Friday, February 28, 2014

Counting the cost of government's inefficiencies: electricity

A significant expense incurred by households is the cost of fuel be it kerosene for the poor or petrol and diesel for the middle class and the wealthy. 
This expense ranks higher than food. Thus, in Nigeria basic needs have become fuel,shelter and food. Nigeria's electricity situation typifies the effect of  successive governments' inefficiency, indifference,inaction and embezzlement of public funds. Since 2000, $24 billion  ($16 billion under Obasanjo and $8 billion under Jonathan) has been expended on power reforms with no improved power supply for Nigerians. 
Nigeria currently generates 3919 megawatts of electricity while 40,000 megawatts is needed for steady power supply. Till date,no one has accounted or refunded the billions invested in the power sector. The saying "money down the drain" aptly describes Nigeria's power sector. The result is that Nigerians provide power for themselves at huge costs.
Informal research shows that households spend between N10,000 ($62) to N100,000 ( $620) on diesel and petrol weekly. This is separate from the  cost of maintaining the generators. Families also supplement with inverters and rationing the use of generators. For instance, the generator may be run from 7pm to 1am.  
For businesses too, power forms a huge chunk of their operating costs and these costs are transferred to customers. For instance, some businesses and organizations  spend between 9 million naira to 660 million yearly on diesel,
According to these articles Nigerians spent between  N1.6 trillion ($10 billion) to N3.5 trillion ($21 billion) on generators  between 2011 and 2012 
Remarkably, Nigerians and organizations are not the only ones that bear the brunt of lack of electricity. The government does too!
In the 2014 budget, for the 32 ministeries, 15 commissions and 783 Departments and Agencies that presented their budgets over 5 billion naira  would be spent on fuel ( the cost of maintaining the generators is different). 

What is the opportunity cost of this N5 billion budgeted for diesel?

  •  5 substations
  • Payment for the  $24 million contract between Nigeria's government and Manitoba (The organization managing Transmission Company of Nigeria on behalf of the government) freeing the allocated money for other uses
  • Investment as the federal government's share in the Sovereign Wealth Fund
  •  Repair  Lagos-Ibadan Expressway, the government plans to toll.

Communities and neighborhoods also need to reassess the individual cost of generating power and pool their resources together. Lekki Phase 1 estate is an example.  There are about 1000 houses in that area. Let us assume the average cost per household on weekly diesel/petrol is N40,000, weekly Lekki residents would spend 40 million on fuel. Yearly they would spend 2 billion on fuel 

What would N2 billion ($12 million) do for Lekki residents?

  • It would build 2 substations that would distribute and transmit power for the estate (it costs about $6 million to build a substation)
  • It would pay for 1,700,000 units  of gas to power the substations (at $7 per unit) 
  • It would generate 96 Megawatts of power. According to the DG of Bureau of Public Enterprises, it costs $1.3 million to generate 1 megawatt of power

The 1.6 trillion Nigerians spent on fueling generators in 2012 would pay for the $7.5 billion required to  5000 megawatts of electricity with money left over for contributors. 

Apart from the alternative uses of the money spent on fuel,the impact of the pollution from generators is not measurable. We spend money that we do not need to spend on health issues.
As Nigerians we need to rethink what we want from our government and stop enabling the  current apathy towards performance. Silence, indifference and i-better-pass-my neighbor is expensive, very expensive. 

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