Before the Power Sector Collapses…


There is a prank I usually play on my security guy. Anytime I am out of town, I call him regularly to ask about the power situation. He would regale me with tales of how we are burning diesel everyday because power supply is either completely nil or limited to a few hours per day. I will tell him not to worry, that things will change when I return. And truly, power supply always improves whenever I return. He will marvel at the co-incidence, and I will joke: the minister of power is my friend; I tell him when I am not around and also tell him when I return; so that is why you always see a difference. He will laugh in a way that shows he doesn’t believe me.

Something has changed. I was out of town from December 16 to January 9. Throughout the three weeks, I did not ask him about the power situation. I blanked out completely. My enthusiasm about Nigeria has reduced dramatically in recent times. I only exchanged “Merry Christmas” and “Happy New Year” chats with him. But as soon as I arrived, I asked him about the power situation again. He said “it is totally bad”, that they usually “bring it” at 10pm and “take it” around 2am. In 24 hours, he said, we were having only four hours of electricity. He then wickedly asked to me call up the minister. It has since gone from four hours to just two hours. The joke is now on me.

Why is Nigeria descending into total darkness? The answer you get depends on who you are asking. Government officials say it is because the Niger Delta boys are back in town, hitting pipelines and cutting gas supply to the power generation plants. The investors in the power sector, especially the distribution entities, will tell you that they are bleeding to death because of the prevailing economic realities and that they will soon be buried if nothing is done to make them economically viable. Of course, both sides are correct. However, even if we solve the Niger Delta problem today, we are still nowhere near solving the power crisis.

Before I go too far, I want to draw our attention to certain issues. It is not as if we don’t know already, but maybe if we keep repeating them the message will get to the appropriate quarters and the power sector will truly begin to get the attention it deserves. One, no country has ever developed without power. In fact, electricity is not just a driver of development, it is an indicator of it. Two, no country can develop with generators. The cost is too high (and I say nothing about the pollution). Three, contrary to whatever impression, generating and distributing electricity is not as complex as performing brain surgery. It is about strategy and commitment.

First, I will discuss the political aspect of the electricity problem. I was surprised, maybe pleasantly, when I saw a federal government delegation, led by Vice-President Yemi Osinbajo, in Gbaramatu, Delta state. I saw it live on TV. I guess they went to “dialogue” with the chiefs on the issue of militancy in the Niger Delta. Gbaramatu is where Government Tompolo, the militant leader, comes from. Since his controversial “pipeline surveillance” contract was revoked and EFCC declared him wanted, the pipelines have not stopped exploding. Gas supply is cut off each time the bomb goes off, and oil export is reduced. Our economy is on its knees. We can all feel the pains.

I remember entering into a long argument with a member of the Buhari administration on the need to treat the Niger Delta with caution. You cannot wean Nigeria off oil in four years. It will mean developing an alternative export that will give you billions of dollars in monthly forex inflow. It won’t happen overnight. I advised that rather than hurt the political feelings of the Niger Delta people, we should have a strategy of engagement; military might should be the last resort. I was called a “pacifist” and asked to shut up, that a section of the country cannot hold Buhari to ransom. The hawks had the upper hand. But I’m glad the doves are now getting heard. Praise the Lord.

President Umaru Musa Yar’Adua was not an idiot when he decided to engage positively with the militants. Although President Goodluck Jonathan took it to a ridiculous level, you can’t solve the problem with presidential might. The Yoruba will say until a child knows how to handle the gun very well, he should not investigate the death of his father. A proverb says “call a lunatic ‘Your Excellency’ so that he can allow you to go your way”. There is also this one about chasing the fox away before rebuking the hen. All the proverbs I know — African, Chinese, English, name it — point to the fact that you must use tact to deal with a delicate situation.

But then, even if we resolve the Niger Delta crisis today, there are several issues that will still bedevil the power sector. These are economic. If they are not resolved, we will remain in darkness. Power supply is closer to ground zero and the feelers are that a total collapse is imminent. The cost of doing business for distribution companies, known as DisCos, has clearly doubled in the last two years, so they are unable to recover their expenses, much less make profits. The naira has drastically lost weight, the price of gas is firing up the unit cost of power generation and the tariffs cannot be increased at a time Nigerians are groaning under economic stagnation and inflation.

The power sector reform law allows investors to recover their cost and make reasonable return, stating specifically that tariffs should provide “incentives for the continuous improvement of the technical and economic efficiency with which the services are provided”. That goes without saying, in any case: investors don’t put their capital into business for God’s sake. The reality, however, is that because of the tariff structure, it is difficult to improve the power situation. The telecoms sector expanded exponentially after privatisation because the operators made money and re-invested. The power sector version is producing opposite results.

According to industry figures, GenCos invoice DisCos based on market rates — about N68 per kwh of electricity — while DisCos sell to consumers at averagely N25. That is a loss of N38 per kwh. No business can survive that burden. The current tariffs were fixed when naira was 197/$1. Today, the exchange rate is anywhere between N305 and N500. Costs have more than doubled. Gas, the major component of power generation, is priced in dollars and is relentlessly pushing skywards. It is practically impossible for Nigeria’s energy supply industry to recoup the basic costs of generation and distribution. Stagnation, or regression, is inevitable.

The multi-year tariff order (MYTO) was developed as part of the power sector reform to address the issue of pricing in a scientific manner. The model projected inflation rate, exchange rate, power generation, estimated energy allocation, and cost of generation and transmission to arrive at tariffs that would enable investors recoup their investment over a 10-year period. The basic idea behind MYTO was economic viability. MYTO is long due for a comprehensive review in line with current realities, but who will bell the cat? With the economic situation in the country, it is clear that MYTO cannot be reviewed now — for political reasons.

What is the way out? This is a multiple choice question. The options are (a) Allow the energy chain to charge economic tariffs so that they can invest properly and improve the power situation — although this has a huge political cost (b) Reacquire the privatised entities and pump government funds into them — and return to the inefficiencies that led to privatisation in the first place (c) Develop a financing solution so that the IFC or World Bank can give long-term funding to the power companies — but the government will have to show more seriousness which is asking too much as things stand (d) Do nothing — and watch the power sector collapse completely.

There is actually a fifth option which is being canvassed: subsidise the sector so that they can breathe easy under increasing costs, while the investors work out how to raise the needed funds for capital investment. The consumers will be protected from tariff hike — after all, fuel subsidy is apparently back with crude oil selling at $58 — but you really have to wonder where the government will get the money from. Even with subsidy, the DisCos have to improve their network and metering. NERC, as sector regulator, will also have to crack down on energy theft and non-payment of bills. Something has to be done urgently. Tomorrow may be too late.

“Contrary to whatever impression, generating and distributing electricity is not as complex as performing brain surgery. It is about strategy and commitment”

Did you hear the news? US President Donald Trump invited former president of Nigeria, Dr. Goodluck Jonathan, to his inauguration but, in anger, refused to invite President Muhammadu Buhari. The internet caught fire with the “news” and you cannot but be amused by the clicks and the responses. People always easily fall for stuffs like this, even when they could have simply inquired from “babalawo” Google about US presidential inaugurations. Jonathan was not invited. No foreign head of state attended the inauguration. It would have been most unusual for Trump to invite Buhari. But who cares about facts these days? This is the age of fake news. Alas!

Let nobody be deceived — press freedom is seriously under threat in Nigeria. The arrest of Mr. Dapo Olorunyomi, the publisher of online news giant Premium Times, and Ms Evelyn Okakwu, the judiciary correspondent, cannot but remind us of the dark days of military rule. The army chief, Lt. Gen. Tukur Buratai, is complaining that he was defamed by Premium Times. In civilised societies, libel cases take place in courtrooms, not police cells. Meanwhile, a supposed case of “two fighting” on Lagos streets landed Mr. Omoyele Sowore, the publisher of another activist news site, Sahara Reporters, in front of the Lagos police commissioner. We need to be worried. Ominous.

The defeated president of Gambia, His Excellency Sheikh Professor Alhaji Dr. (etc, etc) Yahya Jammeh, attracted global attention with his refusal to vacate office after losing an election to Mr. Adama Barrow. West African leaders, in trying to persuade him to accept defeat, should have enlisted the services of Nigeria’s Goodluck Jonathan and Ghana’s John Mahama, incumbents who lost and gracefully conceded. Instead, the mission was led by President Buhari who, as a three-time presidential candidate, never accepted defeat — not even once. Who was Jammeh more likely to listen to? Hopefully, the likes of Jammeh will never rise again. Regression.

The emir of Kano, Malam Muhammad Sanusi II, has asked wealthy Muslims to stop building mosques and divert the resources to educating girls. He said: “I’m just tired of people coming to me to say I want to build a new mosque. You know, we keep building mosques and our daughters are illiterates. So, my appeal is that if you really want to help Kano, don’t come to me with a request to build a N300m mosque because I have enough mosques everywhere. And if I don’t have a mosque, I’ll build it myself. If you really want to help, go and educate a girl child in the village.” This should be headline news, but coming from Sanusi, it is not sexy enough for the media. Instructive.