Professor Adeola Adenikinju is the President, Nigeria Economic Society. In this interview by TAOFEEK LAWAL, the professor of Economics at the Univerity of Ibadan advises on what should be done to revitalise the power sector to meet the needs of Nigerians and how Nigeria can generate enough power supply for its citizens.
On Monday this week, the Federal Government through the Minister of Power, Adebayo Adelabu, announced the plan to resell the power Distribution Companies (DISCOs) to those that have the wherewithal. What is your view on this? Should the government go ahead?
I don’t know the legal processes and if they (Federal Government) have the legal rights to do that. Maybe there is something about privatisation contract that they signed that allows the Federal Government to take over and sell any DISCO that is not performing. One has to know whether that is part of the contract. Again, is there any legal provision that says they can be taken over? These are legal issues. But like I said in my write up on LinkedIn, there should be a way of resolving the fundamental problem that we have in the sector. And I did canvass that all these DISCOs be recapitalised with the current level of inflation.
The Federal Government also has its own share, it should increase the capital base of those companies. Overall, there is need to take a second look at the privatisation contract and see that wherever the lacunas or wherever the problems are, are checked. The government itself is not clean and they can’t put all the blame on the DISCOs. The government has also not performed and fulfil its responsibilities. They have shares in these companies. So, if those companies are not performing, they are also liable. There is a need for total overhaul of the sector. We should look at the privatisation contract, redefine it.
To your questions, I don’t know if the government has the right to do what they said they wanted to do. But if they do, then they must revive all those companies that are under the Asset Management Corporation of Nigeria (AMCON) that have problems, same with even those that are not under AMCON but still have issues with capital that has not allowed them to function well.
You mentioned that the Federal Government should do a holistic overhaul of the whole privatisation process, what are the processes you think the government should consider?
There was a contract that was done between the Federal Government and those companies when they were signing them that defined what each party should do. There are roles that government itself should perform as well as those companies.
There are other things that government is supposed to do under those contracts. But are they doing them? Everybody is guilty. You cannot just blame the DISCOs alone, the government itself is not even taking a second look. There is the issue of metering. There are processes that must be followed concerning that, has the government done that? This is not just for them (the government) to put the blame on the DISCOs, it is also for the government to be true to itself and say we have also failed and face the reality and commit itself to ensuring that provisions of the contract are fulfilled.
In other words, what I’m saying is that everything goes beyond just blaming the private sector, everybody has its own problem and all of them must own up and rededicate themselves to see that provisions (of the contract) are fulfilled.
Do you think the DISCOs have the financial capacity to run their operations?
The existing DisCos should be mandated to recapitalise. The power sector is highly capital intensive. The capital base of the existing DisCos can no longer meet the needs of the sector. The Inflationary path as well the huge devaluation of the naira since 2013, have, no doubt, eroded the capital base of these companies. Hence, they should significantly increase their capital base to enable them make needed investments in the sector. The experience of the banking sector is very relevant here.
The government should dispose off its equity shares in the companies. This will give government more resources that it could invest in boosting rural electricity expansion or to support other segments of the power sector value chain. Government equity participation is wasteful and unnecessary.
Also, electricity at the retail end should be commodified and made competitive. Currently, the DisCos are regional monopolies. This does not allow for competition and efficiency. In addition, the final consumers are penalised by inefficiency as they cannot exercise choices. The application of AI, information technology and innovation, can allow multiple players to play at the retail end. The distribution infrastructure should simply be made an open access infrastructure that could be separately owned and managed.
Finally, the entire market should be further fragmented to bring in more market operators and reduce market power. The transmission segment can be regionalised or broken along the six geopolitical zones. The distribution segment can have additional segment to ensure that the size of the market is more manageable and efficient. It would be easier to narrow the gap between consumers and customers.
We have to think outside the box to break the jinx of the power sector in Nigeria. When we prepared the 25 Years Electricity Sector Development Plan in 2005, we envisaged that by 2030, Nigeria will be generating and distributing about 109GW of electricity. It is quite surreal that we still flounder around 6GW of consumption about six years to 2030. This is not acceptable.
Just before he left office, former President Muhammadu Buhari put electricity generation under the concurrent list from the exclusive list. With that done, don’t you think it’s time for the state governments to be generating electricity on their own?
Yes, the states should be allowed to participate in electricity generation. But we need to ask whether all the provisions of the law have given them that freedom or all they need to fully participate in the industry. It is good but apart from Abia State and it is not even directly, this is a very capital-intensive sector, but I’m not sure a lot of the states have the resources to be able to go fully into electricity generation. Remember that state governments are also government. But the good thing is that the government can enter into partnership either with foreign or local investors in the area of electricity production. Government in Nigeria has not shown to be effective and efficient in doing anything business.
What would you say about tariff increase, band categorisation system, estimated billing and the non-metering of some electricity consumers in the country?
My quick reflection on the recent tariff increase announced by the NERC and the Minister of Power is that the reform of the power sector requires much more than the over 200% increase in the tariff for Band A customers. Again, I will not like to preempt the ongoing research by the NES Expert Panel on the Energy Sector Development. I must confess that in my thirty years as a lecturer and researcher in the energy sector, I have always canvassed for appropriate pricing for energy supply.
However, I have few observations with respect to the current electricity price hike as well as the manner of carrying out regulations in the power sector.
First, I do not believe that electricity consumers in Nigeria are just 13 million households. This is grossly understated. Considering Nigeria’s population, the 13 million figure is very doubtful. The implication is that the denominator for calculating the average tariff is understated thereby exaggerating the optimal tariff rate. The NERC must insist that the disCos do proper enumeration of their customers to justify any increase in tariffs.
Second, the discos must bridge the gap between consumers and customers. Consumers are those who consume electricity but may not necessarily pay for it. Customers are the ones who bear the burden of payment for electricity supply to all consumers. Proper enumeration and complete metering of all consumers will solve this problem.
Third, the huge jumps ocassioned by periodic tariff adjustments create disruptions and volatility in households and industrial consumers budgets. Market prices move in marginal steps and are therefore more acceptable to consumers. Waiting for many years and then announcing a big bang increase in tariffs of 200% and above would always lead to resistance by consumers. The NERC can do better here. It must fight for its independence to enable it regulate the sector more efficiently and transparently.
Fourth, the 20-hours daily electricity supply for Band A consumers to justify the hefty increase is a huge mirage. I live under a Band A class. I have never received 10 hours consistent electricity supply in a very long time. This increase would impose a burden on consumers without corresponding responsibility on the part of the disCos. I am ready to pay more for stable electricity supply, but it should be guaranteed.
Finally, the pathway out of the low electricity supply trap we find ourselves require taking a complete look at the privatisation contracts under which the disCos were sold out. All the players in the contract have breached the contract. Everyone in the chain, must come together to renegotiate the contract and recommit to its faithful implementation. Otherwise, we will continue to move in a circle and under a policy that imposed 5,000MW for a country that should be generating and distributing not less than 50000MW given our population and economy.
What should be done to ensure steady electricity supply in Nigeria?
It is not one bullet but several things. We must use all our energy resources, renewable and nonrenewable. We must give incentives to private developers and community based projects. We must encourage domestic production of renewable energy components in Nigeria. Develop appropriate legal, regulatory and institutional framework, etc.
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