Question: “Nigeria’s Minister of Power, Adebayo Adelabu, has expressed concerns over the poor electricity supply situation in the country caused by a plethora of issues including outstanding subsidy debts. One of his solutions is that Nigeria should migrate to a full cost-reflective tariff regime if the federal government cannot pay for subsidies owed. He noted that Nigeria pays the lowest tariff compared with Niger, Ghana and Ivory Coast. What is your comment?”
My Response: The Honourable Minister is correct that our electricity challenges are massive. But we know the solution. Recall that Nigeria privatized our electricity distribution (DISCO) with a juicy template on electricity rate. Many foreign investors came on that agreed rate which would have made the DISCOs profitable companies. But as soon as they completed the investment, some Nigerians went to court, and the court aborted the agreed new rates.
With the new rates gone, DISCOs became like charities, unable to generate profits. Over time, most of them went bankrupt. (Think of going to Court to force DSTv to show European Football for nothing, and as a result of that, over time, DSTv will not have funds to pay for future rights). I explained these issues here in 2017 and they remain till today:
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”The generation companies (gencos) do not see the pricing as optimal to waste their efforts generating power. The distribution companies (discos) do not even bother accepting all available electricity to sell to consumers. Discos think it makes no sense selling something at a loss. And the consumers do not want to see any increase because the past ones have not resulted in any improvement in power supply…Mr. President, if the court had struck the increased tariff, ask the Attorney General to support the Nigerian Electricity Regulatory Commission (NERC) which I understand is challenging the ruling in the court. Until we can fix this pricing issue, we will not make progress.”
(You can also add the reason why we do not have working water boards. In some states, water rates have not been updated for more than two decades, making such investments of no value).
So, I support increasing the electricity tariff but I also support energy subsidies. Nigeria provides gas to Ghana and Ivory Coast to run their power plants. We also sell electricity to Niger at least before the ECOWAS sanctions. Simply, their cost of electricity should be more than Nigeria’s; that is expected.
Yet, in some of these countries, they have a strategy. There are 3 classes of electricity customers – Residential, Commercial and Industrial. You use reflective tariffs for residential (homes) and commercial (like bank offices) while you subsidize industrial (like cement, biscuit factories). In Ethiopia, Dangote Cement – an industrial customer – receives massive subsidies and runs on the national grid. In Nigeria, the company is not connected to the grid and as they have an independent power plant. That creates a big problem for DISCOs – some of their best customers in Nigeria have alternatives to the national grid, and even if you invest and improve capacity, you are left with residential and low-tier commercial customers which to a large extent are challenging to serve and not as lucrative as the industrial.
Dangote Group uses about 40% of Nigeria’s total distributed energy capacity, and that is revenue lost by Discos, transmission companies and generating companies because the company has nothing to do with the national grid. Under that system, most investors do not want to invest especially in the distribution phase which remains challenging.
In summary: we can have reflective tariffs for residential and commercial customers even as we subsidize electricity and fossil fuels for productive industrial customers.
Of course, this is wishful thinking as someone somewhere will go to court and one judge will strike down any reflective tariff since Nigeria has all the rights for cheap electricity to watch European football. If not, why should a minister be lamenting on the national media when he could effect this change himself? He knows that unless we reform the judiciary and the rascality we see everywhere, it is a waste of time. In my office in Owerri, we’re not connected to the national grid – we run on two generators and we have peace!
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Each time we derail from doing the right thing, we sink deeper into a hole, and it keeps getting harder. We have to generate and distribute electricity, and it has to be priced appropriately, including subsidies where required.
The argument of losing industrial customers is neither here nor there, the truth is that we have very few large industries, so it’s not like we had been firing on all cylinders. If we generate and distribute electricity at scale, it not for the few big industries who have moved on, but rather to seed new crop of large industries. We are not doing anything serious in this country, and we need energy in abundance to take off.
Our challenge is that we don’t have money, and yet we still don’t know how to make large capital investments attractive. We need a lot of help, but we keep posturing as though we have everything, and that investors need to beg us to come in. Going to court to block every price increase also adds to the chaotic economic model we run, it’s neither capitalism nor socialism, the common feature is feeling very entitled.
Since we currently don’t have capacity to generate and distribute power to all Nigerians, can we do it in phases where we guarantee power for manufacturing and then expand?