Part one of this article reviewed the history of liberalization of Nigeria’s electric power sector from 1896 to the present, noting that the capacity shortage nevertheless remains pervasive.
Nigeria like many countries of the world provides subsidies for the electricity power sector explicitly or implicitly, to producers and consumers. Justifications for their use vary from social welfare protection, job creation, the encouragement of new sources of energy supply, and economic development to energy security. Consequently, the government is faced with formulating a tariff structure to incentivize power generation and distribution on the one hand and social implication of market determine by subsidies for those at an economic disadvantage position on the other.
The government should be concerned with the effect of subsidies to increase of output capacity, and the encouragement of private participation. It is undeniable that with the revised 2012 tariff structure, Nigeria has one of the median electricity rates in the world. In mid 2012, NERC increased electricity tariff at a rate of N11 and N12 for middle class consumers.
Highest income consumers living in areas designated as R3 and R4 paid higher rates – as much as N23.71/kwh with fixed meter charges of N21,256.30 and N118,830.56 respectively. This cost-reflective tariff regime is crucial to the recovery of expansion and efficiency in the sector – get market signals right so that prices can reflect the true cost of producing and consuming power.
Preferred bidders for distribution companies was carried out and awarded late last year. There were allegations of misdeeds in the bidding process. It was alleged that political brinkmanship was exercised in the process – past political and military leaders were the beneficiary of the process. It was also alleged that the process was not transparent. Prof. Bart Nnaji – then Minister for power lost his job in the process.
*PHCN transformer
The issues of transparency and political will were also raised on the contracting of transmission rights. The deal is reported to have been contracted to a Canadian firm Manitoba Hydro Power at a cost of about $ 23.7million or N 3.7billion. The company was expected to have formally assumed control of the Transmission Company of Nigeria operations on Monday, July 30. Although there were some roadblocks to the execution of the contract, Manitoba is set to take over control of transmission in Nigeria
It is axiomatic (and supported by the empirical evidence) that corruption discourages private investment, retards growth and inhibits poverty reduction efforts. In the energy sector for example, the delivery of energy moves from generation to transmission, to wholesale distribution and finally to retail distribution.
Corruption can occur anywhere along the line. In generation, for example, it can occur in the licensing stage –where government officials might be tempted to ask for kickbacks in the issuance and renewal of generation licenses. Also, contracting for Power Purchase Agreements with state entity including payments for power generation can attract corrupt practices.
Furthermore, management of public finance is crucial to sector performance. For this reason, there are frequent attempts to explore vulnerabilities on both the expenditure and revenue sides of public finance. Due to the intricacies involved, budget management is frequently afflicted with inefficiencies and corruption.
This can take the form of diversion of budgetary allocations towards activities that have greater potential for kickbacks, bribery, and fraud or theft. In the energy sector for example, this can occur in both the legislative and executive arm of government – budgetary approval process for the electricity power sector in the allocation of subsidies, procurement etc.
A close examination of Nigerian electricity sector reforms suggests that corruption was a major factor in the cycle of failure, inefficiencies and capacity shortage. It is a public fact that the Nigerian society is plagued with serious corruption, hence the creation of the Economic and the Financial Crimes Commission (“EFCC”) and the Independent Corrupt Practices and Other Related Offences Commission (“ICPC”) to fight this vice. The EFCC until recently was very effective in fighting graft and financial crime in Nigeria.
The liberalization of an electricity power sector can be a cumbersome process whose impact can be viewed as both short-term as well as long-term in nature. At the same time, the success or failure can only be measured by past mistakes and corrective measures. The concerns about the liberalization process in capacity-short countries have centered on the process followed, the transition management and the final destination of the reform process.
As will be readily apparent from the foregoing discussions, a tremendous amount of effort and resources – both institutional and regulatory – have been brought to bear on liberalization as a panacea for a capacity deficient electricity power sector. Yet, the problems persist.
The question, then, is why? It is the author’s opinion that at every stage of the liberalization process a constant theme is the issue of corruption. To advance the liberalization process towards its laudable objectives, this author offers the following recommendations:
? A robust and radical reform in the sector demonstrating changes to improve and strengthen both the regulatory and institutional framework to enhance accountability and minimize corruption;
? Adequate incentives for investors and a climate of predictability, through consistency in formulation and execution of policy.
? The country should immediately establish a permanent, special unit of the EFCC – dedicated to the Petroleum and Electricity Power sector, with independent powers of investigation, arrest, and prosecution in all instances of corruption in the sector, without recourse to the Ministry of Justice. Such a draconian approach is justified: after all, this sector is the lifeblood of the nation.
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