The Root Cause of Nigeria’s Electricity Crises

The Root Cause of Nigeria’s Electricity Crises

It happens all the time: challenge government on Nigeria’s electricity crises and someone will point to the electricity regulation where reforms have fixed all known issues. Yes, if you meet the bureaucrats, they will tell you that every problem in the nation’s electricity has been settled.

But when you ask them: why can’t we have electricity? They will simply parry the question to explain the effects of Niger Delta militancy on gas supply. Quickly, they will end that with how the discos, transcos and the gencos are not doing their jobs well. For them, the government has done its part.

Unfortunately, the problem with Nigeria’s electricity is the government. There is no sector in Nigeria where everyone knows that money can be made than in the electricity sector. Yet, it is also the one where people are not investing. The implication is that we have a misalignment between market needs and investment risks. Everyone understands the real need in the market for electricity. Yet, few are running to invest. No matter how you see it, the problem is not with the investors. The problem is with the government because the right policy is not available to stimulate the animal spirit of capitalism.

The Rejection of Power

The discos are rejecting loads of electricity allocated to them from the gencos. This is akin to a man that runs a fuel filling station with low supply rejecting supply of fuel and kerosene. The station makes money when users buy from it. Without selling, it cannot make money. So, for discos to reject load supply, it means technically they believe they will be better off not selling. That means, selling will be at a loss.

The electricity distribution companies have blamed the Federal Government for their rejection of loads allocated to them, a situation that is worsening the poor power supply in the country.

Essentially, the Discos alleged that the government reneged on all pre-privatisation agreements, making it difficult for them to deliver efficient services.

The implications are that until the Federal Government fulfills its part of the pre-privatisation agreements with stakeholders in the power sector, including increasing electricity tariff, and the Discos invest and expand their distribution network for efficient service delivery, reliable power supply will continue to elude Nigerians

Nigerian government does not see this as a problem. But that is the root cause why the discos have been unable to raise capital and also invest in the sector. The discos are not investable. You can talk all reforms; the one that matters is the one that helps business people make money. America is good on that: they allow Wall Street to make money for Main Street to have any chance of making money. You may not like it, but that is how capitalism works. If there is no money to be made, government may struggle to find vehicles to push its policies, because no one will be interested. There is no money to be made in the Nigerian discos because government allowed the court to kill the sector.

The Root Cause

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.

The problem is beyond distribution. The issue is that today’s tariff is so bad that it is better not distributing. Government knows that and that was why the tariff was raised to attract investors. But the court struck it out after they have invested. The investors will be naive to pump more money into a system like that. This is the issue:

Fashola said in Lagos on Monday that TCN’s wheeling capacity had exceeded over 6,500MW. “I will only implore stakeholders to co-operate with the Nigerian Electricity Regulatory Commission (NERC) to speed up the completion of the regulations for metering service providers and eligible customers.

“They will ultimately help us to distribute over 6,000 mw of power that we now have available, out of which we are only able to distribute about 4,000 mw because of problems at the distribution end.”

The Guardian had on Monday exclusively reported that an average of 1,000 megawatts (mw) is rejected daily by the Discos.

The Association of Nigeria Electricity Distributors (ANED) Director of Research and Advocacy, Sunday Olurotimi Oduntan, told The Guardian that at the time of the handover of the privatised entities within the power sector on November 1, 2013, there was a performance agreement signed between the Discos and the Federal Government.

He alleged that the Federal Government had not fulfilled its own part of the agreement which included the non-implementation of cost reflective tariffs. Oduntan explained that the government’s roles in the deal were preconditions for efficient service delivery by the Discos, the generation companies (Gencos) and other stakeholders in the sector.

The Whole Truth

There is no confusion, this is the whole truth. And the discos are right.

“That is, if I do this, you will do that. So, if I don’t do this, you will not be able to do that. An example is the issue of tariffs. From day one, the term they used was cost reflective tariff. The simple meaning of that is what can be called appropriate pricing of products. Tariff is about price and electricity is the product.

“If the product is not appropriately priced, then you will be running at a loss. If you’re running at a loss, then you’ll be hampered to the extent of further investment that you can make.

“We have invested in the system but the investment is not enough obviously because the business is not bankable. The business is not bankable because we are the ones carrying the deficit of the industry in our own books.”

It is all broken. The discos are even in a better position when compared with the transmission companies. Even though the gencos can expand up to 24,000 MW, the maximum capacity that can be transmitted at the moment is less than 7,000 MW. The discos are not even close to distributing that capacity. They have no incentive to expand because selling at the current tariff, they claim, is bad business. They want the reversed reflective tariff and they have a point.

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