Fixing Nigeria's Electricity Supply Vicious Circle

A year ago, a Nigerian state government contacted my investment syndication business to help fund a water board in one of the south-south states. We received the document and prepared for our funding partners. The business thesis was good except one problem: the water tariff in the state. The last one was reviewed in 1987. We told the government to put a small legislation/regulation to change the water rate. Everyone was afraid on sponsoring the bill. No member of the state house of assembly agreed to put his or her name on it. And the government was afraid to be known as the government that was going to increase water rate. Simply, the investment collapsed. We told the government that investing in the deal was waste of money because the water rate would not even cover 30% of the water cost. Largely, the state water board is subsidizing water to the rich citizens who get water from water board. That is unfair to the citizens in the villages who do not get water from the water board. That deal reminds me of the electricity issue in Nigeria.

Nigeria is in a loop right now on electricity supply. You can call it a vicious circle. I do not see how we can come out of it until a leader takes a stand. I think President Buhari is the only one that can fix this problem. We have wasted time on the regulatory process. What we need now is someone that can get us out of the loop.

The Transmission Company of Nigeria Plc (TCN), has demanded for a review of the current electricity tariff, ostensibly cost reflective, which will entail more payment by the end users of power.TCN demand was contained in an application filed to the Nigerian Electricity Regulatory Commission (NERC), for an extraordinary tariff review, as a means of ensuring that generation companies (Gencos) are incentivised to provide sufficient spinning reserves and other ancillary services that are critical for managing the national grid.

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The Transmission Company is the only unit of the 18 successor companies unbundled from the defunct Power Holding Company (PHCN) that was not privatised alongside others, but placed under management contract.

Hitherto, Distribution Companies (Discos) had been at the fore of agitations for electricity tariff review and increase, while consumers are opposed to it due to the prevailing power outages.

The issue is now precarious. 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 to any improvement in power supply.

Nigeria’s Minister of Power, Babatunde Fashola

Technically, everyone is right. But I do think, focusing on that misses the point. In my office in Nigeria, the national grid is now the second backup. In short today, we are servicing our main generator. Team has suggested that we disconnect from the national grid to avoid any justification of sending bills which continue to happen despite no power supplied. I told them to hold on. The consumers are indeed frustrated. The process is a mess. You are asked to pay for services not delivered.

But ranting from that angle will not solve this paralysis. The only part of the old NEPA/PHCN that was not privatized, the Transmission Company of Nigeria (TCN), has spoken. TCN has joined gencos and discos asking for a reflective tariff. Government should listen. While I do not want to pay more as a user, the alternative of running two generators, spending more on fuel, oil and mechanics, is not a better option. I am open to pay more because I do think getting power from the national grid will be cheaper when compared to what I have now. Government should listen and take action.

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.

Nigerian government has to make good, and go back, and increase electricity tariff as agreed pre-privatization. The citizens do not have to pay this extra fee. Government can decide to write the discos cheques yearly. After all, it tricked the investors to invest based on the tariff. That the court struck and reversed the tariff is irrelevant. Investors did not sign any agreement with the court. That was the condition precedent and where it was voided, the discos have the rights not to deliver electricity. It makes no sense for them to be doing so losing money.

A reflective tariff is critical for us to get out of this vicious circle. Only Mr. President can lead now.

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2 thoughts on “Fixing Nigeria’s Electricity Supply Vicious Circle”

Oladeji November 17, 2017 at 8:59 am · Edit

Consumers are not happy to pay more for their electricity bills and at the same time the Discos want to increase the tariff .this is a major problem that need to be addressed by the government.
1. ndubuisi ekekwe November 17, 2017 at 10:42 am · Edit
  
  I certainly agreed that it must be addressed.