Power Sector Reform in a Catch 22 Situation
In his 1961 novel describing a paradoxical logic of the military bureaucracy during the Second World War, Joseph Heller inadvertently introduced the idiom, “Catch 22” into the English lexicon. A Catch 22 is a situation in which the rules and regulations actually stop a problem from being solved, and often creating a scenario of ‘you dare, you are damned, you don’t, you are doomed’. This aptly captures the vicious cycle Nigeria finds herself on the critical issue of navigating appropriate pricing on one hand, and ensuring sustainable adequate supply of products and services in the energy sector.
For the umpteenth time, the Federal Government of Nigeria announced the removal of subsidies on petroleum products and electricity. This purported removal has become a recurring decimal, and a familiar nightmare to the average Nigerian. Perhaps, what makes this particular cycle more shocking, is the audacity with which Government allowed the petroleum products deregulation and removal of subsidy on electricity tariff, to hit citizens at the same time. Not that either has ever rendered much reprieve to citizens even when not introduced at same time previously, but slamming the two on citizens at once, to many, is insensitivity to the plight of citizens. Even more so, when it is coming in the heat of the Covid-19 pandemic that has caused massive loss of jobs and incomes, without much of a palliative or recovery plan from government.
Expectedly citizens’ reaction has been swift and predictable, with almost everyone opining that this will bring more hardship on people and businesses. Labour Centres and Civil Society Organisations have lamented and condemned, and even issued ultimatums. There have been pockets of protest and unjustifiable police arrests, albeit in a rehash of same frustrating vicious cycle. There continues to be absence of constructive, sincere and robust engagement around these issues. Citizens have become quite cynical after decades of governments’ failure and unfaithfulness, while governments in turn, appear to care less what citizens think about their action, as long as they feel self-justified. It is not new, nothing has changed, same problems, predictable government’s reaction, and similar foul cry from citizens, and then all die down, to simmer till next cycle. The late renowned Economist and Public Commentator, Henry Boyo, did warn us in his several public interventions on the matter, that this problem would not go away unless we find the courage to take tough decisions.
No doubt, this Administration has been quite lucky when it comes to citizens’ patience, tolerance and trusts, and could have midwifed such tough decisions successfully. However, policy inconsistencies, unfulfilled promises, poor public communication and engagement have been its bane. Notwithstanding this, the choices before this government on the ‘deregulation’ and removal of subsidy in the energy sector are not pleasant, if we must be fair. There are credible arguments on both sides of this divide, and it is imperative that there is sincere and robust dialogue and engagement, in an atmosphere discharged from pervasive cynicism and arrogance of power on either sides.
So what is government saying to justify this no-doubt harsh policy action? The Federal Government of Nigeria, in a rehearsal of very familiar lines that successive governments have deployed shamelessly over time, gave reasons why this line of action is inevitable.
According to the Minister of State for Petroleum, Mr Timipre Sylva, Nigeria losses N1trillion annually to petroleum subsidy, and thus, putting pressure on scarce resources available for infrastructure development. Cross- border smuggling due to price disparity, fluctuating price of oil in the international market, and the pressure on the Naira due to the heavy Forex required, are among reasons adduced. Government therefore, posits that only total deregulation, and hence, removal of subsidy would resolve these problems. While this may be true, therein lies some contradictions, which we shall talk about in this article.
On the reason for electricity tariff hike, again the reasons adduced are not new, and put credibility of government to test. Nigeria’s experience in the unbundling and subsequent privatisation of the electricity sector, is perhaps, unique in the world. Everybody is complaining and bitterly too; government is complaining of spending scarce resources to subsidise electricity, the private sector operators are complaining of low tariff as disincentive for investment (even as they get government intervention), and citizens on the other hand, are complaining of paying for darkness. Who then is benefitting from this power contraption, one may ask?
Nigeria is said to have an installed capacity to generate about 13000MW of electricity, though has capacity to transmit just about 7000MW, and of this lot, the infrastructure for distribution is less than 5000MW. In the face of this, over 80 million Nigerians, according to Ahmed Zakari, a Special Assistant to the President on infrastructure, have no access to the grid. The problems of the sector are numerous, and at the heart of it is poor infrastructure and inadequate investment, which is exacerbated by a debilitating subsidy regime. Compared to Brazil, a country with a population just a little above ours that generates about 200,000MW, and South Africa with a population of only about 50million, which generates 40,000MW, Nigeria’s generation, transmission and distribution capacity is grossly in adequate and abysmal, and yet riddled with inefficiencies.
This is, no doubt, a major reason for the country’s under-development and poverty prevalence. Government equally tries to spin this off as mere restructuring of prices and not a tariff increase, but that is rather cheeky because the criteria for determining who pays more, is the number of hours of supply you purportedly get and not minding quality of that supply or the veracity of service providers claim. Who monitors the supply and the corresponding bills in a country where the larger percentage of electricity subscribers are bedevilled by fraudulent estimated billing which has refused to go, despite governments shouting and threats?
Interestingly, while majority of the political class are divided across party lines on these crucial issues, some decent politicians and technocrats are able to think through and speak to the core of the matter.
1) Kingsley Moghalu
For instance, Professor Kingsley Moghalu, a former Deputy Governor of the Central Bank of Nigeria (CBN) and former Presidential Candidate in the 2019 general elections, opined that the removal of subsidies is inevitable. Sharing his thoughts on a television interview, he said subsidy and regulation of the sector is not sustainable in a situation where government subsidises electricity by about N22 being the difference between the actual kilowatt cost of N53 and the consumer tariff of N31. He said the Federal Government spent N560 billion on electricity subsidies in 2019 alone, accounting for about 7% of the budget. He however, laid the problem squarely at the doorstep of successive and incumbent administrations, for poor and suboptimal management of the economy that in turn, has impoverished Nigerians to the point that they are unable to afford proper prices for basic and essential services.
2) The Citizens
On the side of citizens, there is clarity about what they want and do not want, and this has been consistent over the years. The simple logic here is as follow; if you are unable to provide me with functional public transportation, if you are unable to guarantee me adequate power supply for my domestic and business needs, if you are unable to pay a minimum wage that could afford me the cost for the consequences of your economic policies, if despite all the taxes, levies and oil revenue, I still have to provide all basic social services for myself, then government has no justification howsoever, to impose further hardship on me as a citizen. If government, since 1999, and especially the administration of President Muhammadu Buhari, despite promises he made in 2015, is unable to fix our moribund refineries in five years, and unable to invest in infrastructure for adoption of Compressed Natural Gas (CNG) as alternative to petrol, if for five years the administration has been unable to achieve efficiency in the electricity sector in spite of trillions invested in this privatised industry, then government lacks all moral and political justification for rehashing the overused and abused subsidy removal and deregulation claims, hence, hike not my tariff, and do not my subsidy remove.
Justified anger and mistrust of government, has led to public cynicism that has deafened citizens’ ears to any sense in the argument of government. True, the queue at filling stations have disappeared, and there has been major investment in building mass transit infrastructure like rail services and fixing/building of some critical roads and bridges, none of these could matter to a citizen whose income has remained stunted in the face of bloating tariffs and taxes. A citizen who has come to hear same story over the years from successive administrations, yet nothing changes.
Reflecting deeper though, we must ask ourselves tough questions, how much choice do we as citizens have in this matter? After protests and expression of our justified frustration and indignation at government’s insincerity, so what is next? If government is forced by the strength of our demonstration and they reverse to status quo ante, would that be victory for the people? Does that end the vicious cycle once and for all? Would it translate to the efficiency and profitability we desire for this critical sector, or do we simply go on spending close to 20% of annual budget to maintain a façade? Would citizens be willing to give government another chance to remove subsidies, and hopefully, use the money to build infrastructure? Will removing the subsidies truly make the sector profitable and attractive for investors? And finally, which will come first, the egg or the chicken, remove subsidies and use the money to build infrastructure, or build the infrastructure first, so that citizens won’t feel the bite of subsidy removal so harshly?
The Catch 22 Situation
As I earlier described, there are no easy ways out for either side. We need strong leadership that is sincere, compassionate and ready to engage. The attitude of government on this matter has not encouraged fair engagement, and it appears that government is listening only to itself. In an interview on television, the Group Managing Director (GMD) of the Nigeria National Petroleum Corporation (NNPC), Mr. Mele Kyari, appeared comfortable when he explained off the decision to shut down completely the four refineries in the country, due to their need for rehabilitation. The GMD, when faced with a question on the appropriateness of selling Forex to the Pipeline Product Marketing Company (PPMC) at a special rate by the CBN, thus, making the PPMC the sole importer of petroleum product, could not deny the unsustainability of such in a regime of deregulation and subsidy removal.
Why retain the Petroleum Equalisation Fund (PEF) and the Petroleum Product Pricing Regulatory Agency (PPPRA), after several claims to deregulation. In a properly deregulated petroleum downstream regime, these two bodies have no usefulness whatsoever. When asked about this, the Minister of State for Petroleum in one breath claimed they would be scrapped, and in another breath said they would be reformed and reintroduced through the Petroleum Industry Bill (PIB). This double speak, makes it difficult to trust government.
The usual kites that successive regimes, and particularly this administration often fly, is to claim that the entire subsidy regime has no impact on the poor, and it is only serving the interest of the affluent. This is strange and quite untrue, to say the least. It is one more contradiction in government’s narrative, that makes it appear callous and uncaring. Each time you have a cycle of subsidy removal and deregulation, the cost of public transportation increases and never reverts, even when there is any reversal of policy, thus, placing the common man at the mercy of shylock transporters. The common man’s neighbourhood, is the one that gets the worst supply of electricity. In their drive for profit, the electricity distribution companies prefer to sell to affluent neighbourhoods for a premium, while denying less privileged communities the service they deserve; thus, leaving the poor to spend scarce income to buy deregulated fuel to service their I-better-Pass-My- Neighbour generators.
Truth be told, even if government meant well and is ready to negotiate with citizens on the best way to eradicate subsidies, there might be Constitutional impediments in the way. Citizens and entities that feel so inclined, may decide to take legal action against this decision. Late Bamidele Aturu of cherished memory, a Lawyer and Civil Rights Activist, got a judgement from a Federal High Court sitting in Abuja in Case # FHC/ABJ/CS/591/2009: BAMIDELE ATURU v MINISTER OF PETROLEUM RESOURCES & ATTORNEY-GENERAL OF THE FEDERATION – Justice M. Bello ordered the Defendants, their agents, privies, collaborators and whosoever and howsoever, to desist from deregulating the downstream sector of the petroleum industry or from failing to fix the prices of petroleum products as mandatorily required by the Petroleum Act and the Price Control Act. This is just an example of many factors that the Federal Government appears not to have taken into consideration, before taking this line of action.
In conclusion, the government needs to do a lot of social marketing of this policy, because it pinches very real in the lives of the masses much more than the President or any of his appointees could ever imagine. So far, it may be suggested that government is indifferent to the cries of citizens. Many State governments are yet to implement the N30,000 minimum wage, even as many Nigerians have lost their means of livelihood due to the pandemic. Nonetheless, it is important for citizens to take a second look at the situation, and be guided in our conclusions and positions. Difficult times such as this would require the President to rise up and reach to out to the citizens with a realistic plan and reassurances, in a bid to up the level of public trust, but that may not be the style of President Muhammadu Buhari. In his closing speech at the recently concluded First Year Ministerial Performance Review Retreat, the President charged his appointees thus: “I have to charge all of you to defend the Government vigorously, and not allow irresponsible and politically motivated activists to keep spreading patent falsehoods about this government. Information to the public, should be better packaged. Go on the offensive. We are proud of our achievements, and we should blow our own trumpets”. Statement like that, may conflagrate an already charged situation.
We do acknowledge however, the seeming rapprochement by the President, when he directed his Labour Minister to meet and dialogue with the organised labour. The solutions to this particular and peculiar recurrent problem neither lie in the street of protests, nor in any offensive self-glorification by appointees of the President. The solutions lie in frank, robust and sustained engagement that must lead to a situation where government once again, give citizens reason to trust the State.
Sulaimon Arigbabu, Human Rights Activist, Lagos