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Nigeria Needs Smart Electricity Subsidies To Help Industrial Customers and DISCOs

Nigeria Needs Smart Electricity Subsidies To Help Industrial Customers and DISCOs

Question: “Why do you think only industrial customers in Nigeria deserve electricity subsidies and how would that help the electricity distribution companies?”

Ndubuisi Ekekwe: In June 2018, in Ronald Reagan International Trade Center, Washington DC, I gave a speech on the main challenges affecting the electricity distribution companies (DISCO) in most African countries. Let me share some of the points I noted:

  1. The use of guarantees where governments provide special support and de-risking mechanisms to companies, to invest in electricity projects, produces limited outcomes because the capacity to scale is anchored on those guarantees. And because the guarantees are limited, at the end, nothing much happens over time. In other words, you can guarantee to provide electricity in a  community thereby making the project very appealing. But after that, the next community cannot get help because your guaranteeing capacity is limited. (Solution: we need to have a business-friendly environment where we do not need those guarantees.)
  2. The business of electricity distribution company (DISCO) is a challenging one in most parts of Africa. Using Nigeria as an example, the best Nigerian electricity customers are not in the national grid network. 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? Dangote Group produces close to 40% 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 solutions for their electricity frictions. That is the electricity investment quagmire because you have lost the best customers, and only the marginal customers are available. If Dangote, BUA, etc are connected to the national grid, most of the DISCOs will be better today!
  3. If the best customers are not in the national grid in Nigeria, and DISCOs are tasked to provide electricity to those who may not readily pay, what happens? DISCOs will keep losing money doing just that. More than 80% of DISCOs in Nigeria are losing money or going bankrupt.  Now, you want to help them by raising rates so that they can improve revenue? Good idea. But the problem is that another set of “best customers” – the “mid-tier manufacturers” which are expected to absorb the costs are already struggling because of exchange rate paralysis, diesel prices, etc for their operations. If you push really hard, most will give up, and that will further hurt the DISCOs as those firms can go down.

Simply, Nigeria should not raise rates for industrial customers even as it makes sense for commercial and residential ones.

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1 THOUGHT ON Nigeria Needs Smart Electricity Subsidies To Help Industrial Customers and DISCOs

  1. As the problem lingers, even the residential and commercial customers with capacity to pay end up switching to solar and co, so you are left with more of customer base that can’t really pay the effective rate of electricity. That is why it’s complicated to attract billions of dollars in the electricity industry here, because it is still not clear how to recoupe the investment. Something must give in…

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