'Cheap and unreliable' vs. 'Expensive and reliable'

I saw this article yesterday. Just in case Vanguard yank the article, here it is in its entirety:

FG hikes electricity tariff July

[I]By Hector Igbikiowubo[/I]

LAGOS—THE Federal Government is to increase electricity tariff significantly from July 1 this year when the National Electric Power Authority (NEPA) transforms into the Power Holding Company of Nigeria, the current state of poor power supply in the country notwithstanding. Government is also to receive a $200 million (N26.8 billion) World Bank loan for investment in the power sector.

Mr. Joseph Makoju, Managing Director of NEPA, at a luncheon organised by the Nigeria-German Business Association in Lagos, yesterday, said the increase in tariff would come under the implementation of the Multi-Year Tariff Order (MYTO), a new tariff regime.
Mr. Makoju explained that following the implementation of the MYTO, tariff increases would be graduated in line with economic indices such as inflation rate, exchange rate and all other factors contributing to electricity generation in the country.

When the Power Holding Company becomes operational, it is expected that all the companies created out of NEPA will become more independent and operate on commercial basis, Mr. Makoju explained.

He said the current poor state of power supply in the country was caused by poor power generation from the Authority’s power plants, adding that the situation had been accentuated by limited gas supply to the Egbin Thermal Power Station. The NEPA helmsman said power generation currently stood at 3000MW while the nationwide load demand was put at 6000MW.
On the expected loan from the World Bank, he said the money would be utilised by the Authority to reinforce the distribution system.
The World Bank had, three years ago, extended a $100 million loan to the Authority in support of its efforts to strengthen the transmission lines and rehabilitate some of the power generation plants.

Speaking with Vanguard on limited gas supply, Mr. Makoju debunked perceived rancour in the Authority’s relationship with the Nigeria Gas Company, saying it was not true gas supplies had been cut because of lack of agreement over pricing. “Everybody keeps saying that. They keep saying it, it has nothing to do with paying more at all. I don’t know why people keep saying it. Does it make sense that because of payment the gas is being deliberately withheld?

“You journalists keep hammering that point. I don’t know why you keep saying it. Does it make sense? Is it possible? It has nothing to do with that at all, it is just operational problem. When it is fixed, we will get the capacity back,” he said.
When told that the state of power supply had been worsened by the activities of some of the authority’s managers insisting on people contributing money before their bad transformers could be replaced, he said such managers should be reported.

“When there are malpractices, they should be reported. When we get a verified story, where there is need we immediately weed them out. But many of these cases don’t get reported. When you have such a case just scribble something and fax it to me.
“We have a unit now which investigates such cases. This is Nigeria and we have to do it together. We have some bad eggs, we know and we are weeding them out,” he said.

Now I support the electricity company's move to hike prices, because the current regime is simply not sustainable - there's no way that the company will have enough money to maintain their equipment and guarantee their customers reliable electricity supply if they are charging less than it costs them to generate the electricity in the first place.

But I get the impression that the average Nigerian will look at this as yet another conspiracy to make life more difficult for the common man, because Nigerians seem to be in love with buying artificially cheap goods. When I say 'artificially cheap', I mean it is cheap because the organisation offering the good is not selling it at what it would really cost to make the good, and it is doing this either because the organisation is a government company with nothing to lose, or because it has been forced by government to sell the good at that price, or something else.

The point is, selling a good at an artificially cheap price means that there usually isn't enough of it to go around. This is because the organisation producing the good is losing more than it makes, so in effect it is throwing away money. And of course, this means that there is only so much of a good that it can produce, so in the end a scarcity develops, and alongside this also develops a black market where the good is sold at many more times than the artificial price.

We've seen this in Nigeria in the past in the olden days of NITEL when it was difficult getting a phone and you had to bribe officials to get a line at many more times the price. More recently, we've seen this during fuel crises where the NNPC can't maintain the subsidy on fuel and a scarcity develops.

In fact, one of the reasons that there is acute scarcity of electricity in Nigeria these days is because the Nigerian Gas Company (which supplies NEPA gas to run its generating plant) is disagreeing with NEPA how much they should sell their gas to NEPA for. The NGC want to sell it at the same (higher) price they sell it on the general market; NEPA doesn't have the money to pay for this, because they have been 'throwing' their money away by charging Nigerians artificially cheap prices for electricity.

On the other hand, if an organisation sells its goods at a price that allows it to recover the amount it spent on making it, then it means that it will have even more money to continue to making the good. The price may be higher, but there won't be any sustained scarcity. You can see an example of this in the private phone sector where there usually is very little difficulty in getting a GSM or fixed wireless line.

So my questions are these:

Am I right or wrong to say that Nigerians would rather have a situation where a good was artificially cheap even though it was scarce than a situation where the good was more expensive and it was widely available?

Would you yourself rather have a situation where a good was artificially cheap even though it was scarce than a situation where the good was more expensive and it was widely available?

Why would I prefer an artificially cheap but scarce product?

Na mi o:

You no serious oh! Why wld a prefer an artificially cheap but scarce product?

Because it's cheap?

Because its cheapness matters more to you than the hassle of getting it?

I don't know.

I feel your idea Ka, all you want is a good service by the Power company.

The reality of the whole thing as I'm always quick to point out is that things that work well in other countries don't seem to work in Naija.What is the guaantee that when there is an increase in tariff there wo't be more corrupt managers to embezzle the money

Of course no one would go to the market to but unreliable product for himself,its the constraint on resources that make people do that.

Also, fundamental questions should be asked from the NEPA management: what has been done to this great amount of money spent on power generation,no results...then why should an average Nigerian expect anything better when they pay more...

Allenpowered:

The reality of the whole thing as I'm always quick to point out is that things that work well in other countries don't seem to work in Naija.

I hear what you're saying Allenpowered, and I agree that this is true in some cases, but I don't think this is true for all cases. What I would love would be for people to stop concluding that something that works abroad "will never work in Naija" and try to find out [I]specifically[/I] why it won't work. But I digress.

What is the gua[are]antee that when there is an increase in tariff there wo't be more corrupt managers to embezzle the money

There's no guarantee - they might and they might not, although measures can be taken to prevent this. But I can guarantee you that if the company doesn't get any extra money, services will remain as bad as they are.

Of course no one would go to the market to bu[why] unreliable product for himself,its the constraint on resources that make people do that.

True, but when I her Nigerians' comments, I wonder whether they understand the saying that [I]'the soup wey sweet, na money cook am'[/I].

Also, fundamental questions should be asked from the NEPA management: what has been done to this great amount of money spent on power generation,no results...then why should an average Nigerian expect anything better when they pay more...

Well, there appears to be quite a bit of work in building new generating plants and refurbishing transmission infrastructure, and we won't see the effect of this for a while yet.

But as I have said already, without any extra revenue, nothing good will happen. The government certainly isn't interested in pouring extra money into a company that should be generating its own money, so that money will have to come from Nigerian customers.

Anyway, Nigerians aren't forced to use NEPA/PHCN/whatever it calls itself tomorrow - if you wish, you can buy a generator and disconnect yourself from the grid.

I'd rather have an expensive and reliable good than the reverse. It's just that Nigerians would like inexpensive things though unreliable or even scarce just because there is a lot of poverty in the land.

But then, as Allenpowered said, they could just say it would be reliable/readily available when in actual fact, they are just out there to make money. But I think it is just good we be optimistic about the whole stuff and hope they really keep to their words.

In an Interview, the Daily Sun asked Engineer Joseph Makoju, "what does it really cost to build a power station?" His response follows:

[I]"A standard project showed that on the average, for every megawatt, every new capacity, you are talking about half a million dollar per megawatt. So, if you want to put in 10 megawatts, that is $5 million. If you want to put in 100 megawatts, that’s $50 million.

"Now, if I am telling you as we are sitting down here that our supply, everything is about 3,000; our installed capacity, let's say 4,000 installed. And I am saying the demand is about 6,000; if we say we want to close the gap between demand and supply, it means you need 2,000 more megawatts at half a million dollar per megawatt. That would be $1,000 million.

"Convert to naira and everybody will collapse. But that is the truth of the matter."[/I]

Source: I almost kill myself on this job, says NEPA boss, Eng Joseph Makoju

So it will cost 140 trillion billion naira to build enough power stations meet up with our country's current demand for electricity.

So it will cost 140 trillion naira to build enough power stations meet up with our country's current demand for electricity.

I think you mean 140 billion naira.

But look at it another way... we have (conservatively) about 20 million working persons in Nigeria. Let's say that each person pays (conservatively) 10,000 naira per year for their electricity, then this means that in a year, the electricity companies will get 200 billion naira. Assuming that they use 20% (or 40 billion naira) of that for building power stations, then in over three years, the money spent on power stations will have been recouped.

So what does this tell us? If the distribution companies are able to sort out their revenue collection problems, there shouldn't be a problem with money to build the electricity infrastructure. And as I'm never tired of saying, privately run companies are more likely to do a better job of collecting revenue that publicly owned ones. So bring on privatisation!

140 billion naira doesn't sound like so much money to me.

nice to hear the statistics but the manager did not tell us the kind of power station he meant. below is a quote from an article on wind power

The initial cost of wind power is high. Installing a 1500-kW turbine with a 77-m rotor diameter and design life of 20 years costs $1.5 million, (Jacobson). Although this investment will save money in the long-run, the initial cost can be too high for many. On the bright side, just like all technologies, with more research and development, the cost of turbines and their installation should eventually decrease.

while wind power is more environmentally friendly and requires less maintenance we don't hear of other technologies other than gas turbines which by the way are not cheap. what the above tells us is that compared to $5million for every MW, we get $1million per MW for wind energy. while this might still sound high. its more affordable and can be used anywhere unlike the gas turbines that require pipelines and stuff.

I even heard NLNG prefers to sell gas to commercial customers rather than NEPA who buy it at N24 per litre compared to maybe N180 per litre commercially so expect a huge rise in tarriffs when they do start.

i like the idea of wind and solar power. They are initially expensive but better ont he evironment and wallet in the long run.

Well, i think wind powered energy will b nice in Nigeria but we should also not forget abt the availability of enough wind to turn the roto. I think its only at the coastal states that we can get enough wind to achieve this.
The alternative is gas. Nigeria i heard is the 4th largest producer of gas and its regrettable to know that we flare almost 80% of our gas. have u seen Portharcourt from a plane night? U'll count almost 7 flare points making the whole place light up like going to watch a match in the stadium at night.

Half of that gas could be used to power the turbines. Egbin Thermal station in Lagos, is on gas, but politics will not make them send gas uninterrupted to the station. I was discussing this with some1 and the guy was wondering how gas can be piped from the west, east or north where the power stations will be. But hey...Nigeria is laying Pipe from South to service West Africa then go to North of Africa b4 it ends in Europe through the desert. I heard that will be the most ambitious pipe network in the world. If we can do that then laying pipes from south to anywhere is no big deal.

Abulo getin yea


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