How we would fix the electricity challenge

Electricity is the foundational pillar of our twenty-first century industrial economy. Any country that cannot provide universal access to power for all its citizens falls well below the Global Standard of Civilisation as understood in our epoch. According to estimates, more than 1.1 billion people globally lack access to electricity. Within sub-Saharan Africa, only 42% of households have access to electricity. This translates into some 600 million people within our continent that have been consigned to the darkness of the Middle Ages.

And according to the World Bank, only 59.3 percent of Nigerians — a staggering 80 million — have no access to electricity. As matters currently stand, Nigeria remains at the bottom ranks globally for electricity generation and consumption. Our per capita consumption of electricity, according to a World Bank index, is a mere 144.48 kWh, in contrast to South Africa’s 4,198.40 kWh and Malaysia’s 4,596.33 KWh. When compared to the advanced industrial nations, our record looks even more abysmally poor. The average annual per capita consumption for the United States is 12,983.33 KWh while that of UAE is 11,263.53 kWh and that of Sweden is an impressive 13,480.15 kWh. The tiny continental European nation of Iceland holds the world record of 53,832.48 kWh.

Several barriers hamper optimal electrification in developing economies.

First, there is the high cost of providing electricity to urban, peri-urban and rural areas. Most such areas are characterised by low population density as well as prevalence of poor and impoverished households. In such areas demand for electricity is often restricted to households and a few agricultural consumers. Several of such households consume less than 30 Kilowatt-hours (kWh) per month. These factors generally make provision of electricity to such households a rather expensive proposition.

Second, there is the problem of lack of adequate incentives. The prevalence of poor households with limited demand for electricity and insufficient income to pay the minimum costs often means that government must come up with the right mix of incentives to attract investors in the power sector. This entails a system of fair tariffs together with subsidies that may have to be borne by government. There should at least be in place a system of progressive rather than regressive tariffs, ensuring that affluent areas pay more for electricity than power impoverished ones.

A third barrier is, quite simply, weak implementation capacity. The power sector requires highly skilled and competent technical staff across all levels of the value chain. It requires also that there should be skilled people not only at the policy level, but within the sectors of generation, distribution, maintenance and regulation.

A fourth element is population growth. Where the demographics outstrip supply and distribution by a large order of magnitude, several countries are walking fast just to remain in the same place. For example, Nigeria’s population doubles every generation. The rate of urbanisation is reaching such an accelerated stage that it requires stupendous efforts to invest enough to provide basic access to most of urban dwellers.

Lessons from World Bank power projects in countries as diverse as Thailand, South Africa and Zimbabwe indicate that the critical success factors in the power sector require the following: proximity to distribution network/other electrified villages; reasonable proximity to good roads; the target community must also be of a reasonable size;   the number of initial consumers and connections should also be of a reasonable size; existence of a local industry also helps, for example, rice mills, power tools, pumps and other such activities requiring electricity, complimented by several other commercial establishments; and there should also be complimentary public infrastructure facilities such as roads and water facilities.

In the case of Nigeria, the unbundling of the power sector during the Third Republic under President Olusegun Obasanjo led to the emergence of the Power Holding Company of Nigeria (PHCN). Electricity supply was deregulated through emergence of independent power distribution companies (DISCOs). The Electric Power Reform Act 2005 was a major milestone. It led to the emergence of 6 generation companies and 12 distribution companies covering the 36 states of the federation. However, power distribution remains in government hands. Over the last decade the federal government has spent over US$25 billion on the power sector. Unfortunately, the maximum we have attained in terms of power generation is a 7,000 MW, of which only 5,000 MW is actually being distributed. Quite apart from the problem of generation, pricing and distribution remain a challenge.

The central problem with the power sector is fundamentally the fact that it remains a highly centralised operation. What we need to do is to decentralise power generation and distribution. We need to allow states working individually or as regions to invest in power generation and distribution. We also favour a modular approach in which states and regions can generate and distribute their own electricity. The federal government will play a steering role, but need not be a dominant or exclusive monopoly. We must also invest heavily in distribution sector. What we currently lack as a policy is commitment to deregulating the distribution sector and to bring in foreign investors.

We need a leadership that is committed to a policy of universal access for all. We believe that universal access to electricity is not a privilege; it is a right for all our citizens. However, we are aware that many communities live in isolation from the main national grid. We would make efforts to reach them by extending the national grid network. Where this is not feasible we install off-grid sustainable energy systems in its place.

If I had my way I would decree an Executive Order requiring all government buildings at federal, state and local government levels to have off-grid power systems installed on them. Solar panels should be installed on the roofs of all government buildings, including schools and clinics. This is, of course, not a complete solution. But it will reduce the deficit by a considerable margin while boosting productivity and efficiency. We can only imagine what a boost it would be for rural schools and for rural clinics. In the case of the latter, it would be possible to store vital medicines and blood banks that would be vital life-savers for expectant mothers and their infants.

It is imperative that government revisits the power sector with a view to designing a comprehensive solutions-based approach.

A major issue is political capture by vested interests. Those who are engaged in importation of generators would do anything to kill the power sector. Some of these people have held key political appointments, and ironically, were even involved in implementing our national power policy. They chose to implement in a way that would ensure failure in the power sector, thereby creating rent-seeking opportunities for themselves. Today, Nigeria has the dubious prize of being the world capital for importation of generators. These generators not only create the externalities of environmental and noise pollution; they feed into the diesel-importation cartel. Nigerians are the worse for it.

We must therefore upscale power distribution to at least 20,000 MW while boosting distribution by 100 percent. It is foolhardy to lump the power sector together with works and housing. We need a stand-alone power ministry with a minister who is committed and passionate about Electricity for All. We shall bring in foreign partners and investors. We shall take a hands-on approach. We shall declare a State of Emergency on the Power Sector. We shall not allow anyone or any selfish interests to stand on our way. Part of the problem with this vital sector is theft and vandalisation of electrical equipment. We shall institute maximum punishment for such crimes. There is also the problem of poor maintenance culture. The DISCOs have little or no interest in maintenance. Once they are guaranteed a steady income stream, they could care less about maintenance. We shall empower the Nigerian Electricity Regulatory Commission (NERC) to monitor the issue of maintenance and to exact fines on companies that fail to respond immediately to breakdowns and customer complaints. We are also prepared to re-nationalise power companies that fail below statutory expectations.

Electricity is a fundamental pre-condition for our much-vaunted industrial revolution. I have always insisted that Nigeria must become an industrialised nation or we would regress into a backward, fourth-world anti-civilisation made up of a vast army of angry, hungry, unemployed youths.

Our population doubles every 30 years. In 1960 our population was 56 million. In 1990 it doubled to over 100 million. Today, it is 200 million. In 2050 our population is projected to overtake that of the United States to occupy the number 3 position, behind China and India. We must run while they walk. We must model electricity demand in a manner that pre-empts our expanding demographics. In the year 2018 we must plan ahead for the coming decade when our population would have risen to 240 million. We have to run just to meet the most minimum expectations. Not long ago an econometric study by the CBN projected that tackling the electricity deficit alone could boost our GDP growth by as much as 62 percent.

The Nigerian people cannot afford to wait any longer. We must move with speed. Providing electricity for all, will, of course, cost humungous amount of money in terms of investment capital. We will pay the price. We shall explore domestic as well as international sources for capital for the power sector.

There are large pools of local savings that can be tapped. We shall source financing from the large accumulations of pension funds. And such capital will be guaranteed by government. We shall partner with foreign investors to attract investments into the power sector. We shall enhance transparency both in policy and within the framework of implementation and the key operational institutions.

Our focus will be on completing the outstanding projects on power generation while tackling structural bottlenecks surrounding distribution. We shall set up a Situation Room that will monitor and regularly report on progress on implementation on a monthly, quarterly and annual basis. Obstacles discovered will be isolated and tackled.

According to the global consulting firm, Deloitte, successful electrification in emerging economies requires focus on three principal areas: bridging the financing gap, enabling energy transactions, and unleashing radical transparency. They also advocate use of modern ICT such as digitalisation and blockchain to facilitate transactions or any transfer value in a manner that is verifiable and permanent.

The enabling environment matters. We need a stable geopolitical and macroeconomic environment that is friendly for power projects; and that ensures their successful operation. Policymakers must be committed to the power sector and must prioritise energy as the central factor in economic development. Linked to this is commitment to building viable public-private partnerships for successful national electrification efforts.

Focus must be on the power value chain, from generation to distribution, consumption and regulation. We must nurture an environment that is favourable to investments in the power sector and that ensures a win-win scenario for investors, operators and consumers. Equally vital is developing policy pathways with clear roadmaps that take account of demographics and demand and their linkages to generation, distribution and consumption. What is essential is to ensure technically and financially viable operations across the broad spectrum of the value chain. Government must also invest in R & D and human capital to ensure not only innovation but improved skills and capacities to deliver Electricity for All.

Ultimately, government must play a catalytic role, in partnership with key domestic and external stakeholders and local communities. Involving local communities in planning energy policy will obviously enhance their sense of collective ownership and will contribute to ensuring successful implementation. Indeed, the question of ownership is fundamental. It is essential that electrification projects are organised around local ownership, so that communities have a stake in the projects. Cost of capital also must be controlled. For example, if metering proves rather expensive, consideration could be given to estimates based on standard pricing around average and maximum consumption rates.

 

Obadiah Mailafia

 

 

 

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