Explaining Nigeria’s energy crisis

Electricity prices in Nigeria have gone up today. Derision and disbelief sums up the reaction of many people here. For decades, the country has had a chronic shortage of electricity.

The country generates between 4,000-5,000 megawatts of power, for its population of 150 million people.

Compare that to South Africa, which generates 40,000MW of power, for a population of around 50 million people. Or the UK, which generates 83,000MW of power for a population of 62 million people.

People feel the government ought to provide constant electricity first – before putting up the price. The gross electricity shortage touches every facet of almost everyone’s lives in Nigeria, from residential and commercial consumers to large industry and manufacturing.

The situation is so bad that everyone must own one, or several, diesel-fuelled generators, for which they have to spend large quantities of cash on fuel, to power their homes and keep businesses afloat.

Many of Nigeria’s large manufacturing industries have already fled overseas, after the collpasing years ago as a result of a lack of proper infrastructure.

The cost of providing power is negotiated into the price of virtually everything in life in Nigeria. You don’t dare think of any transaction, without factoring this in.

Public transport, hotels, renting a house or apartment, buying a car, school fees, weddings or a funeral, all are pegged to the price of fuel, to some degree. That’s true when you’re purchasing food and drink, and every basic good or commodity you can think of, too.

As a result, Nigeria today is one of the most expensive places in the world to live, work, and do business. In fact, the situation has driven some talented and innovative entrepreneurs, business people, and scholars away.

In equal measure, it’s frightened foreign investors wanting to exploit the country’s vast natural and human capital, away, too.

The government explains the situation is due to decades of under-investment in the power sector, and allowing Nigerians to pay virtually nothing for the little power they do get.

The situation is so bad that the government estimates that it needs $100bn to meet consumer demand for electricity by the year 2020.

They say they do not have that kind of capital, and the only way to get it is from the private sector. But in order to get the private sector interested, Nigerians must first show a willingness to pay more for what they are getting.

Nigerians, meanwhile, feel they have heard it all before – and they have. Virtually every government since independence in 1960 has failed to grapple with the power crisis.

More than $13bn has been lost to half-baked solutions to sort the electricity problem over the last decade alone. And there have been countless committees and investigations to figure out what has gone wrong, but it’s not done anything to increase power supply, many Nigerians say.

But the way out of this crisis is not going to be painless for Nigerians.

Nigerians must first be made to understand the true cost of generating, transmitting and distributing electricity across the country’s vast area.

If that is properly communicated to them by the government, and Nigerians come to the realisation that they have in fact been enjoying subsidised electricity for decades, perhaps they will be more willing to pay more.

It must also demonstrate to the foreign investors that it so desperately needs to invest in the power sector that the business environment in Nigeria is transparent and safe for what will be massive and long term investments.

Until then, many consumers will treat the price rise with suspicion, and many potential investors won’t even think of investing in the sector.