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Business News of Monday, 22 August 2022

Source: thenationonlineng.net

Furore over rising cost of energy

File photo to illustrate the story File photo to illustrate the story

After food and water, electricity is one of the essential needs of many Nigerians but sadly this is not sufficiently available to all.

It may be recalled that several months after the Federal Government and the Nigerian Electricity Regulatory Commission (NERC) quietly ordered the removal of subsidy on electricity and increased end-user tariffs, poor Nigerians are now heavily burdened by tariff increases.

Expectedly, six power distribution companies (DisCos) got NERC approval to increase tariffs, including: Port Harcourt Electricity Distribution Company (PHEDC), Jos Electricity Distribution Company (JEDC), Kano Electricity Distribution Company (KEDC), Kaduna Electricity Distribution Company (KEDC), Ikeja Electricity Distribution Company (IKEDC) and Ibadan Electricity Distribution Company (IBEDC).

NERC said some of the indices considered for the tariff increase include gas price, inflation, exchange rate, U.S. inflation rate, and available generation capacity. It added that these indices shall be reviewed every six months to update the tariffs with changes in the indices as applicable in line with the multi-year tariff order (MYTO).

Chapter of lamentations

The duo of Adebimpe Francis, Shakirat Afolabi, Ifeanyi Adamson, who operate frozen foods business, fashion designing outfit and barbing salon respectively in Agege axis of Lagos, are not finding it funny these days as they go through the daily grind.

Their businesses rely on a steady supply of electricity. Unfortunately, they procure alternate power, usually at such a humongous cost.

Since the last time tariff increase became effective last February, lamentably, many businesses including small scale enterprises as well as households suffer daily anguish as a result of poor energy supply caused largely by constant collapse of the power grid.

The World Bank estimates that only about 47 percent of Nigerians have access to electricity when it is available.

While the World Bank’s stats speak to the issue of accessibility, the International Monetary Fund 2019 country report on Nigeria revealed that the electricity problem causes the Nigerian economy to lose an estimated $29-billion annually.

Nigeria, Africa’s biggest oil producer struggles to meet its energy needs, a struggle that has persisted for many decades, a development, which is in contrast to South Africa with a population of 60 million has domestic electricity generation capacity of over 58,000 megawatts from all sources including coal which is by far its major energy source.

With an abundance of oil, gas, hydro, and solar resources, the country’s current facilities have the capacity to create 12,522 MW of electricity. But on most days, according to Power Africa, it can only deploy roughly 4,000 MW, which is insufficient for a nation with a population of over 200 million people.

More cost, less result

From available information the authorities claimed to have disbursed over $3.2 billion to support power supply to Nigerians in the last five years, according to Godwin Emefiele, who is the governor of the country’s apex bank regulatory body, Central Bank of Nigeria (CBN).

However, the monies were disbursed to electricity Generating and Distribution companies to acquire equipment, buy meters and improve electricity supply in the country, yet Nigerians have continued to battle poor power supply with the situation worsening last week when the country’s power grid collapsed twice, causing a huge black out across most parts of the country.

According to informed sources, Nigeria experienced power grid collapses between February, May, July, and August of 2021 alone while it suffered a total of over 200 collapses between 2010 and 2019.

Nigeria has ridiculously high cost compared to others

Statistics from the latest worldwide electricity pricing released by Cable UK, Nigeria ranks as the 121st country on the global chart with the highest electricity cost.

This might seem average on a chart consisting of 230 countries, but on a closer look at Africa, Nigeria ranks as the 24th country with the highest electricity prices.

The Cable UK electricity chart examines electricity tariffs around the world and ascertains its ranking based on the average between the highest recorded electricity costs and the lowest.

The rates are per kilowatt hour (kWh) and include all charges and taxes found on an electrical bill. This includes distribution and energy costs as well as numerous environmental and fuel costs.

According to the Nigerian Electricity Regulatory Commission (NERC), the Nigerian Electricity Supply Industry (NESI) has undergone significant changes in recent years as a result of the government’s reform program.

The most widely recognised reform is one of the most ambitious privatisation exercises in the global power industry, with a transaction cost of more than three billion dollars ($3.0 billion). However, there has been zero to no improvement in the prices of electricity.

Lamentably, Nigeria doesn’t solely rank poorly on the African chart; it equally ranks poorly in the western African section as it trails behind countries like Guinea, Ghana, Cote d’Ivoire, Niger, and Cameroon to rank as the 7th country with the highest electricity cost in the sub region, according to the chart.

With an average electricity cost of $0.139/ Kwh (about N65/kwh), Nigeria ranks as the 26th country in Africa in terms of the lowest electricity tariff.

It ranks slightly after countries like Ghana, Mauritania, and Cameroon but has comparable electricity prices in relation to countries in West Africa like Togo, Sierra Leone, and Chad, which follow it on the chart.

While Nigeria would have numerous excuses for its high electricity tariffs, Libya, a similar country on the African continent, ranks number one, not just in Africa but on the global chart.

According to the recent International Energy Agency Africa Energy Outlook 2022 Special Report, the prevailing global energy crisis has underscored the urgency, as well as the benefits, of an accelerated scale-up of cheaper and cleaner sources of energy as Russia’s invasion of Ukraine has sent food, energy and other commodity prices soaring, increasing the strains on African economies already hard hit by the Covid-19 pandemic.

Apprehension

It doesn’t seem that the energy crisis may yet abate if the growing level of despondency across Africa is anything to go by.

In South Africa, protests build up at a key supply route just as Mozambique, the world’s third-poorest country, where bus drivers paralysed the capital Maputo after diesel prices jumped due to fuel shortages throughout Africa in the wake of Russia’s invasion of Ukraine and is especially pronounced for populations whose transportation costs account for a disproportionately high percentage of monthly budgets.

Expectedly, suppliers have blamed richer nations for paying a premium for cargoes, while soaring margins benefit the refining businesses of companies such as Shell.

“Transport price inflation feeds directly into food inflation — so keeping it under control has been an imperative, even when fiscal resources have (in some instances) come under greater strain,” Razia Khan, Standard Chartered Bank’s head of research for Africa and the Middle East, said in reply to emailed questions.

“Governments across Sub-Saharan Africa are always wary of pressure on urban electorates especially, who tend to be more politically mobilised,” Khan said.

Though the continent includes a number of significant producers of oil, there is limited capacity to refine it into fuel for cars, trucks and planes. That means countries need dollars to buy imported diesel and gasoline.

Road to recovery

According to Dr Muda Yusuf, Chief Executive Officer, Centre for the Promotion of Private Enterprise [CPPE], “The funding you require for the power sector and to effectively turn around the power sector is far more than that. In fact you should be talking about $15-20 billion. At the distribution end alone, there are major funding gaps. And some of the investors in the sector have claimed that they are not being allowed to charge a cost effective tariff.”

While noting that the power reforms that saw the sector privatised in 2011 was done partially and the quality of the process has raised concern Yusuf, who is the immediate Director General of the Lagos Chamber of Commerce and Industries (LCCI) further explained that generation and distribution were privatised with the exclusion of the transmission component.

“There is a major issue with regards to generating liquidity within the system, a major issue with indebtedness to the generating companies because they cannot pay adequately for gas and gas suppliers sometimes disconnect them. Then the transmission problem is managed by the government and you can imagine what that means.. So it is a multifaceted and complicated issue compounded by massive electricity theft with some government agencies and consumers not paying adequately for electricity.”

A former minister of power Prof. Barth Nnaji, in a recent interview with a local newspaper who shared the sentiments expressed by Yusuf said, “There is also human factor problem on distribution such as connection inefficiencies, leakages, people stealing power, and all kinds of things done by people that make it difficult for efficient distribution, and also, the distribution companies themselves who are not investing in infrastructure which brings about inability to supply power.”

Members of the lower chamber of the National Assembly had recently mandated the Minister of Power, Abubakar Aliyu to take concrete actions aimed at solving the current nationwide blackout rather than always presenting feeble excuses.

The Committee on power, led by Hon. Magaji Da’u Aliyu at a meeting with the minister, expressed disappointment over the attitude of the ministry towards power issues particularly during national emergencies.

The lawmaker who fell short of accusing the current minister of power of dereliction of duty, the much hyped government target of 30,000 megawatts of electricity by 2030 was a fluke.

Like Nigeria, parts of Africa, and other advanced economies like the UK and USA, the issue of energy crisis is the problem of theft by unscrupulous individuals who have devised means and ways of cheating the system.

Peter Smith, NEA director of policy and advocacy, said: ‘This is not only illegal but dangerous too, and it’s horrifying if the crisis is forcing households to try this to keep the lights on. And this is happening now, before winter and the cold weather hits.’

Families across the UK are struggling to cope with spiraling energy bills, which are expected to hit £3,358 from October even as food, fuel, gas and numerous other items are rocketing in price following the pandemic and the war in Ukraine – hitting record levels – but some economists have claimed that the BofE has been too slow to act as Britain careers towards recession.

Across the two nations, 57% of electricity theft cases closed last year had no suspect identified, while 30% were abandoned due to evidential difficulties and 7% resulted in a charge or summons.

Global outlook

The cheapest places in the world to buy electricity tend to be countries where either oil and gas prices are very low or where household electricity usage is very low and thus does not necessitate a lot of expensive infrastructure.

With an average electricity cost of $0.007/Kwh, Libya retains the top spot as the country with the lowest electricity price.

It outranks world economies like the United States, China, and the UK, which have an average electricity price of $0.109/kwh, $0.084/Kwh, and $0.251/Kwh, respectively.

On the worldwide chart, The Solomon Islands ($0.692), St Helena ($0.612), Vanuatu ($0.591), the Cook Islands ($0.523), and Micronesia ($0.484) are the five most costly nations in terms of the average cost of electricity.

Libya $0.007, Angola $0.013, Sudan $0.014, Kyrgyzstan $0.017, and Zimbabwe $0.021 are the five lowest nations in terms of average cost per kWh.

None of these nations are islands, and three of the five are in Sub-Saharan Africa, in contrast to the most costly. Libya, the cheapest nation, is in Northern Africa, with Kyrgyzstan being the only non-African country.

By region, the Commonwealth of Independent States (CIS) is the cheapest in the world for electricity overall, with an average cost of 0.049 per kWh. Northern Africa follows next as the region with the second lowest costs as all of the six North African countries are in the cheapest half of the table.

With an average of $0.161 per kWh, Sub-Saharan Africa ranks as the 5th region on the chart with the costliest electricity prices. This is slightly before Oceania, the Caribbean, Northern America and Western Europe, which rank from first to fourth with the most expensive electricity prices.