Thursday, August 26, 2010
Governance and Privatization in Nigeria's Power Industry
Goodluck Jonathan is ramping up efforts on stabilizing Nigerian energy supply, and talk of privatizing the industry is once again in the air. Economic liberalization seems to be the default mode for the Nigerian government when its called upon to act more efficiently, but the idea of ceding ground to the private sector on energy ought to make one stop and think.
I have always found the irregular energy supply in Nigeria to be an interesting policy question. Thanks to general waste and age-old corruption, Nigerian electric power authority (It's PHCN now, but I always think of it as it's old name NEPA) has been found wanting in its provision of a public good (electricity). But people have to find a way, don't they? There are products to sell, football matches to watch, drinks to keep cold. The market responds: generators in all sizes. Businesspeople know a good opportunity when they see one, so money -- within Nigeria and out -- floods into the thriving generator industry. The price of kerosene rises and falls for lamps. Binatone makes electric lamps. Out of government inefficiency arises private sector innovation.
Of course, out of private sector innovation come the trouble of incentives -- Who really wants there to be 24-hour electricity? Think about it. The generator-makers certainly don't, or what would then happen to their business? And these energy companies, who would they profit? Certainly, their services would be obtained by many, not all of whom can afford it.
A good metric, I think, for how an exclusively-private power industry can be found in ICT. It is difficult to find hard data on these things (Though page 9 of this study gives some idea) so I have not run the numbers, but I bet that average usage of ICT services per 100 inhabitants would be surprisingly low compared to how many people actually own cell phones, particularly outside urban areas. Why? Because cell phone services are actually quite expensive. People text on their phones much more than they actually talk. They have found a way to make their money stretch further within the current system, and in so doing entrenched the status quo.
The fact of the matter is that the private sector is already in the power industry, and they have served only to entrench the status quo with their products, not challenge it. Nigerians -- the whole continent, I suspect -- prides itself on gritty resourcefulness. Learning how to manipulate your surroundings to the best of your ability is great in the short-term, but it does nothing to turn the incentives in your favor in the long-term. When there is no real consumer protection agency to speak of and the industry is more connected to the government than consumers are, the designated body can take your writhing for comfort as silence in consent.
In order for privatization to work, it needs to make sense for the market to provide energy services at every price range, something I am not convinced will happen. Without that, all this is doing is creating another item on the list that "only certain people" can afford and maybe even adversely affecting the start-up cost for businesses in an economy badly in need of diversifying. In our bid to make more money for GEJ and all his moneyed friends, the questions Nigerians need to be asking is whether all the pieces are in place to ensure that turning over the energy industry to the market can actually work. Privatization cannot simply be a way for elected leaders who need a way out of their duties to govern.