November 24, 2011

The FG Ecomonic policy of Subsidy Removal - What about social and moral grounds?

I believe it is morally wrong to remove the fuel subsidy when the Government has not taken any meaningful steps to alleviate poverty. Governance in todays world is more than rhetorics i.e telling people sweet words and knocking them on the head. The FG must take steps like setting in place tangible changes so the the rural and urban poor can have an alternative.
As I write there is evidence that any new refinery has been built or is in design to be built. As I write, the only alternative to kerosene for cooking is back to the woods; gas is being wasted when it can be easily purified and distributed to homes or bottled as an alternative.
The Nigerian economy is almost completely dependent on Petrol and Diesel with very minimal use of Gas and fuel oil. However, the poor depend on petrol to go the farm, to the market, for all social activities like parties (generator, cooking and all related activities for such parties), etc. There is no functional railway that can be used as an alternative.
The effect of the removal will hit the poor hardest. Some families will be devastated if you take N1000 out of their monthly income while the rich who the Government thinks they are targeting will not even be affected if you take a million naira out of their pocket. Afterall, they have other sources of income; some of them may potential be the contractors for the planned investment of the monies realised from the subsidy. Is it only in the fuel subsidy that money is being wasted, or is it just that anything that affects the poor considered to be waste? what about all the monies spent as security vote and unnecessary protocol for government officials, and baseless parties and inauguration ceremonies? are these not wastes. Can someone tell Nigerians how much is spent on security vote nationwide? or how much Estacode is paid to government officials or more still how much money is spent partying? What has the Government done to reduce the thieving in the Government work force? Is it not common knowledge that most projects awarded carry a 10% bribe element for the officials? I cannot show proof but every Nigerian can perceive it as the corrupt practices in Government contracts smells bad in the air.
In development parlance, there is the word call PRO-POOR policies. These are policies that seek to reduce the effect of government's drive for efficiency on the poor. This is why, Scotland produces the bulk of electricity but London (England) uses the biggest without incurring the cost of the transfer of the electricity across vast lands of Scotland to England. This also why even capitalist states still provide social security benefit in various forms to its citizens. The social safety nets as they are called include:
  • providing loans to all students going into tertiary institution and allowing them to pay back only after their earnings reach a threshold,
  • Providing medical insurance for all (Not only to civil servants and executives)
  • Providing a maximum daily limit for intra urban travels (in London, you pay about 3 to 4GBP max using your oyster card in mass transit buses)
  • Providing at least a meal a day for those who can't afford to put food on their table
  • Guaranteeing loans to property development agencies and allowing low income workers to get on the property ladder
  • Providing benefits to those who spend more than 10% of their income on fuel
  • etc
The Government though in denial needs to understand that every kobo you take out of a family will impact on other things like their ability to continue to send children to school, to feed children adequately and provide a clean environment for the family and reduce communicable diseases.
The FG just doesn't seem to see things from this angle, I cannot think of any short term project that it has embarked on which will benefit the a good number of poor people. Even the Federal civil servants who work in Abuja have barely any means to get home. For those who have been to Abuja, you will have noticed the huge numbers of govt. staff who gather around the eagle square struggling to get on the very few private buses. Some of them even spend 2hrs just to get a vehicle home. What does it cost a government to contract this service out to a private bus operating company with a performance criteria that will bring comfort to the workers? Is comfort only for Government officials and private businessmen?
The FG only knows how to copy the policies that will hurt the poor and those that will benefit the poor is no good. There is argument and counter arguments at the moment but the people who will feel it most do not even have a voice; only posterity will judge these actions.

Some people make the issues about subsidy look very complex but I always try to keep it simple so everyone can understand why so many people are concerned. Below are some of the main issues: 
  • Currently, the FG argues that a cartel (some say about 100 people or thereabout) are the only once benefiting from the subsidy. This is not true, we are all benefiting by paying less for fuel and kerosene. However, it is true that several investigations have shown that a few are making money through various illegal ways using the subsidy; this is a global phenomenon and there is a Globally accepted approach to deal with it but the FG is shying away from this. All over the world corruption has bedeviled the implementation of subsidy but this does not make subsidy bad. It actually brings to fore the need for the Government to investigate, expose and jail the very few who are cheating the entire country of resource which should hitherto be channeled to infrastructural development. Actually who is in better position to stop the cartel and expose the culprits?Is it not the FG? Certainly not the poor Nigerians who do know where the next meal will come from.
  • A friend of mine used a very basic analogy that removing the subsidy is like stopping milk supply to school kids in other to build more schools. Sounds simple but if not taken seriously will have repercussions because the the long term result may be less healthy children. If the children are sickly and unhealthy, who will attend the numerous schools built from the savings? Sick children?
  • The FG recently initiated Nine Federal Universities in other to extend Federal tertiary institutions to areas where these were not already sited and in addition made funds available for take off and ordered that students must be admitted by 2011(barely 2yrs after it announced the creation of the universities). It is not my intention to discuss the rational behind the speedy implementation for these universities were per se but clearly it was a decisive step by the FG. Would it therefore not be right to use the same decisive approach to order the building of refineries? The cleaning of our polluted lands and water bodies so that Nigerians and particularly the Niger Deltans can do some subsistence farming/fishing to supplement the money that will be lost to removal of subsidy because every activity in Nigeria today require the burning of petrol/diesel/kerosene. Would it be wrong to order the immediate establishment of modular refineries in strategy areas of the Niger Delta where the crude is source and reduce our over dependence on imported fuel?
  • It is common knowledge that Government has consistently failed to improve its performance even with increasing funds available to it so what guarantee do we have that with more money, there will be more infrastructure. A man who cannot manage N1, will he be able to manage N10? In your opinion, the FG needs to do some prior works to to deal with the pain that will follow this decision of removal of subsidy by 2012?  Areas to look into include mass transportation, health, food, education, etc
  • A recent research report published by the GSI concluded that corruption in subsidy implementation affects fuel and agricultural subsidies. What is the government doing to reduce the corruption in fertilizers subsidy? Or are the actors too big to even delve into this area? The GSI report also made recommendations for improving subsidy implementation and the recommendations are that Governments must make polices clear, investigate those involved in the subsidy fraud, expose them, stop them from accessing the subsidy and jail them as necessary. No where in the report did the GSI mention or recommend subsidy removal.
  • Finally, the FG had a parley with Private sector Chief executives and came out hailing their decision to support the removal of subsidy. I find this very funny to comprehend. In the first instance, who will the removal hurt? Is it the Jim Ovia's, Dangote's, Otedola's, etc, or is it the common man on the road? Is it not common knowledge that Entrepreneurs especially those who were in the parley will always pass down their production cost to the customers meaning that eventually the poor who will bear the brunt?
In my opinion, Politicians and Chief Executive in public sector need to cut down on their expenses (parties and show-offs) as a way to show their readiness to move the country forward? The Federal Government need to also look at accessing funds which are not utilised in the CBN ($500bn) and look into the capital market for funds to develop the infrastructure. Also Foreign direct investment is falling due to policy somersault and poor enabling environment, January 2012, GE will be investing $300m in Brazil for renewable research. These are the kind of opportunities we need to attract to help the economy in my opinion.
To show seriousness the FG need to give matching orders for the building of refineries including modular ones which will take shorter periods to complete and situate these near the crude oil source.The FG needs to increase the effectiveness and efficiency of public transport in all urban hubs and busy rural/urban link routes. This can be done directly by the FG or through indirectly influencing the states. The FG needs to invest in alternative forms of travel by allowing more airlines, invest in water transportation or outsource these services. the FG needs to also investigate those involved in cheating the system and bring them to book. We see and hear reports of the EFCC and ICPC chasing Governors and bank chiefs but why are we not seeing these agencies chasing the subsidy Cartel. Obviously some must be fishing.

If the FG does some of above then perhaps Nigerians will begin to sway to the Governments subsidy removal proposal.
Lewis

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August 04, 2011

The CBN Recapitalisation Deadline

Sometime last year, Central Bank of Nigeria (CBN) gave a deadline on updating of bank accounts details. I wondered why the deadline was necessary. Why the need for a deadline to update one’s bank account details when it is certainly the responsibility of banks to regularly update bank account details. This is how it is done in developed countries; despite the deadline not all customers have updated their details and in fact the
 update is a continuous process as it ought to be. So why did Sanusi put a tight deadline that led to customers queuing for days, and many not reporting to work?

Again, the CBN governor has placed September 2011 as deadline on recapitalisation of rescued banks otherwise he would nationalise the banks. Certainly there is something about the new posture of the CBN and I begin to wonder and ask myself a few questions:

• Is the CBN governor so powerful that he cannot be checked by law?

• Is there nobody overseeing his operations?

• Why would the CBN consider the Christian Association of Nigeria (CAN) position to Islamic banking as stupid and rather than engaging CAN, the CBN governor asked them to go to court?

• So when Sanusi nationalises the banks how will the proceeds from the banks be shared to all Nigerians? I know that one of the hottest debate in the UK is how to ensure that all residents of the UK get shares from the Royal Bank of Scotland which was nationalised with tax payers’ money and as such profits need to be shared to every citizen. Is this what will happen if the banks are nationalised?

While trying to answer these questions, I realised that people behave differently due to several enculturating agents, so whilst I expect Sanusi to engage with the stakeholders in trying to solve their problems, Sanusi may have had his own experiences which require that deadlines are given and penalty is met out for not complying. 
I would like to remind the CBN governor that, in dealing with any issue, one needs to talk to the people, as they know where it pinches most and can help to quickly and effectively tackle the problem.

I would like to remind CBN governor that the days of dictatorship style of leadership is long gone, he needs to think about the effect of his actions and inactions. Nigerians do not want to lose sleep for what is not necessary. There is no reason why the CBN cannot allow the banks to recapitalise in phases and if possible guide them back to health. Everywhere in the world, regulation has shifted from "they" and "us" to "US". Regulators now play supporting role while maintaining significant integrity so as to sanction when necessary. Sanusi will lose his credibility if he continues to force his way to everything.

Finally, I would also like to use the opportunity to call on the NASS and President Goodluck Jonathan to review the CBN law and to possibly include clauses that make the CBN answerable to either the Presidency before taking any actions on matters that bother on national interest.
Lewis

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June 27, 2011

NERC - New Electricity tariff takes off July 1

I wrote an article earlier in response to the setting up of a committee on electricity consumption. I have since seen several publications in reaction to my article. Some of the comments, I agree with while others are just face saving. Anyway, that was on demand management. However, my reference to the that topic again is because the same principle which I was advocating for is missing again in NERC's latest Action. I opined that, for
 demand side management to make impact, the NERC ought to prepare the grounds allowing an enabling environment which will encourage users to see the gains.

Unfortunately, NERC's chief executive who some days ago stated that the new tariff will take effect from January 2012, is now proposing to increase tariff from July 1. Again, I consider this proposal totally disheartening and perhaps inept. I am not against increase in tariff as from my own observation, Poor Nigerians are already paying for the lack of power via fuel for running poor quality generators and regular maintenance and repairs of these generators but what I thinks is not right in NERC's proposal is the fact that it continues to put the cart before the horse. Critical issues of measurement which has to do with accurate measurement and effective pricing do not appear to have been adequately considered. Electricity as a services falls under economics of scale; so for instance if metering is inaccurate, private companies will rake in millions of Naira daily for services not provided. As it stands today, Nigerians especially the poor are having to pay for PHCN unmetered connection with no service for over 70% of the time. Why would any right thinking person allow such to continue? The NERC has the responsibility to bring the right change in this area but the agency appear to have chosen to maintain the status quo i.e. enjoying the largese that comes with the job and forgetting that Nigerians are suffering as a result of their action and inaction. I have always wondered if monies realised from the unmetered bills are adequately accounted for or if N2000 collected for the continual disconnection and reconnection in mostly poor areas are receipted for. It will be interesting to see the PHCN accounts some day.

The point I am trying to make here is that the management of NERC is expected to implement regulation in a systematic manner. The days of jumping before the gun is over. I expect that things like adequate metering strategy for every connection should be the mantra at this moment. In the United Kingdom, the regulation places the responsibility on the service provider to provide a metered connection to households and the same exist in Nigeria but no one is interested in its implementation. Till date, NERC has not come out to tell Nigerians what proposals are in place to address this key issue. If meters are installed in households, consumption, losses and other related data like ROIs can be determined and will then inform the MYTO review. At the moment, what NERC is doing is typical to what the most Nigerian agencies do; use crude estimated data (some of which have no basis) in arriving at their decision making process.

On the insensitivity of NERC to public opinion, most public office holders in Nigeria forget where they have come from; ignoring the fact that there are several poor Nigerians (about 70%) who have to pay through their noses for services. Electricity is considered a social good, therefore the elements of social development must be given serious consideration in policy making and pricing mechanism of any regulatory agency. The reason many services in developing countries have been, and continue to remain under the control of Government or public ownership is to prevent loss of the social element of the service which will guarantee wider access. This makes it pertinent that managers of regulatory agencies and utilities must understand Pro-poor policy requirements. So, electricity, like water, health and education even when privatised must be done in such a way as to retain its social contribution. The provision of electricity services to all Nigerians is a key human development objective because access to services can on the one hand empower poor Nigerians by providing them a means of competing through increase productivity. This is even more true for a country like Nigeria where mostly Micro-enterprises (laundry and dry cleaning, market women, street traders and hawkers, subsistence farmers, taxi drivers, electricians, mechanics, welders, plumbers, petrol station attendants, etc)  make up the larger percentage of its businesses. On the other hand lack of access to services like stable and affordable electricity can effectively lead to marginalisation and a widening of the gap between the poor and the rich and also resulting in ill health, inadequate education because money meant for these areas could be reduced by energy bills.

Whilst It is true that poor management, decaying infrastructure and poor service delivery has remained a problem with publicly owned services leading to the global drive for privitisation. The FG policy thrust (as formulated by NERC in the case of electricity) must be geared towards approapriately designed and cleverly thought through processes.  Privitisation leads to increase in services coverage along with increase tariff to users and profit taking by Utilities and Government. Meaning that post privitisation,  there is a possibility that the service will become available but affordable only to the small percentage that can pay. So to guarantee service to the poor, NERC will have to review its regulatory strategy through wide consultations because regulation required under private ownership can be very complex. I expect NERC to seriously consider affordability or ability/willingness to pay in determining its policy decisions because I believe that the huge debt owed PHCN and the willingness of poor Nigerians pay bribes to illegally reconnect their supply once disconnected may just be an indication that there are issues with the pricing as it currently is and the availability/quality of the service.

NERC has deliberately provided limited information on its proposal to assist the very poor regarding their access to electricity. In the UK where a household is classified poor (referred to as fuel poverty) if more than 10% of its income is utilised to pay for energy, the Government provides an action plan to support these people. Such a measurable and radical plan means everybody government has a grip on the nos that move in and out of fuel poverty at any time. It is not clear what strategy NERC is strategy NERC is proposing to adopt in Nigeria and in my opinion, issues like this one ought to be discussed and made available to the public, similar the plan of how to ensure that there adequate metering in addition to a better regulatory enforcement on illegal tempering of meters should be dealt with before jumping into the other issues of increase tariff and demand side management.

Finally, my advise to the leadership of NERC is to slow down in its strong inclination to only deal with the issues that will take money out of the hands of poor Nigerians but to communicate more to the public about how it intends to deal with the more critical key human development issues that support the poor and ensure sustainability of the services.
Lewis

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May 17, 2011

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March 09, 2011

FG Moves to Minimize Electricity Wastage

I have read recently, the setting up of a committee to look into ways of minimising conserving Electricity consumption by the Presidential Adviser on Power. Whilst I fully support the move, I am very weary as to what thinking has gone into the process leading to the setting up of the committee. I am also very sceptical at what the outcome of the committee will be when its composition is mainly persons from non-performing agencies like the PHCN, NERC and a few distribution companies. Not even persons from professional organisations, private sector or diaspora.

Demand side management which is the focus of the committee is a relatively new concept. Following the adoption Kyoto protocol in 1997, the EU in 2010 made commitments to 8% reduction of green house gases and also to increase renewable energy by 21%. Demand side management became an issue for adoption to ensure that there is effort from both sides; consumers and generators in the drive for energy conservation so as to achieve meaningful results. Even in advanced democracies like the UK, the Government and the Energy companies are still facing huge challenges making a headway to full demand side management. Demand side management requires putting in place policies and measures to control and encourage reduced demand/consumption with a tendency to focus on residential and commercial users. It is majorly a responsibility of Utility companies and requires organisational, technical and behavioural solutions to achieve this.

Now, let us look at the three key issues in the case of Nigeria:

1.  Organisational solutions:-  are measures adopted by the utilities include pricing mechanism, awareness campaigns and regular facilities upgrades to ensure that losses are minimised in the network and not transferred to the users. In Nigeria, there is lack of adequate facilities to generate electricity. Huge no. of obsolute equipment are left in service. There is even inadequate data to show the inventory of obsolete electrical equipment let alone developing plans for upgrade. Therefore the inefficiencies of the generator PHCN is passed on the the user. Every time I drive by PHCN transformers or Switchgears even here in Abuja, I feel sick because I have worked in the UK as an electrical engineer and I cannot believe how obsolete and unsafe these equipment are. I actually wonder how PHCN manages to keep them in service. No wonder you find protective devices like fuses tied with copper wire! In the UK, the people in charge of such  equipment would be in jail!

2. Technical solutions: again these are engineering measures adopted majorly by the Utilities in ensuring that efficiencies are increase in other to reduce waste at the generators end and to cut down on transmission and distribution losses. However, one critical element that comes to play here is adequate and appropriate metering. Metering is very important  because it enables you identify what is happening and where? For instance,how do we know how much losses are in the network and at what side of the divide? You have to optimise the system before moving on to conserving energy. Apart from the current efforts in installing new substations and transmission lines, not much is done about removing old inefficient equipment from the network to cut down on losses. Meters are not installed for probably over 60% of users who have paid for the meters. PHCN benefits from fixed prices from unmetered users. I personally have been on fixed bill because PHCN has refused to install a meter in the my house and they have fixed my bills at N5,000.00 monthly when all I have is lighting bulbs and a TV. If metered, I would probably not even pay N2000 in a month. All effort to complain to the manager has been fruitless. Even a letter to the NERC has not been replied. Now without meter how do you convince a user to switch off electrical equipment which is not been used. Personally, I switch off my lights and equipment when not in use because I have learnt the benefit of doing so while living in another society but I notice that majority of Nigerians do not care. Why should they? When they still pay a fixed bill even if they turn off their equipment and worse still even when there is not supply? Also there appear to be a lack of regulations on the quality of electrical installation in buildings. Not even a single test is carried out after installation. Usually, a series of test is carried out to ensure that an installation is correct and safe to operate but in Nigeria, you find wrong connections everywhere with some buildings perpetually carrying overload currents. I have even found several cases of wrong wire sizes. Voltage drop is not an issue for technicians so you find a situation where there is a dip when you put on load within the building or perhaps when your neighbour switches on his Air conditioner, your light dips. This is obviously poor design/installation but who cares? PHCN, NERC, etc doesnt!

3.  Behavioral solutions, this is the where the consumers come in. However, it is the utilities/government that plays the role in using organisational and technical solutions to try and INFLUENCE consumer behaviour to bring about conservation of energy through awareness campaigns to remind users of the benefits of using less power and savings that can be derivable.

Now haven said the above, I hope that every reader can see clearly why jumping into setting a committee to look into conserving energy may not deliver any meaningful results. I would suggest that Barth Nnaji pays more attention to reducing losses in the network and ensuring appropriate regulatory framework to ensure best practice in installations. If possible Barth, should bring the Presidential influence to force PHCN to provide meters for all users and then he can have a basis for encouraging users to reduce demand because this way everybody will understand and feel the benefit from the savings that they can get for reducing their demand without losing comfort.

 

Lewis

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