One of the measures a government, in power, takes to make available some services or essential commodities to the majority of citizens is by way of subsidies. It is a form of equity – the concept of social justice that there are some basic needs that people should have and spread without impartiality. Petrol, popularly known as premium motor spirit (PMS) has fallen into such category in Nigeria in recent times. Apart from millions of petrol cars, for those who are lucky, the majority of the people commute on petrol-driven buses, danfos, Keke-NAAPE and motorcycles. The more efficient, like diesel-driven – buses or trains or electric trams – should there had been a well-drawn out strategic mass mobility system is eluding us. Besides, a substantial quantity of PMS is used to generate electricity using petrol generators due to the lack of public utility power supply. That has contributed to the additional PMS consumption, and of course, the associated subsidies. Of great concern to the economy is the use of petrol that powers the very many generators, scattered all over Nigeria’s landscape.
Subsidies in whatever form or guise are a squandering of resources if not applied with efficiency. It is about time Nigeria weighed the consequences of the use of petrol to generate electricity, particularly now that subsidies bill in three months has topped N319 billion. It sure is a squandering of Nigeria’s resources. The International Monetary Funds (IMF) recently stated that Nigeria has no alternative to doing away with petroleum subsidies. Otherwise, the country’s economic growth will remain stunted. The government seems aware but still cannot figure out how to go about it. How would the government get rid, overnight, of such social support? PMS has become an essential commodity, which provides an affordable lifeline to the majority of people in Nigeria to generate power as well as propel their mobility. It is now more than ever before, inevitable to separate equity from efficiency without hurting the economy as it were.
The fact that people, generally, only use their generators when grid power is not available and not simultaneously with the public utility is helpful. The Nigerian National Bureau of Statistics (NBS) data on the consumption of PMS in Nigeria, apart from those used in vehicles, was at 43.7% in 2017. The estimated number of private generators scattered across Nigeria as of 2014 figure was over 60 million units – with petrol generators being the bulk. The absence of constant public utility power supply, therefore, has a direct link with the increased national PMS consumption, as well as the associated subsidies. Unfortunately, the country’s grid power is currently fraught with challenges. The writer believes a government policy could mitigate the volume of petrol consumed and thereby save on the associated subsidies.
I suppose a presidential executive order that prioritises power supply to households and light businesses would
mitigate subsidies on PMS. These are the bulk users of petrol to generate electricity. It would reduce the consumption of PMS significantly. The present capacity on the national grid, however, is low. Consequently, to release adequate power to the domestic sector, the situation would beg to isolate some maximum consumption customers from the network temporarily until the supply capacity grows. Nigeria could do this while it waits for Siemens to give light. One of the immediate negative impacts would be on the cost of production of goods – a significant concern in the economy, though. The second would be a loss of higher net revenue by the DisCos concerned. Let us face it, how much of grid power do they use in the manufacture of products in Nigeria presently in any case? Most manufacturers switch to their generators for production because of the unreliability of the country’s public utility electricity.
Grid electricity has economies of scale on its side; hence, on balance, it is less squandering of the nation’s resources. If the aim is an efficient use of resources, the savings from the subsidies above could discount the energy bills (diesel or gas) of the maximum consumption consumers. Though not ideal, it would be subsidising production as against consumption, and arguably act as a catalyst to increase employment opportunities. Undoubtedly, there will be an avalanche of a falling row of dominoes in the economy, including rendering over 60 million power generators scattered over the Nigerian landscape unnecessary, overnight. Nevertheless, what matters at this juncture would be the net outcome on the economy. The country’s current supply capacity is below the 5,000 megawatts ceiling out of the 13,000 megawatts installed capacity. The Nigerian Electricity Regulatory Commission could mitigate the DisCos’ losses if it urgently reviews the current tariffs upward. Close cooperation with factories and notice of the amount of power a factory shift needs in advance and when could still connect the maximum consumption consumers to the grid at certain times.
There are issues with costing as being agitated by those in the industry. There are three critical components to cost-reflective tariffs. Firstly, there is the cost of power used – measured by the consumer’s meter. Secondly, there is the cost associated with making electricity available anytime; this is irrespective of whether the consumers consume power or not. Thirdly, there is the cost to provide a reserve capacity to cater for disturbances on the grid, during specific applications of electricity that prevents system collapse. The existing grid capacity, as we all know, is inadequate, and the demand is huge for the lifestyle of the people in Nigeria. The widespread use of air conditioners, though an absolute necessity, is a strain on the grid capacity as it were for example. The DisCos, also are currently battling with electricity theft by consumers, mainly perpetrated by metered consumers at their premises by bypassing their meters.
The supposition is a lineal scenario, but it is worth considerations. Besides, every day would be like any day on a public holiday that had been the pattern over time when residents enjoy longer hours of grid electricity. It would be the first experience most inhabitants in Nigeria would enjoy the bliss of uninterrupted power supply for that long. For just prioritising continuous power to domestic and light businesses, the logjam in power supply could appear unlocked temporarily. There would be a reduction in fuel subsidies by over forty per cent; also a significant reduction in fuel imports. The manufacturers on the scheme would have their energy bills discounted as the government ploughs some of the savings from the PMS meant for petrol generators to lower the costs of production in the industry.
It sounds like fiction. Of course, it is fiction, but so was the StarWars. It is a mere futuristic projection and a possible foundation for close cooperations by the stakeholders in the power sector. It also justifies the inevitability of coordination in the economy if there has to be double-digit growth. So the country needs someone to coordinate Nigeria’s economic activities, including the power sector. And if it has to be the president, there should be a council of advisers for holistic review. The conversation may have started in how to manage the little power that Nigeria has, while the whole country waits for Siemens. The certainty of regularity in the small power supply generated should be the next level now, to grow the sector. Now let’s get down to brass tacks and promote the fundamentals that would bring security to power supply business. That, amongst others, is to make increasing the market share of local industrial outputs our priority. If the local producers sell more of their products, they will consume more power regularly. Only then would there be incentives for the power sector to generate and distribute grid electricity and expect good returns for the investment in the power industry. It is a question of the chicken and the egg, which should we do first. I will suggest the priority is to grow the market share of the local products, because it also widens employment opportunities in the country, while we wait for power.
Samuel Akinyele Caulcrick
Author of Power In Nigeria, will there ever be light?
Visit www.powerinnigeria.com for free download of book Lagos.