I support the government’s reflective pricing on electricity which has come by removing subsidies. But I argue that we can add one layer in the playbook: sustain the subsidies for industrial customers even as you remove them for commercial and residential customers.
This makes sense since these manufacturers are losing competitive positioning on forex, diesel, and you cannot expect them to also deal with electricity. It does not make sense to keep piling on them. But Nigeria happened and the results are in: “The hike in electricity tariffs has sent shockwaves through Nigeria’s manufacturing sector, leading to the closure of over 300 companies and the loss of 380,000 jobs since April 2024, according to the Manufacturers Association of Nigeria (MAN).”
Nations subsidize things to help their companies. In America, the United States Postal Service has not made a single profit in the last 22 years, primarily because the US subsidizes supply chains. China does a similar thing. Nigeria cannot afford to be the only capitalist economy where there is zero strategic subsidy for companies. We must modulate these removal of subsidies. If our concern is the corruption in subsidies, we could do rebates which means we refund verifiable spent monies!
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Note: running an electricity distribution company (DISCO) is a challenging business in Nigeria. Why? The best Nigerian electricity customers are not in the DISCO networks. Yes, if you have a region and Dangote Cement, BUA Cement, Lafarge, etc are not in your network because they have their own power stations, who are you serving? Imagine the economics if the “national grid” is serving these companies!
Dangote Group produces more than 25% of Nigeria’s electricity capacity solely for its internal use. That is revenue gone for DISCOs. With those customers gone, the focus is now the ones where you need to put in so much effort to make paltry income because the best customers have figured out their specific solutions. That is the electricity investment quagmire in the nation and why we must be careful in the removal of these subsidies.
When you look at everything, you will see that the government has to subsidize the industrial customers’ electricity consumption otherwise the DISCOs will keep bleeding as these manufacturers fold.
Nigerian Manufacturers Sound Alarm Over Electricity Tariff Hike, Say 380,000 Jobs Lost Since April
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