Nigeria’s refusal to power development

Vladimir Lenin said so many years ago that the pathway for placing Russia on the path to development: “Communism is Soviet power plus the electrification of the whole country.” Egypt read the memo, understood it and decided to act in the national interest. They raised their electricity production up by 30,000 MW in six years […]

Vladimir Lenin said so many years ago that the pathway for placing Russia on the path to development: “Communism is Soviet power plus the electrification of the whole country.” Egypt read the memo, understood it and decided to act in the national interest. They raised their electricity production up by 30,000 MW in six years within the last decade. In that short time frame, Egypt achieved self-sufficiency in electricity since June 2015, and now enjoys an electricity surplus of more than 25 per cent.  They also spent far less than what we have spent for no tangible results. The Manufacturers Association of Nigeria has just made the point that 300 manufacturers have closed shop in Nigeria since the hike in electricity tariff and the situation will only get worse.

Nigerian governments have been promising us the great leap forward in electricity generation and distribution since 1999 but have simply refused to do it. Instead, they write fiction. For his eight years in power, the Buhari APC administration could not deliver more than 4,000 megawatts of power to consumers and left after establishing the new tradition of frequent total grid collapse. His predecessors were not better. Let’s start in 2013 when the PDP government assured the nation that they would be producing 20,000 megawatts of electricity by December 2014. The Minister of Power, Pastor Nebo, assured us that we would have 10,000 megawatts produced daily by December 2013 en route to achieving the stated objective.

Going further back, we all remember, or do we, that on February 19, 2008, the late President Yar’Adua had launched the Presidential Committee on the Accelerated Expansion of Power. He promised Nigeria that 18-months from that date, Nigeria would be producing at least 6,000 MW of power – i.e. by August 2009. Indeed, during the 2007 election campaigns, Obasanjo’s promise to Nigerians was that by December 2007, his NIPP projects alone would be producing 6,000 megawatts. Later, President Yar’Adua explained that President Obasanjo forgot to give contracts for the gas to fire the plants which he promised would be done by August 2009. As these promises claimed, we were on course to enjoy 20,000 megawatts of electricity by December 2010. Should we forget that the late Bola Ige promised us in June 1999 that by 2001, there would be so much electricity produced in Nigeria that those with private generators would be sorry for themselves as they would not need it and it would have no second-hand value as no one else would need it. Yes indeed, government by writing fiction as a promise is an established tradition.

Returning to the current state of affairs, we all recall that in April, without warning, the Nigerian Electricity Regulatory Commission (NERC) raised the electricity tariff for most urban households and industries by 300 per cent, on the basis of a big lie. According to the Vice Chairman of NERC, Musiliu Oseni, Band A electricity consumers regularly get 20-plus hours supply of electricity a day and should pay much more than other consumers who get much less. These privileged Nigerians do not spend much money on fuel for their generators, so they have all the extra money that accrues to them to pay their DisCo. The problem is that everybody in this country knows that this is a lie, another fiction, as no sector of society regularly gets a minimum of 20 hours of electricity a day. You cannot build a new policy on lies and such a huge price increase in the middle of the most severe cost of living crisis in Nigerian history was a death sentence for the economy. We can see that clearly now as industries, hospitals, universities and even government departments are unable to pay their bills and are closing down or trying to operate in darkness.

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The original sin was the mode of privatisation of the Nigerian electricity sector. It was a much-anticipated reform exercise that created much hope for Nigerians. Launched in 2010, the exercise was intended to modernise the sector and cater to the country’s growing demand for electricity. However, over a decade later, the desired outcomes have not materialised and the electricity available on the national grid to light homes and power the economy has stayed at an almost constant 4,500 megawatts (MW). One reason for this is the technical inefficiency of the grid, beginning with inefficient gas supplies, the inability of the transmission system to deploy adequate electricity, and the lack of investment by production and distribution companies.

Such inefficiencies in the sector are compounded by the ‘legacy’ corruption that has led to poor maintenance of the transmission network during state-ownership and to the presence of politically connected bidders in the privatisation process. The design of contracts and lack of regulatory oversight further deterred credible and technically competent investors during the bidding process. The politically connected nature of many of the acquisitions also means the government is reluctant to take any tough decision with regard to the sector. The conditions in which consumers lack supply and firms are unable to make profits have given rise to a host of interdependent corruption mechanisms. As the sector moves deeper into loss, the space for formal earnings becomes narrower, and the perverse incentives to be corrupt deepen. This has now pushed the sector into a state of low-level equilibrium, with significant restructuring needed in order to turn things around. The DisCos, for example, have refused to provide meters to most consumers so that they can be charged what they have not been supplied.

As a recent ACE-SOAS study of the Nigerian power sector reveals, the reality is that we Nigerian consumers spend more to purchase and maintain petrol and diesel generators than we do on electricity from the grid. The power sector reform has been a total failure and for that reason Nigerians are reluctant to pay more for a supply that is erratic and fails repeatedly. It is clear that Nigeria’s power sector is unsustainable, which has repercussions for inclusive growth. The current crisis is a liquidity crisis as a result of deep structural distortions in the sector. The design of contracts, post-privatisation, led to adverse selection, with only politically connected bidders participating in the process, rather than technically competent ones. These bidders used Nigerian banks for financing, which have ended up assuming much of the systemic risk. The financial health of the sector was based on tariffs and projections that could never be politically implemented. Projections for the performance of the sector were based on distribution and generation companies (which are not publicly listed) reinvesting in the sector to build technical capacity. Instead, the companies started paying themselves. Dramatic increases in tariff lead to more corruption, rather than improvement in power supply. The companies have no intention of investing to improve supply. The entire reform has to be reviewed because the dual goals of increasing efficiency and investment have failed significantly.

The larger question is that since Bola Ige’s promise to sort the problem 25 years ago, five successive presidents have promised to provide adequate power but failed woefully. Obasanjo and Buhari stand out as the greatest failures because they each had eight years and as Egypt has shown, that’s more than enough time to solve the problem. The result we can state categorically is that Nigerian governments have lost the capacity to govern any sector of the economy and society. Their greatest skill has been in corruption and, not surprisingly, that has been the only growth sector in the country’s Fourth Republic. That is why I can say they have refused to power our development. We need our Lenin.