Why I Think Fashola Had No Choice But To Increase Electricity Tariff In Nigeria

By on February 16, 2016

INCREASING THE TARIFF NOW IS A CASE OF MAKING A HARD CHOICE TODAY FOR SURVIVAL TOMOROW

I have been on record for criticizing the highly recommended minister of Power for asking Nigerians to pay more for electricity without first increasing the supply of it. However, since the massive criticism of the power hike went viral, I have had cause to actually INVESTIGATE why our Change Government would choose to embark on what may be considered a ‘suicidal’ move in a time of hardship for Nigerians.

On reflection and checking out the facts on ground, I actually came to the painful conclusion that the minister really had no choice but to raise tariffs if he really wanted to set a good foundation for abundant power supply in the economy.

In a season of bitter economic pills, I actually think this is one pill that Nigerians should swallow if we are really serious about improving our power situation. THERE CAN BE NO CHANGE WITHOUT PAIN.

Before I am attacked as blindly supporting this Tariff hike issue, here are some reasons why I believe we all need to support the minister in creating the viable structure for our power resurgence as a nation:

 

1.INVESTORS WONT COME WITH OUR CURRENT PRICING STRUCTURE- It is agreed by everyone that we need more power generation, more transmission and better distribution of our current power supply. We all also agree that to do this, we will need more investments and in the era. However, when oil prices continue to decline, and has now dropped to $27 from about $80 in less than 2 years, Nigeria does not have the money to invest in such as mindboggling investment exercise. We need third party investors, local and foreign, to inject capital, right?

 

Problem is the investors, while understanding that there is better transparency from Buhari Govt, will still not come because the costing of in the power industry right now does not make economic sense. Apparently, right now, it costs more to generate power than what Nigerians are paying for it. Which investor will want to invest in a project where your cost is more than your income? So if Fashola is really serious about attracting local and foreign investors into the sector, the price has to be first adjusted. He can’t do it after the investment. IT HAS TO BE BEFORE the power generation since you need the investment to create the generation.

 

2. DISCOS Can’t PERFORM UNDER CURRENT PRICING STRUCTURE – My investigation also showed that most of the people who obtained disco licenses and other power licenses not could not live up to it because they could not attract financial investors.

As our power is currently priced, no foreign or local bank was going to give them money to invest in an industry where the business economic does not make sense. As long as your cost is more than your income, it does not matter how much you sell. The more you sell, the more you lose. Seriously, if you were a banker, would you lend money to a businessman who tells you he would be making less than he spends? It is economic reality. The cash flow has to make sense to the Lender or investor.

Right now at the current pricing, it simply does not make sense and Minister Fashola has no choice but to bite the bullet and ask for price increase to make the economies of that industry attractive.  I am for alleviating the sufferings of the masses but on this one it looks like we really need to be more sympathetic to the problems in that sector and what Fashola had to deal with.

 

4. CARRY-OVER PRIVATION MESS FROM THE GEJ ADMINISTRATION – Again, I have been on record as saying the Buhari administration cannot keep blaming the GEJ administration for the problem it inherited and it needs to start solving the problems now, whatever it takes. As strange as it sounds, I am persuaded that increasing the present tariff regime is the only way to solve the mess inherited by Fashola and Buhari on the Power sector. From presentations made by stakeholders to GEJ even at the time of privatization, it was made clear to him that the current prices NEEDED TO BE RAISED if the new licenses would be expected to become profitable and deliver.

However, because of the looming elections, Jonathan apparently convinced the discos to accept a pricing structure that does not make sense on the promise of providing them with Subsidy for a while, until after the elections, when he can then announce new rates.

Of course most of the licenses who only planned to resell the licenses to foreign investors anyway were happy with the subsidy promise, and were waiting for his re-election which never came. Before they knew it, a new Sherriff is in town and they were stranded with licenses to deliver power at a rate that is less than their costs. The foreign investors they planned to sell the licenses to and make a quick profit also took one look at our price regime and closed their wallets. So to really turn this thing around the federal government needs to recognize reality, and increase the tariffs to allow the operators operate profitably.

 

5. TERMINATE LICENSEES OF NON-PERFORMING DISCOS? It has been suggested that licenses of non-performing discos should be revoked, particularly since they promised to inject massive capital into the industry. However, it is my considered opinion that that move will not solve the problem. Those new people we give the licensees to will still need a financially sound tariff structure to deliver. So, either way, we really need to adjust this tariff to a level that is economically sustainable for the discos and other investors.

 

6. LACK OF METERING BEFORE HIKE? I also used to think that the least the minister can do is to insist that the discos cannot charge the new price tariff until they have supplied needed meters to all customers. Again, while this makes sense, it begs the question again. You still need the investment to be able to buy the meters and give everybody. Meters really should be given to customers for free as part of the investment since they would be collecting money on it forever. However, investors have to see the clear path to their profitability before embarking on such a large scale expensive distribution of meters. It would be worse if they distributed meters and there is no power to give the customer. Then they would have lost both ways. We need the price hike to give confidence for fresh inflow of investment to generate, transmit and distribute our power.

 

I will personally encourage Nigerians to look at this stuff less emotionally and look at the reality on ground. We may need to make very hard choices today in order to have a better tomorrow. Moreover, I think there is no better time to take the plunge for a better tomorrow than now that we have a financially disciplined government and a leader who will ensure corruption among the government functionaries is minimized so that we can reap the benefits of our sacrifice. I say let’s give Fashola a Chance. So #ISupportNewPowerTariff. Pls like, comment and share with your friends

About Dr. Ope Banwo

Dr. Ope Banwo is an Attorney; Pastor; Business Consultant; Author; Motivational Speaker, and Corporate Solutions Provider. He holds several degrees in Law including a Bachelors, Masters and a Ph.D. He was admitted to the Nigerian Bar (1986), New York Bar (1997) and Federal Court of Nebraska (1997) in the United States. Ope Banwo has written several published books on different topics over the years including bestsellers in Christianity; Lifestyle; and Business such as The Kingdompreneur, Overcoming The Gideon Complex, The Kingdom Citizen, The Return of The Prodigal; The Blessings of Adversity; African Internet Business Manifesto; Confessions Of A Guru-Wannabe; Social Media Marketing Genesis; Offline-Online Business Manifesto, Digital Marketing Without Tears For Company Executives etc. Deeply committed to public service and service to humanity, Dr Ope Banwo has also initiated several public initiatives including the Ghetto Dreamz Foundation to empower economically-disadvantaged Youths; The Omega Wealth Club to teach youths legitimate ways to employ themselves online; The Kingdompreneur Academy to impact Christians in Business and the Nigerian Market Ombudsman to ensure transparency, accountability and fairness in the market place.

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