'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
By Hector Igbikiowubo
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?
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