Date Published: 11/10/10
Energy Crisis and Manufacturing: The Way Forward
The absence of a stable and effective power system is perhaps the single most important factor mitigating against a sustained growth of the Nigerian economy. Governments have in the past made promises on improvements in electricity supplies, all of which have failed to materialize. It is estimated that a stable electricity supply system will lead to a 25 percent increase in the rate of economic growth.
The power sector is presently in a crisis, and the Nigerian people expect the next government to ensure that the electricity supply situation records a significant year on year improvement within the shortest possible time. Indeed the success or otherwise of the next government may be determined largely by whether or not it is able to improve the power supply crisis.
The national grid presently operates on a radial system, which is extremely fragile and prone to breakdowns. Due to the fragility of the national grid, generation levels above 3,500MW frequently lead to national system collapse. Construction of new power stations, rehabilitation and expansion of transmission and distribution networks are currently underway to bridge the electricity supply gap. These include the eleven host power plants being constructed by government. These are expected to be commissioned by the end of May 2011.
Seven of the plants are in the Niger Delta, and are being developed under the aegis of the National Integrated Power Project (NIPP). The other four include three that have been constructed using “soft loans” provided by The Chinese government – in Ajaokuta, Geregu and Papalanto. There are also other private independent power projects, some of which have come on stream or under construction, for example, AGIP and SHELL plants respectively. Altogether, we should be able to operate at least 10,000 MW of electricity when all current projects are completed but these assertions are doubtful as the actual generation has not exceeded the figure of 3500MW over the last 10 years. (See Table 1, 2 and 3 as appendixes)
Given the realities prevalent in the electricity sector, namely, inefficient operational and financial performance; inadequate transmission and distribution infrastructure; poor payment and collection culture and dearth of investment capital; the supply of electricity generated to consumers and the collection of concomitant revenues could provide serious challenges in the short-term.
In addressing the inadequate provision of infrastructure, government must close the gap in the transmission network thereby making it a proper grid system as opposed to a radial system. This will make the system more reliable and less prone to national system collapses. Although distribution is receiving attention, it is, however, not certain that a clear policy on how to bridge the infrastructure gap at this level has being adequately addressed.
Ostensibly, there are some critical issues that have to be addressed if generation, transmission and distribution are to improve substantially and thus improve the quantity and quality of electricity services to the generality of Nigerians.
We must continue with the restructuring of institutional and organisational structures of the industry based on the premise of competition and by implication, choice.
We have to clearly define the role of government which is to focus on policy formulation and to provide direction, support and legislation for the industry, while the role of the private sector will be to focus on operation and development of the industry.
We need independent and effective economic and technical regulation to attract private sector participation and investment while concomitantly protecting the public interest.
Appropriate industry structure will also have to be based on the ultimate objective of providing electricity services to the generality of Nigerians at reasonable costs while ensuring the financial viability and long-term development of the industry.
With regard to infrastructure, although government set a target of 10,000MW and is currently developing eleven power stations to realise this target, it is doubtful if 10,000MW will meet the medium-term electricity requirement of the country much less the energy required to meet the goals and objectives of NEEDS and MDGs.
Although transmission network is being reinforced and expanded to make it more reliable and less susceptible to national outages, the on-going transmission plan is hinged on 10,000MW. Significant investment in transmission infrastructure will be required if the quality of service is to improve particularly as the preponderance of power plants are being constructed in the southern part of the country.
The distribution sector is the weakest link in the electricity chain. The estimated technical distribution losses, non-technical losses and collection losses are appropriately seven, twenty seven, and twenty three percent, respectively. The implication is that more than half of electricity generated is not accounted for, from a revenue collection perspective.
Inadequate metering, as captured in non-technical losses, is an issue that is capable of seriously undermining the viability and long-term development of the industry. To address this problem, a far-reaching and widespread metering programme will have to be embarked upon to ensure that all consumers of electricity do pay for what they rightfully consume.
There are also operational issues. For instance, it is important that fuel availability, particularly gas supply, is improved upon to reduce the adverse impact of interruptions in gas supply that have become manifest with Niger Delta strife and maintenance of Nigerian Gas Company pipelines.
Development of gas supply infrastructure outside the Niger Delta area must be addressed to avoid the disruptions caused by pipeline vandalisation.
Currently, pricing and electricity tariffs are inadequate to cover cost of providing electricity services. To encourage investment and ensure viability of the industry, prices must be cost reflective. This responsibility falls under the purview of the Nigerian Electricity Regulatory Commission (NERC).
Other issues that are capable of undermining the financial and operational performance of the industry are the legacy of debts (including pension liabilities). It is imperative that these are addressed. The two policy options are for government to either assume the bulk of the debts and defray them with budgetary provisions or to leave the debts within the industry and recoup them by increasing end-user tariffs.
With the best of intention and purpose vis-à-vis efficient provision of services, revenue shortfall will persist in light of the quantum of losses prevalent in the industry. The two options are for government to provide support and/or allow prices to increase to a level high enough to cover the shortfalls.
To encourage private investment, government will have to institute a set of fiscal and investment incentives.
Specific initiatives needed in the short-term will include adopting a 2-tier approach – an emergency power programme (EPPs) that can deliver additional capacity in certain key areas (as was done with AES in Lagos and Geometeric and Aggrecko in Abuja), and also ensuring the completion of the power plants, distribution and transmission infrastructure currently under construction, and a National Power Programme (NPP) to be pursued over the medium-term.
THE STATE OF THE NATION
A Nation can only advance forward in the provision of power, infrastructure, water supply, and security and as well revolutionise the state of agriculture, housing, education, health and employment, if there is Corporate Social Responsibility in governance. But from events and observations hereunder, it is not practicable for us to do so.
i) The Energy Information Administration of the United States Department of Energy indicate that Nigeria earned $48 billion from January to September this year, far outstripping projections for the year but has not been accounted for.
ii) It really boggles the mind that the country should be talking about engaging in borrowing at this critical period when there is an abundance of resources at her disposal. This is probably why the House of Representatives threw out the proposal from the Presidency to take a loan of $4.4 billion purportedly to take care of certain “critical infrastructure”.
iii) Nigeria’s debt is currently put by the Debt Management Office at $29 billion, out of which $25 billion is domestic debt. The Minister of Finance, Olusegun Aganga, explains that the country must borrow because the level of debt is still low. But must we borrow for the sake of borrowing? What kind of “critical infrastructure” does the government plan to provide that cannot be done without borrowing?
How the government spent the $48 billion reportedly earned from oil this year is what Nigerians should be interested in for now.
i) Where has the money disappeared to; when the roads in every part of the country are in a most deplorable state?
ii) What has happened to $48 billion if the power situation in the country has still not improved?
iii) How can we justify earning that kind of money when the rail system has remained in the same primitive state as when the colonial masters left the country more that 50 years ago?
iv) How can a country that has earned that amount of money and has been consistently reaping generously over the past ten years justify the fact that only 17 percent of the people have access to clean drinking water?
v) What is happening to the education system where lecturers in parts of the country have been on strike now for the past 93 days?
vi) What is happening to the state of health care; where cholera? has killed more than 1,500 people?
vii) How can the country contemplate borrowing when even the funds earned so far have not been properly accounted for or disbursed?
viii) Why can’t the Nigerian government be thinking along that line of the advanced countries like the United States and Britain by cutting cost of governance?
ix) Why has the government not taken a look at the various areas of waste and how to cut back on such waste?
x) Why has the excess Crude Oil been distributed to the States when the Nation is in distress from power supply, education, agriculture, health and unemployment at a time when the people cannot be assured that the funds will be used for any other purpose other than politics?
xi) Why is Nigeria still selling crude and not refined oil?
xii) Why is it not surprising that more than four months after the renowned academic Prof. Ise Sagay, revealed the huge sums of money that the legislators were earning, nothing has been done about it?
Sagay told Nigerians that the country’s political office holders were the highest paid in the world. He went on to state that the President of the Senate for instance, was earning about N88 million a month, while other senators earned as much as N240 million per annum (about $1.7 million). Are these not critical area that must be reviewed especially when compared to the fact that the American President earns $400,000 per annum and the British Prime Minister is on a salary of £190,000 a year. Money saved here could be ploughed into infrastructure development and Power Generation for Industries, Schools, Hospitals, Court of Justices and Leisure.
All the government firms that have failed to deliver, including the moribund refineries, Ajaokuta Steel Company, Power Holding Company of Nigeria and Nigerian Telecommunications Limited should be resuscitated with the assistance of the World Bank and its subsidiary World Bank for Reconstruction and Development.
There is also the need to expand the revenue base of the country. It is a shame that 50 years after independence, the country still relies on oil for more than 90 percent of her external earnings. What happens to solid minerals and agricultural products which used to be big income earners in the early days of independence?
CONCLUSION – ROAD MAPS FOR NIGERIA WHICH SHALL CONSIST OF THE FOLLOWING REFORMS
From the foregoing, the following recommendations are apparent and imperative:-
i) Amendment of the 1999 Federal Constitution to reflect the Federal Character of the Nation as expatiated upon by Tafawa Balewa in one of his speeches to the National Assembly during his tenure of office in July 1958. In an analysis of the our normal budget by the writer it is established that 82.6% of the current expenditure in any budget year is spent on travelling and salaries; but when the current expenditure on Salaries and Travelling in the 36 States of the Federation are added, the figure of 92.8% is realised as Recurrent Expenditure for Salaries and Travelling in any one year; a burden which the Nation cannot sustain if we have to develop.
ii) The concentration of power in the Federal Government especially in the agriculture, land tenure system, forestry etc is not in our National interest as Nigeria is a creation of the States and not vis-à-vis;
iii) The pursuit of corruption and the law relating thereto must be amended and entrusted to the Judiciary in order to enhance operational efficiency. The establishment of a Corrupt Practices Court is therefore imperative.
iv) The Central Bank should assume full responsibility for the custody, control and management of the funds of the Federation. The Nigerian Deposit Insurance Corporation (NDIC) should be enhanced so that its functions are not duplicated in the Central Bank of Nigeria;
v) The duties of Power Holding Company of Nigeria Plc (PHCN) should be amended to include “transmission” as no foreign investor will participate in the generation of power and thereafter transfer it to the Federal Government. Business is never conducted in that way in any part of the World.
vi) The Ecological Fund in the Constitution should be amended to include the protection of water resources in Nigeria so as to put an end to the present health hazards facing the citizens of the country because of the lack of good water supply and electricity.
Let me end this short address by calling on every citizen of Nigeria to recognise that it serves no useful purpose to destroy the institutions left by our forefathers for which we are proud:
“A Nation stoops to folly, and find too late that the leaders betray.
What charm can sooth their melancholy.
What Act can wash their guilt away?”
Adapted from Oliver Goldsmith in his Book “Letter to Vicar of Wakefield”.
This Nation, in the words of Sir Amadu Bello needs the Restoration of Hope but not Fear in Governance. So Help us God.
God Bless the Federal Republic of Nigeria
God bless you all
Chief D. O. Dafinone, OFR