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Power Sector Reform: Giving Jonathan’s roadmap the
teeth
By Thompson Ayodele
Monday, 27 Sep 2010
President Goodluck Jonathan has unveiled his
administration‘s Roadmap on
the Power Sector Reform and government officials have
been congratulating him for
coming up with the initiative.
However, the truth remains that the President should not
be carried away by such
encomiums. Setting up the task force on power and
unveiling the roadmap is just
one-tenth of the efforts required to resolve power
shortages in Nigeria.
The problem with the power sector has much to do with a
wide gap between demand and
supply. The total demand is estimated to be within the
range of 8, 000 megawatt and
10, 000 megawatt. Of this, only a meagre 3, 500 MW is
generated, which represents 30 per cent of the
total demand. It means 70 per
cent of customers connected to the national grid are in
darkness.
It is therefore important to look beyond the premature
wine-sipping and praises that
followed the president‘s public presentation. Successive
governments had announced similar initiatives
with fanfare and pageantry.
Many years down the lane and despite the nation‘s
resource sunk, the power
sector is not a pride of Nigeria.
It is recognised that inadequate power supply increases
transaction costs.
It can bring an economy to its knees. The economic
burden usually
associated with epileptic power supply comes in the form
of multiple
backup plans for businesses. These include not only
diesel power
generators but also voltage regulators to protect
industrial machine from
damage.
According to the report on Nigeria Investment Climate
Assessment authored by the
World Bank and the African Development Bank, more than
80 per cent of firms reported
that electricity was the most binding constraint to
doing business in Nigeria. Consequently, the
report notes that
electricity-induced indirect losses account for 61 per
cent.
Individuals are not spared, either. This comes in terms
of paying highly for products
which, ordinarily, should have been bought at reduced
prices, had power supply been
steady. Since a vast majority of Nigerians spend a
large part of their income on basic necessities,
inadequate power supply
constitutes a considerable strain on their purse. In the
face of this inefficiency, the
choice for individuals is either to improvise a power
source or squeeze their purse to acquire and
sustain power generators. The
other alternative is to stay in the dark.
It is difficult to correctly ascertain the costs of
these ranges of
options. At household level, a 2008 report estimates
that Nigerians spend N796
billion annually to fuel their generators. The same
report also pegs the costs to
industrial sector at N1.02 trillion. These ultimately
freeze resources that should
have been chanelled into other areas such as
healthcare, food and education for children, as
well as expand businesses and
create jobs. While there are reasons to believe these
figures are understated, an
important point is that the report perhaps overlooks
other non-fuel costs of
maintaining generators.
Over 60 per cent of businesses are informal in Nigeria.
This has provided means of
livelihood and jobs for millions of people. The growth
of the informal sector is
hindered by unstable power supply. It is virtually
impossible to see appreciable growth in the
sector unless power supply
becomes stable. At best, a huge number of informal
business operators would
voluntarily wind up. Without a stable power, the
remaining ones will not bother
about formalising but struggle to break even.
The human, social and environmental costs often
associated with unstable power
are often overshadowed by economic costs. Between 2008
and now, reported deaths from
generators‘ fume is over 50. The latest is the death
of a mother and her 12-year-old daughter. This is
aside the fact that noises
from generators have caused strained relations between
neighbours, landlords and
tenants.
In spite of the inefficiency, the question is, should
government continue
to hold the monopoly in the sector? The Power Holding
Company of Nigeria‘s
workers as well as rent seekers would answer in the
affirmative. However,
experience in other economies has shown a preference for
private
provision. Private firms are effective than public-owned
firms.
This is because the private sector generally has
stronger incentives to
minimise costs, corruption and reduce leakages than
government-controlled and
managed firms. Already, the government has agreed to
cede 51 per cent of its stakes
in the power sector to private firms. Nevertheless, one
should not be deceived that the expected entry of
the private firms would bring
instant improvement in power supply.
The involvement of private firms would bring about a
potential problem: introducing
and maintaining competition. To address this, there
should be competitive bidding
among firms that are genuinely committed to investing
in the sector. Again, the structure of the reform
has to shift the risk of the
business to the private firms. This can be achieved
through making firms compete
for customers within a specific regulatory framework.
The telecom industry and the
electronic media are examples of how risk, when
shifted to the private firms, can bring about a
substantial improvement in
service provision.
The reform in the power sector could possibly raise some
genuine issues.
One of such is pricing. In the short run, it is expected
that private
provision could lead to higher charges. These possible
short-run higher charges are
bound to lead to reduced charges and quality services in
the medium to long term.
Competition has inherent tendency to reduce costs,
drive innovation and expand services as
exemplified in the telecom sector.
Above all, the Presidential Task Force on Power and the
Nigerian
Electricity Regulatory Commission would need to address
issues that could undermine
the sector during and after the reform. Obviously, there
are competing interests and
potential threats. These should not be glossed
over. One of such is generator dealers whose
business would be crippled
once power supply stabilises. Rather than dismissing the
threat they might pose, there
is a need to study and understand the nature of such
threats and swiftly respond.
It is quite possible for vested interests to sabotage
the efforts of task force and
NERC from coming to fruition. This will be the test case
of President Goodluck
Jonathan‘s resolve and commitment to use lawful means
in dealing with such handful individuals. In
addition, both PTFP and NERC
must be in the forefront of pushing through the remnants
of policies thatconstitute barriers to entry for private
investors.
Generally, the roadmap appears to be an appropriate
framework to address the
shortages and ensure steady power supply. But good
intentions are not enough. A
fruitful and successful implementation of the power
sector reform will stop
Nigerians from counting the costs of darkness. Then the
president will deserve to be congratulated.
Ayodele is the Director of the Lagos-based Initiative
for Public Policy
Analysis, an independent public policy think-tank.
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