efforts by the President Muhammadu Buhari-led government are commendable, I must point out the fact that those proposed megawatts, if generated, are still not sufficient to deliver us from this epileptic power supply issue that has beleaguered our economy for years. We cannot be talking about 7,000-10,000 megawatts when South Africa’s electricity generating capacity is about 51,309 megawatts, and, at the same time is still embarking on expansion.
Considering that Ghana and South Africa are less populous than Nigeria and have achieved significant increase in power generation in the last 10 years, the level of our power generating capacity for over 20 years of democratic rule is nothing but shameful. If we must compete with South Africa as the fastest growing economy in Africa, the government has to ensure that the Gencos are capable of generating substantial megawatts that can guarantee uninterrupted power supply. And once this is done, Nigerians, mainly artisans, will not have any problem paying the cost-reflective tariff, knowing that constant power supply will increase their sales and better the economy at large.
I will conclude by commending the decision of the government and the leadership of organised labor to suspend the proposed nationwide strike and the cancellation of the increased electricity tariff for the next two weeks. Indeed it is a decision in the right direction. We now wait to see what the committee will present as a lasting solution before the expiration of the two-week ultimatum.