https://www.thecable.ng/energising-our-power-sector-taking-a-cue-from-the-telecoms-industry/amp



Energizing our power sector: Taking a cue from the telecoms industry

By Kunle Oshobi

A lot has been said and written about how critical the power sector is to the

economic development of any country, yet Nigeria continues to falter in

getting this critical sector of our economy right. The power sector is

important because of it’s strategic importance to other sectors of the

economy which all depend on power supply and getting our power sector

right can trigger several multiplier effects that can result in a massive

increase in the country’s GDP within the short to medium term.

To put the dire situation of the power supply shortfall in Nigeria into proper

perspective, the total power generation in the country as of today stands at

only 14,000 MW but our national grid is barely able to transmit 4,000 MW

without collapsing thus a country of over 210 million people have to

contend with just 4,000 MW of electricity supply daily.

By contrast, South Africa which has a smaller economy than ours albeit

with a much bigger industrial sector generates and transmits 58,000 MW of

electricity daily to it’s population of 60 million people and even with this

huge capacity they still can’t meet the electricity demand in their country.

Suppose we are to benchmark Nigeria with South Africa based on the ratio

of power generation to their population. In that case, we will need to be

generating and transmitting at least 200,000 MW of electricity daily to be at

par with them in terms of power supply, yet we are still grappling with a

mere 4,000 MW daily output. While this figure looks abysmally low, it does

indicate that there is a huge potential for investments in the sector given

the right incentives.



One begins to wonder why investors are not taking advantage of this huge

shortfall in power supply to invest in the sector and bridge the supply gap in

the country. The simple answer is that investors will not put their money into

ventures where there are no guarantees of reasonable returns on their

investment and if we are serious about attracting investors into our power

sector, we have to provide incentives that will make it profitable for them.

Contrary to the misconception in some quarters that electricity supply

should be a government service and distributed to people cheaply, the

reality is that “government has no business in doing business” and the

private sector is best equipped to handle our power sector as is done all

over the world while government should be left to play a regulatory role.

Going back to the huge supply gap in the power sector, some of us will

recollect that as of 2001 when the telecoms sector in Nigeria was

revolutionized with the entrance of the GSM operators, Nigeria had just

over 400,000 active telephone lines but today we have well over 300 million

connected telephone lines in the country of which about 250 million of them

are active.

The question emerges; How were we able to move from a paltry 400,000

active lines in 2001 to over 300 million connected lines in just 22 years?

What lessons can we learn from it and apply to the power sector to achieve

a similar growth trajectory? The answers to these questions will reveal to

us what we need to do to get our power sector right.

The simple answer to the questions above is that the regulatory framework

for the telecoms sector was business-friendly and accommodated profitable

investments. As a result of this investors were encouraged to invest

massively in the sector and subsequently invested over $75 billion in the

telecoms industry to make Nigeria one of the countries with the highest

teledensity in the world.



How then do we incentivize investors to invest heavily in the power sector

to achieve the kind of results achieved in the telecoms sector? My

suggestion is that the government should roll out a list of incentives as a

policy document to encourage investments in the power sector and make it

more profitable for investors.

These incentives should be for a minimum of ten years and backed by

legislation to make it irreversible by subsequent administrations. The

incentives should include tax holidays for new investors in the sector while

existing investors should be given tax credits based on the value of

additional investments that they make in the industry. Zero duty should be

charged on all power generation, transmission, and distribution equipment

imported into the country while the cost of gas used for power generation

should be heavily subsidized within this ten-year framework.

Subsidizing the power sector should not be confused with subsidizing

petrol. While the former is targeted at subsidizing production which has a

lot of multiplier effects on the economy, subsidy on petrol is subsidizing

consumption which is merely an indulgence.

Having done everything possible on the side of the government to help

reduce operational costs in the power sector, the government must also

allow the power companies to charge a cost-reflective tariff without

neglecting their duty of regulating the tariffs to prevent the power

companies from exploiting their customers.

We must also revisit the costly and inefficient national grid system and

instead allow for mini-grids on a state-by-state level while the government

completely backs out of owning the grid system and allows the more

efficient private operators to own and manage them. This will encourage a

lot more investors into the power sector and allow for captive power plants.



Having ensured increased profitability for investors in the sector through,

tax holidays, zero duty, subsidies, cost reflective tariff and an investor-

friendly regulatory framework, we can be rest assured that investors will

come rushing in with tens of billions of dollars to take advantage of the

incentives and in the process, we can repeat the magic that resulted in the

exponential growth in the telecoms sector.

Oshobi, a development economist and management consultant writes from

Lagos.

Plenty story. Naija will suffer epileptic power supply thirty years into the future. Japa or buy solar if you truly want to be free. A respite could come in outsourcing transmission of electricity to foreign companies. I read Nigeria brokered a deal with General Electric for power generation at a point in time. Let the company handle everything since our so-called professionals are lacking. In a decade, the situation will improve.