Electricity in Nigeria: Light at the end of the Tunnel?
“It is not written on the face of Nigerians that thou shall not have reliable electricity” – Prof. Bart Nnaji.
The above quote is from Prof. Bart Nnaji, professor of robotics, former Minister of Science and Technology, power sector entrepreneur and most recently the man charged by Acting President Goodluck Jonathan with delivering a new power sector blueprint. Prof. Nnaji’s statement summarises the frustrations felt by many Nigerians regarding the power situation in Nigeria and the attendant negative impacts that the power sector has on the Nigerian economy.
If the “Olduvai Hypothesis” statement of electricity being “the lifeblood of civilization” is true, then Nigeria must still be in the stone age with our businesses and households existing as though Thomas Edison was yet unborn. Our electricity sector is one of the worst in the world and is more reflective of a post-conflict society rather than that of a country that claims to be “the giant of Africa” and whose politicians are quick to state an ambition to be one of the top-20 economies in the world by the year 2020 (i.e. “Vision 20-2020”). Many economists agree that the parlous state of electric power supply in Nigeria is fully responsible for knocking one or two percentage points off our GDP growth rate as the most elemental of businesses, such as barbershops and photocopy centres, have to generate their own electricity and be left at the mercy of an equally precarious petroleum products supply chain. I firmly believe that the Nigerian economy will be set for unprecedented growth once businesses are liberated from the yoke of a power sector which has remained moribund despite billions of US dollars in government spending.
The key, in my opinion, to revamping the sector is not more government spending but a near complete liberalization of the sector. We must apply market-driven best practices to the power sector and fast track the unbundling, commercialisation and eventual privatisation of the PHCN. Market forces must be brought to bear in every aspect of the electric power value chain right from the gas supply infrastructure to the last-mile to the customer. Nigeria must be one of the few countries in the world in which gas-fired power plants will be fully completed and commissioned without the gas supply infrastructure to the plant sorted out. We must have a couple of hundred megawatts of electricity generation capacity idling because there is no gas supply to the plants, in a country ranked 7th in terms of proven natural gas reserves in the world. The answer is simple: the Oil companies would not invest in the domestic gas gathering infrastructure until the gas purchase contracts are at economically competitive prices which will ensure that they recoup their investments with a decent return on invested capital. The Federal Government can threaten all it wants but the honest truth is that domestic gas supply will remain poor until the gas supply arrangements are at market rates.
Secondly, the government must get out quickly from existing plants as well as those under construction or even contemplation and sell them to private operators. Most Nigerians above the age of 20 can vividly remember the pre-GSM era when NITEL officials were demi-gods who needed to be bribed, begged and even fed to fix lines that were disrupted due to the organization’s own inefficient billing system. I firmly believe that had NITEL kept its monopoly and the Federal Government pumped in enough money to rival all the investments by the various GSM companies to achieve our current 67 Million active lines, we would still not be able to check our account balances and we may never be able to make any calls on weekends when NITEL officials will want to spend time with friends and family. Anyone who thinks I am exaggerating should check the last time he saw someone make a phone call on the Mtel network ( NITEL’s GSM subsidiary).
Distribution Companies should be privatised quickly to competent private operators who will seek to profit by ensuring that the little electricity we generate gets to the consumer and is not wasted due to the inefficiencies of people who will complain of a lack of ladders. Generation Companies should be sold to profit motivated people willing to negotiate gas supply contracts at rates that will ensure that thermal gas plants do not turn to mere architectural masterpieces. Furthermore, these Gencos will also sign agreements to supply electricity to Distribution Companies with Service Level Agreements which will attract penalties when the terms are contravened. These investors will ensure that multi-million dollar turbines purchased are not left to rot in the ports, incurring demurrage for 4 years!!. Finally the National Grid, due to its sensitive nature, should remain under government control but with management and operation outsourced to a competent international firm whose compensation shall be transparently tied to the performance of the grid. Even the notion of a single National Grid should be also up for debate, why can’t we have multiple grids? Why must a Generating Company in Delta State seeking to sell power to the Port Harcourt distribution company have to go through a National Grid Station in Osogbo, Osun State?. We can break the grid into manageable chunks and get on with giving Nigerians electric power.
Will all this market determined rates lead to higher tariffs? You bet it will! My response to that is that the current PHCN tariff is artificial, Nigerians currently pay multiples of it by way of very expensive self generated electricity. The cost of small scale diesel-generated electricity, the main power source in Nigeria, is many times higher than any tariff a commercially minded electricity utility will charge. The government may choose to subsidize commercial tariffs over a period of time using some of the proceeds of the commercialisation and privatization programme. However, I think many corporate bodies and manufacturers will gladly pay higher fees, even in the absence of subsidies, as they will be spared the the capex of power generators and the recurring costs – and headaches – of purchasing diesel. I am sure MTN will be glad to stop maintaining 2 diesel generators per cell site and avoid its over N700 Million monthly diesel bill.
To deliver on these goals, the government must strengthen the regulatory capacity of the electricity sector’s regulator: Nigerian Electricity Regulatory Commission (NERC) to ensure that the reforms are carried out and the system works as envisaged.
Nigerians are one of the most enterprising people on planet earth and they will do much more with reliable electric power supply. I hope Acting President Jonathan writes his name in platinum by devising and executing a plan that rescues us from an electricity sector that has subjected many to subsistence living and exposed the nation to ridicule.
The above quote is from Prof. Bart Nnaji, professor of robotics, former Minister of Science and Technology, power sector entrepreneur and most recently the man charged by Acting President Goodluck Jonathan with delivering a new power sector blueprint. Prof. Nnaji’s statement summarises the frustrations felt by many Nigerians regarding the power situation in Nigeria and the attendant negative impacts that the power sector has on the Nigerian economy.
If the “Olduvai Hypothesis” statement of electricity being “the lifeblood of civilization” is true, then Nigeria must still be in the stone age with our businesses and households existing as though Thomas Edison was yet unborn. Our electricity sector is one of the worst in the world and is more reflective of a post-conflict society rather than that of a country that claims to be “the giant of Africa” and whose politicians are quick to state an ambition to be one of the top-20 economies in the world by the year 2020 (i.e. “Vision 20-2020”). Many economists agree that the parlous state of electric power supply in Nigeria is fully responsible for knocking one or two percentage points off our GDP growth rate as the most elemental of businesses, such as barbershops and photocopy centres, have to generate their own electricity and be left at the mercy of an equally precarious petroleum products supply chain. I firmly believe that the Nigerian economy will be set for unprecedented growth once businesses are liberated from the yoke of a power sector which has remained moribund despite billions of US dollars in government spending.
The key, in my opinion, to revamping the sector is not more government spending but a near complete liberalization of the sector. We must apply market-driven best practices to the power sector and fast track the unbundling, commercialisation and eventual privatisation of the PHCN. Market forces must be brought to bear in every aspect of the electric power value chain right from the gas supply infrastructure to the last-mile to the customer. Nigeria must be one of the few countries in the world in which gas-fired power plants will be fully completed and commissioned without the gas supply infrastructure to the plant sorted out. We must have a couple of hundred megawatts of electricity generation capacity idling because there is no gas supply to the plants, in a country ranked 7th in terms of proven natural gas reserves in the world. The answer is simple: the Oil companies would not invest in the domestic gas gathering infrastructure until the gas purchase contracts are at economically competitive prices which will ensure that they recoup their investments with a decent return on invested capital. The Federal Government can threaten all it wants but the honest truth is that domestic gas supply will remain poor until the gas supply arrangements are at market rates.
Secondly, the government must get out quickly from existing plants as well as those under construction or even contemplation and sell them to private operators. Most Nigerians above the age of 20 can vividly remember the pre-GSM era when NITEL officials were demi-gods who needed to be bribed, begged and even fed to fix lines that were disrupted due to the organization’s own inefficient billing system. I firmly believe that had NITEL kept its monopoly and the Federal Government pumped in enough money to rival all the investments by the various GSM companies to achieve our current 67 Million active lines, we would still not be able to check our account balances and we may never be able to make any calls on weekends when NITEL officials will want to spend time with friends and family. Anyone who thinks I am exaggerating should check the last time he saw someone make a phone call on the Mtel network ( NITEL’s GSM subsidiary).
Distribution Companies should be privatised quickly to competent private operators who will seek to profit by ensuring that the little electricity we generate gets to the consumer and is not wasted due to the inefficiencies of people who will complain of a lack of ladders. Generation Companies should be sold to profit motivated people willing to negotiate gas supply contracts at rates that will ensure that thermal gas plants do not turn to mere architectural masterpieces. Furthermore, these Gencos will also sign agreements to supply electricity to Distribution Companies with Service Level Agreements which will attract penalties when the terms are contravened. These investors will ensure that multi-million dollar turbines purchased are not left to rot in the ports, incurring demurrage for 4 years!!. Finally the National Grid, due to its sensitive nature, should remain under government control but with management and operation outsourced to a competent international firm whose compensation shall be transparently tied to the performance of the grid. Even the notion of a single National Grid should be also up for debate, why can’t we have multiple grids? Why must a Generating Company in Delta State seeking to sell power to the Port Harcourt distribution company have to go through a National Grid Station in Osogbo, Osun State?. We can break the grid into manageable chunks and get on with giving Nigerians electric power.
Will all this market determined rates lead to higher tariffs? You bet it will! My response to that is that the current PHCN tariff is artificial, Nigerians currently pay multiples of it by way of very expensive self generated electricity. The cost of small scale diesel-generated electricity, the main power source in Nigeria, is many times higher than any tariff a commercially minded electricity utility will charge. The government may choose to subsidize commercial tariffs over a period of time using some of the proceeds of the commercialisation and privatization programme. However, I think many corporate bodies and manufacturers will gladly pay higher fees, even in the absence of subsidies, as they will be spared the the capex of power generators and the recurring costs – and headaches – of purchasing diesel. I am sure MTN will be glad to stop maintaining 2 diesel generators per cell site and avoid its over N700 Million monthly diesel bill.
To deliver on these goals, the government must strengthen the regulatory capacity of the electricity sector’s regulator: Nigerian Electricity Regulatory Commission (NERC) to ensure that the reforms are carried out and the system works as envisaged.
Nigerians are one of the most enterprising people on planet earth and they will do much more with reliable electric power supply. I hope Acting President Jonathan writes his name in platinum by devising and executing a plan that rescues us from an electricity sector that has subjected many to subsistence living and exposed the nation to ridicule.
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