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Energy crisis forces Nigeria’s 43m households to spend N8.9tr/year

By Kingsley Jeremiah, Abuja 
15 September 2022   |   4:04 am
Pressures from the global energy crisis and compounding situation at home may be costing Nigeria’s 43 million households nothing less than N8.9 trillion yearly, The Guardian has gathered.

[FILES] A general view of a power distribution plant (Photo by PIUS UTOMI EKPEI / AFP)

Electricity workers demand a reversal of privatisation, say new owners are hustlers
• Experts worry over obsolete refineries, gas processing facilities
• Stakeholders insist Nigerians paying for inefficiencies amid tariff hike, Russia/Ukraine war
• FG, EU, AFD sign €25m to strengthen electricity grid in Northwest

Pressures from the global energy crisis and compounding situation at home may be costing Nigeria’s 43 million households nothing less than N8.9 trillion yearly, The Guardian has gathered.

Apart from the over N6 trillion being spent by the Federal Government to subsidise Premium Motor Spirit (PMS), on average, households in Nigeria, faced with rising inflation and high cost of food items, are now spending about N4,000 weekly on electricity, Liquified Petroleum Gas (LPG) and petrol for power generating sets. 

National Bureau of Statistics (NBS) had pegged households in Nigeria at 43.0 million as of 2020 from 15.7 million in 1990. The average number per household was put at five. By implication, the 43 million households in the country would be spending N172 billion weekly and N8.9 trillion in the 52 weeks that make up the year. 

Between August last year and last month, the cost of one kilogramme of LPG has gone up by over 100 per cent from N400 to about N900. The cost of electricity, with the implementation of the Service Based Tariff (SBT), has also doubled per kilowatt, as consumers are left with generating sets, which cost N185 per litre on the average, depending on the city of residence, as an alternative to the epileptic state of public power supply. 

By implication, federal civil servants, who earn a minimum wage of N30,000, would have spent about 55 per cent of their salary, expending about N16,000 on household energy use alone. 

Sadly, before the Russian-Ukrainian War, which started on February 24, 2022, Nigeria had been facing energy crisis despite being a leading producer of hydrocarbon deposits and production in Africa. 

From poor storage facilities, inadequate seaports, dilapidated refineries, lack of reliable pipeline networks and bad road/rail networks, to subsidy challenges and pricing issues, the ongoing energy crisis, according to most stakeholders, may remain a serious concern in the backdrop of uncontrollable population explosion.

Although most stakeholders have insisted that households in Nigeria are paying for inefficiencies of the electricity sector as the state of power remains a mirage, President Muhammadu Buhari had, in September 2019, vigorously defended the hike in electricity tariff, tagged, Service Based Tariff (SBT), stressing that it was the only gateway to improving power supply to the masses.

Speaking at the First Year Ministerial Performance Review Retreat for Ministers, Permanent Secretary and top government functionaries at the State House Conference Centre in Aso Villa, President Buhari, represented by Vice President Yemi Osinbajo, said: “The other painful adjustment we have had to make in recent days is a review of the electricity tariff regime.

“The recent service-based tariff adjustment by the DisCos has been a source of concern to many of us. Let me say frankly that like many Nigerians, I have been very unhappy about the quality of service given by DisCos. That is why we have directed that tariff adjustments be made, only on the basis of guaranteed improvement in service.”

For an oil-producing country like Nigeria, the implications of the Russia/Ukraine war would have been minimal but the absence of gas processing facilities and refineries sent households into double jeopardy of facing the impacts of post-COVID-19, with rising inflation and the many implications of the war.

Vice President, Crude at Argus, James Gooder, said with the embargo on Russian crude, countries like Nigeria and others in West Africa are now faced with different pricing templates for petroleum products purchased from the international market.

The countries, according to him, are also faced with a different scenario in terms of freight rates. With in-country refining, the situation will be minimal. 

Energy expert, Madaki Ameh, sees the high cost of energy in Nigeria, as a result of inefficiencies, which are avoidable with better management of the sector. 

“The continued comatose state of our four refineries, the inefficient and corrupt application of subsidies and the near absent accountability in the energy sector in Nigeria means that these challenges will remain with us for the foreseeable future. 

“The way forward is a knowledge-driven management of the sector, to turn a needless loss-making sector into a profitable one for the benefit of the country,” he said.

Partner, Energy Utilities and Resources, PwC, Habeeb Jaiyeola, who disclosed that energy remained key to development and production, noted that keeping energy cost low would enable accelerated development. 

“Exporting crude oil and importing refined product will continue to make energy costs, especially via white petroleum products, be subjected to global fluctuations that cannot be controlled locally. 

“Despite the negative impact of the Russia-Ukraine war on global energy prices, local practices have also contributed to increasing energy costs for Nigerians,” Jaiyeola said.

He added that local challenges in the power sector, where affordable and reliable power to Nigerians is yet to be achieved, contribute to the worsening situation as alternative power sources, which depend on imported petroleum products, became the only option for many Nigerians, thereby reflecting in higher energy costs locally.

Jaiyeola said solving the power sector challenges to provide an affordable and reliable power supply is one of the key solutions to reducing energy costs locally. “Improving our local refining capabilities will also reduce the cost of refined products in the downstream sector. 

“While the country has made commitments to achieving net zero by 2060, gas remains one of our key transition fuels and learning from the challenges in the oil sector to develop our gas infrastructure also remains a key effort in reducing energy costs in the long term,” Jaiyeola said. 

Former Chairman, Nigerian Electricity Regulatory Commission (NERC), Sam Amadi, expressed worry that the increase in energy costs, especially electricity, would continue for a long time with minimal improvement in power supply. 

“There are many frailties in the electricity network, which have not been addressed. These frailties have been worsened by failures of government. We have also seen a lax policy and regulatory environment. In spite of these failures, investors are demanding cost-reflective tariffs. 

“The international financial institutions are also putting pressure on the government to remove the subsidy on the sector, which arises because of revenue shortfalls. One thing will give in: Someone will bear the brunt of these compounding inefficiencies.

“Unfortunately, it is always the customers. So, expect more tariff increases, but with no significant service improvement until we have a more efficient policy and regulatory environment and interventions,” Amadi said.

Managing Director at Reoboh Nigeria noted that while the burden of energy cost is putting pressure on households, Nigerians must find a way to manage their electricity.

According to him, energy efficiency remains critical, adding that most Nigerians still waste energy by way of mismanagement.

“Nigerians need to learn how to manage. An average household in the developed world, when they’re leaving their room, will turn off their lights, and shut down appliances. Here in Nigeria, you see somebody that does not have money but will leave their lights running, with the TV on. Nigerians have to understand management. They have to consciously work on reducing their power consumption,” he said.

MEANWHILE, the National Union of Electricity Employees (NUEE), yesterday, urged the Federal Government to reverse the privatisation of the power sector, describing new owners of the privatised companies as ‘hustlers and hawks’ that have contributed poorly to the power sector.

The body also accused the new owners of deceiving the Federal Government into paying an N2 trillion subvention, insisting that they have continued to impoverish Nigerians, leaving the country pillaged.

They claimed that despite recognisable improvements in the wheeling capacity of the Transmission Company of Nigeria (TCN) of 7,000MW, the generation output has now dwindled below 5,000MW.

The Zonal Organising Secretary (Liaison), Engr. Kolade Ayodele, who spoke to journalists on behalf of his colleagues, said Nigerians should also be worried even as electricity tariffs continue to rise without commensurate service delivery.

He said: “Since the privatisation in October 2013, electricity workers have been at the forefront of speaking out on behalf of Nigerians. It is an undeniable truth that privatisation has not added value to the lives of ordinary Nigerians.

“The infrastructural development by the new owners has almost gone comatose while the socio-economic status of the average worker in the sector has continued to decline amid prevailing harsh economic conditions.

“The same equipment inherited from pre-privatisation has remained what drives the sector, as there are no visible attempts by the Generation Companies (GenCos) and Distribution Companies (DisCos) to upgrade and expand their capacities/networks.”

However, the Federal Government, European Union (EU) and the French Development Agency (AFD) have signed a grant agreement of €25 million to strengthen the electricity grid in the Northwest. The project is jointly funded by the EU and AFD and will lead to the development of access to electricity in the Northwest region. 

The Minister of State for Budget and National Planning, Prince Clem Agba, and the AFD Country Director in Nigeria, Xavier Muron, signed the agreement, yesterday, in Abuja in the presence of the Ambassador of France to Nigeria, Emmanuelle Blatmann, and the Head of Cooperation at the EU delegation to Nigeria and ECOWAS, Ms Cecile Tassin-Pelzer.

The Northern Corridor Project, being implemented by TCN, is meant to strengthen low-carbon economic growth in West Africa by improving the quality of the electricity network in Nigeria and supporting the development of a regional electricity market under the West African Power Pool (WAPP).  

A statement by the Embassy of France in Nigeria explained that the specific objectives of the project, in line with the Nigerian Energy Transition Plan (NETP) are to reinforce globally the Northwest network and develop access to electricity for the population; help evacuate/distribute the solar generated power from future projects in the North, and participate in the WAPP interconnection project with the Niger Republic.

According to the statement, the project will build more than 800km of 330 kV double circuit transmission lines and construct or upgrade 13 substations.

The statement further read: “The grant agreement signed represents the EU’s contribution to the project, while the AFD contribution of €202 million was signed in December 2020.

The total cost of the project is around 238 million euros, including a 12 million euros contribution from TCN.”

The expected impacts of the project include 5GW additional evacuation capacity to be created under the project, potential transmission of 17TWh of additional electricity every year, the possibility of several millions of people having access to electricity and better electricity service in the short term, and creation of 600 jobs (500 during the construction phase and 100 in the operation phase).

Speaking at the agreement signing ceremony, Agba said: “This project will help TCN to operationalise its ‘Transmission Expansion Plan’, through the construction of additional transmission lines and substations across nine states – Niger, Kebbi, Sokoto, Kaduna, Kano, Jigawa, Bauchi and Nassarawa.”

According to the Ambassador of France to Nigeria, Blatmann, “France is committed to helping Nigeria achieve its commitments on climate change in line with the Paris agreement.”