July 29, 2020
Power Outage: How Nigeria’s Electricity Problem Cripples Small Businesses
“Up NEPA!” about a dozen teenagers playing within the verandah of the three-storey building housing Bola Kareem’s shop screamed. Bola is not a teenager, but he joined in the cacophonous jubilation nevertheless. The 32-year-old embroiderer explained that the neighborhood’s electricity had just been restored after two weeks of blackout.
“I have too many clothes that I intend to deliver to my clients, with strict deadlines,” he began, grinning. “I have lost too many ‘jobs’ in the last few weeks because there was no electricity.”
Mr Kareem, a resident of Igando, Lagos, explained further that the generating set provided an alternative source of power for his embroidery business. However, the alternative came at a huge cost.
“The use of ‘generator’ was a fair alternative but it affected our overall earning,” he said. “Usually, for a single embroidery job, I charge my clients between N1,500 and N3,000. Yet, to complete this job, I have to power my generator with fuel of about N500, depending on the design. Some designs can be very problematic and time-consuming, which means I have to run my generator for a longer period, sometimes with as high as N1,000. If you burn fuel of N1,000 on a job of N1,500, how do you survive as a business and pay (other) bills?”
Mr Kareem’s experience is similar to that of Saheed, a cobbler based in Sango, Ogun State. In the first week of June, Saheed said he had to reject numerous offers in the middle of the Covid-19 lockdown because there was no electricity in his neighborhood.
“I have no ‘gen’,” Saheed mutters in Yoruba, “I am just planning to buy another generator because electricity supply in this neighborhood is poor.”
“Since the lockdown was relaxed during the week and we started operations, light has not been stable. Many of my clients had to come pick up their uncompleted ‘materials’ last weekend. Others simply cancelled business agreements we had in the past, because I had no electricity to operate my machine and deliver as planned. It’s pathetic.”
Aside from the epileptic nature of electricity in their neighborhoods, both Mr Kareem and Saheed are irked by the “outrageous” estimated bills electricity companies serve them monthly.
“It’s really crazy,” Bola said of the tariff, adding that the situation is more pathetic because he barely enjoys regular supply of electricity. “We only pay for estimated darkness. Power problem is a major reason why small and medium businesses don’t survive in Nigeria.”
Electricity stifling SMEs growth
According to the World Bank, the economic cost of power shortages in Nigeria is estimated at around $29 billion. The figure is equivalent to two per cent of Nigeria’s Gross Domestic Product (GDP). The Bank says that about 47 per cent of Nigerians do not have access to grid electricity and those who do have access, face regular power cuts.
A PricewaterhouseCoopers (PwC) report published in June revealed that electricity accounts for the biggest costs to daily operations for many small and medium scale businesses in Nigeria. The report, titled “PwC’s MSME Survey 2020 – Building to last”, stated that Nigeria’s power sector is “overwhelmed by a myriad of challenges ranging from operational inefficiencies to infrastructure deficiencies”. These challenges have resulted in inadequate electricity supply that has had an adverse impact on the business environment in Nigeria.
According to the 2020 Doing Business report, getting access to electricity ranks as one of the major constraints for the private sector in Nigeria. While big companies operating on big budgets and debt financing can afford to seek alternative means of power through off-grid energy sources, small businesses operating on shoe-string budgets are left at the mercy of Nigerian electricity operators.
With its ballooning population, now estimated at around 200 million people, Nigeria has witnessed rapid increase in commercial and industrial activities in the last decade. A significant portion of these economic activities depends essentially on electricity supply. According to the Nigerian Bureau of Statistics (NBS), as of 2018, 5.7 million households, 51,000 industries and over 770,000 commercial ventures were consumers of power in Nigeria.
In its analysis of the economic factor intensity as a result of the shortfall of low electricity supply, PwC said that “approximately 1 out of every 7 firm” exits the Nigerian economy because of power concerns.
According to the United Nations, for its population of about 200 million people, Nigeria’s energy need is 170,000MW. But data obtained from the websites of the Ministry of Power and the Nigerian Electricity Supply Industry (NESI) showed that the country presently boasts of 7500 megawatts (MW) of available electricity generation, with an installed capacity of about 13,000MW. The transmission wheeling capacity is estimated to be about 5000MW but due to technical constraints, distribution to homes and businesses is less than 4000MW.
Hence, over the years, demand for electricity has outpaced generation, transmission and distribution capacity, throwing small and medium enterprises out of business. It has equally prevented small businesses from innovating and creating jobs.
“The lack of reliable power has stifled economic activity and private investment and job creation, which is ultimately what is needed to lift 100 million Nigerians out of poverty,” says Shubham Chaudhuri, World Bank Country Director for Nigeria.
Last month, as parts of efforts to improve the country’s power situation, the World Bank Board of Directors approved the Power Sector Recovery Operation (PSRO) of $750 million in International Development Association (IDA) credit. The initiative is meant to improve the reliability of electricity supply, achieve financial and fiscal sustainability, and enhance accountability in the power sector in Nigeria.
In May, President Muhammadu Buhari kicked off the next phase of a deal with Siemens, to upgrade the nation’s dilapidated power infrastructure. Nigeria and the German engineering firm signed an agreement last year to rehabilitate and expand the country’s electricity grid. The partnership with Siemens is expected to enlarge power networks across the country until Nigeria can produce and distribute 25,000 megawatts.
The expectation is that the partnership will propel Nigeria’s economy to prosperity, and put an end to its long, bumpy journey to darkness.
Long road to darkness
In 2006, as part of Vision 20:2020, the Olusegun Obasanjo administration said that Nigeria would be generating 10,000 megawatts of electricity by 2007 and 35,000mw by 2020, making it one of the 20 biggest economies in the world.
By 2009, the Umaru Yar’Adua administration modified the projections, placing installed capacity growth at 6,000mw to 20,000mw by 2015.
In 2013, during the tenure of Goodluck Jonathan, a privatisation exercise took place with the mandate to increase power generation and provide stable supply of electricity to Nigerians at affordable cost. The PHCN was unbundled and broken into six generation companies (GenCos) and 11 distribution (DisCos) companies, handled by private investors, with the Nigerian government taking charge of the transmission.
But many years after all of these steps were taken by successive administrations, Nigerians are yet to enjoy stable electricity. Businesses that rely essentially on power have had to exit the economy, with attendant negative effects on job creation and economic opportunities.
PwC in its report in June said liquidity crunch is the biggest challenge of the Nigerian power sector, caused by low collection, distribution losses and the inability of Discos to meet their payment obligations to the Nigerian Bulk Electricity Trading Company (NBET). Other limitations include absence of cost-reflective tariff, gas shortages, poor transmission, energy theft, estimated billing and metering challenges.
For small business owners who spoke to PREMIUM TIMES, estimated billing and opaque metering system are two major concerns killing their businesses, almost literally.
“Crazy Bills, Opaque metering”
In March, Chiddy Chemicals disconnected from the Ibadan Electric power source, opting to operate solely on generator. The small firm, operating from two shops in Apete area of Ibadan, Oyo State, said estimated bills have made a mess of its revenue.
Victoria, an office assistant at the shop, told PREMIUM TIMES that her boss made the decision after years of settling “crazy bills” without enjoying commensurate value in electricity supply.
“It’s been frustrating,” she began, fuming.”For instance, in December, they brought an estimated bill of N18, 000, and N21,000 in January. We were so shocked because we barely enjoy electricity here. The maximum we get daily is, maybe, 5 hours. We could go for days without electricity. That was when my boss said he had had enough of the extortion and we opted out to operate solely with our generator.”
Small business owners who operate with generators are susceptible to environmental and health hazards, in addition to the environmental concern around noise pollution. For many small businesses struggling to break even, the cost of operating solely on generating set can be a threat to continued survival.
Victoria explained that since they switched to alternative supply through generator, their operating cost has gone quite high.
“We now spend an average of N30, 000 on fuel monthly,” she said. “This affects our balance sheet, but we have no option. Our shop employs over 10 boys but we now have six, due to high operation cost. But even at that, the amount is minimal compared to when we paid for estimated bills and still bought fuel of about N20, 000 monthly.”
Between March and June, Kayode Ajaikaye did not open for business at his water factory in Orile-Agege area of Lagos. There was a lockdown, occasioned by Covid-19 pandemic, and he had to shut down operations. But when he resumed work in the last week of June, he was served an estimated bill of N35,000. He could not hide his anger when he spoke to PREMIUM TIMES.
“This is barefaced robbery,” he said, flipping through copies of the electricity bills. “If I pay this huge, how do I pay taxes, settle wages and salaries, and keep the factory running?”
Although the Nigerian Electricity Regulatory Commission (NERC) has a regulation in place which caps arbitrary charges on estimated billing, an official of the agency who declined to have his name in print told PREMIUM TIMES compliance has been problematic due to poor monitoring.
Mr Ajaikaye said he requested pre-paid meter over a year ago, but his efforts have been frustrated as the metre is yet to be delivered. “So we pay huge amount to power our generating sets and still pay crazy amount per estimated billing. It’s double jeopardy,” he said.
Two other SME operators who spoke with PREMIUM TIMES in Lagos complained about the estimated billing and the worrisome conduct of Distribution Companies (Discos) who frustrate consumers’ attempts to obtain meters.
Efficient delivery of electricity is guaranteed by the meter, as it allows consumers to pay for only what they consume, and the DISCOs to charge for only what they supply. But many SMEs struggle at the mercy of the DISCOs who subject them to outrageous estimated billing.
Last year, Babatunde Fashola, immediate past minister of power, accused the DISCOs of sabotaging the country’s economy by refusing to carry out directives aimed at resolving key constraints to performance, including metering of consumers. But in a swift reaction, Sunday Oduntan, Executive Director on Research and Advocacy for the Association of Nigerian Electricity Distributors ANED, accused the Nigerian government of reneging on agreements reached in 2013.
In January, NERC announced that there would be an increase in electricity tariff across the country from April 1. The new tarriff showed price increases would have ranged from 60 to 100 per cent in some places. Except consumers in the Residential (R1) category, who will continue to pay N4 per kWh, all other categories of consumers, namely commercial, industrial and special, were expected to pay higher tariffs.
The Discos have however agreed to suspend the planned increase, amid outcry.
In the midst of the kerfuffle among stakeholders, SMEs continue to groan and die in the dark, silently, while unemployment rate skyrockets.
Nigeria’s unemployment rate stood at 23.1 percent of the work force in the third quarter of 2018, up from 18.1 percent in 2017, according to data from the Nigerian Bureau of Statistics.
Finding solutions to electricity challenge is key to SMEs growth and employment generation, Biola Ajoke, an Abeokuta-based fashion entrepreneur, said. She explained that Nigerian young people are job creators and can excel in businesses and entrepreneurship, if offered the enabling environment.
Way Out?
A major concern among Discos is the absence of cost-reflective tariff, linked to failure to deploy meters. In the Key Performance Indicators (KPIs) included in the Performance Agreement (PA) for the DisCos, the NERC, through the EPSRA Act of 2005, states that power utility companies are charged with the responsibility of metering consumers.
But a quarterly report on the operations of the country’s electricity market for the third quarter of 2018 by NERC showed that out of a total of 8, 310, 408 registered active electricity customers, only 3, 704, 302 (44.6 per cent) have been metered. By implication, about 55.4 per cent of consumers are still on estimated billing, fuelling suspicion that the DisCos are reluctant to deploy metres so as to continue to extort consumers.
James Adamson, a stylist at Rozay Dee Beauty Salon, argued that as value creators, Nigerian SMEs are ready and willing to pay for electricity used, “once supply is stable and the cost is reasonable.” The inability to deploy metre also accounts for the shortfall in tariff revenue, he added.
“The Discos are only ready to promote estimated billing,” noted Akinbodunse Shadrack of the Utilities Consumers Rights Initiative of Nigeria, based in Ibadan. “NERC’s order on CAPPING of estimated billing failed from inception as the level of compliance is very poor and electricity consumers have not seen any effect of the order.”
In Abuja, Joseph Peters said he operates a hair salon on the outskirts of the city and didn’t open for operation in most part of May.
“But to my surprise, I was served a bill of about N15,000 when we resumed weeks ago,” Mr Peters said. He makes roughly N35,000 monthly, after paying municipal taxes and other bills, adding that he had had to lay off one of his assistants due to declining patronage and huge operating cost.
PwC in its report noted that for the Nigerian power sector to achieve about 6.5 times increase in annual per capita consumption by 2025, stakeholders needed to accelerate growth in power generation capacity, improve utilization, and scale up efficient power distribution capabilities.
The audit firm noted that to achieve this, solution lies in expansion of the on-grid generation capacity by improving gas supply to eliminate non-operational capacity, replacement of the obsolete equipment at power plants to restore unavailable capacity, investment in the development of new power plants, as well as the expansion of existing plants. It added that power generated and delivered through the value chain must be recovered at full monetary value.
The new partnership between Nigeria and Siemens is expected to modernise and enlarge the nation’s existing power network, provide stable power, and open up opportunities in the economy for SMEs to thrive and grow.
In May, Mr Buhari directed his power and finance ministers to “commence the pre-engineering and concessionary financing aspects” of the project.
But for Ms Ajoke, the Siemens deal notwithstanding, it’s still a long way to redemption. In June, the entrepreneur laid off three support staff and shut down a fashion shop on the outskirt of Abeokuta, due to huge operating cost.
“Let’s hope that there will be light at the end of this dark, dark tunnel,” she said, her voice a mélange of hope and despair.
