Nigeria Loses N2.462 Trn To Poor Power Tariff Policy, Says World Bank
The World Bank has called for a total overhaul of Nigeria’s power sector if the country was serious about igniting its economic growth, saying that it has lost $6 billion or N2. 462 trillion to poor and inefficient tariff policies.
In a sub-report titled “Spotlight 1: Igniting economic growth by reforming Nigeria’s power sector”, which formed part of the World Bank’s report released Tuesday, the World Apex Bank said that electricity is the fulcrum that boosts productivity because it drives other aspects of the economy.
The report added that as a result of the inefficiencies in applying the tariff policy, the Federal Government lost billions of dollars between 2015 and 2020.
“The inefficiencies, combined with the irregularity in applying the tariff policy have led to a breakdown of the electricity payment chain. The cumulative shortfalls in tariff collections for 2015–19 were estimated at N1,678 billion ($6 billion).
“In 2019 the tariff shortfall rose to N524 billion (~US$1.7 billion), which was more than the total Federal Government of Nigeria (FGN) health budget. It was also fiscally unaffordable.
“The FGN has recognized that the severely underperforming power sector threatens Nigeria’s recovery from the oil price shock and the COVID-19 crisis; in 2020 it began to take critical action to help turn the sector around.
“In 2019 the tariff shortfall was N524 billion (~US$1.7 billion), which was more than the total Federal Government of Nigeria (FGN) health budget. It was also fiscally unaffordable,” the World Bank added
It lamented further that despite several investments in the power sector, 85 million Nigerians, which account for 43 percent of the population, are still without electricity.
“Electricity not only fuels productivity, it is a vital catalyst in health, education, and other forms of social development. According to the latest Tracking SDG7 report, 85 million Nigerians (43 percent of the population) have no access to electricity.
“Lack of reliable power stifles economic activity; in Nigeria, annual economic losses from lack of reliable power are estimated at 5 to 7 percent of GDP—at a cost of US$25 billion),” the World Bank said.
Highlighting the failure of the Federal Government’s privatization of the power sector, the World Bank said inefficiencies, combined with the irregularity in the application the tariff policy, have led to a breakdown of the electricity payment chain.
“The transition to a largely privately owned sector did not bring about the outcomes expected. Distribution companies (DISCOs) report inefficiencies measured by aggregate technical, commercial and collection (ATC&C) losses at about 50 percent, far above the 15 percent that is international good practice,” the report said.
Adding that, “Nigeria’s power sector problems have serious repercussions for economic growth. With 43 percent of the population (85 million people) lacking access to grid electricity, Nigeria has the world’s largest energy access deficit.
“Nationwide, the poorest (40 percent of the population), do not have access to grid electricity and this is an abysmal 31 percent.
“Similar disparities exist between regions and between rural and urban areas. Even those who are connected to the grid cannot rely on the supply; they must deal with frequent outages.
In Nigeria it is common for firms to cite lack of reliable power supply as the top constraint to their business.
In the 2020 Doing Business Report, of the 190 countries surveyed, Nigeria ranked 169th globally on the getting electricity indicator, and it was 33rd of the 46 countries in SSA.
In the report the reliability of its electricity scored 0. With the electricity supply unreliable and insufficient, businesses and wealthy homes have turned to expensive gasoline-run generators. It is estimated that in Nigeria over 22 million gasoline generators (“gensets”) power about 26 percent of all households and 30 percent of MSMEs; their net capacity is eight times more than the national grid.
According to the World Bank report, “In 2018 alone the FGN is estimated to have spent N490–N670 billion (US$1.6–2.2 billion) on subsidizing gasoline consumption for them.
“On top of that, ordinary Nigerians spent an estimated N3.7 trillion (~US$12 billion) on purchase and operation of gensets. Annual economic losses from the unreliable electricity supply are estimated at about N7–10 trillion (~US$25 billion)—5–7 percent of the GDP. Nigeria’s power sector is unbundled and since 2013 has been largely privately owned, but the transition did not produce the expected results.
The Federal Government of Nigeria has spent well over N1.164 Trillion in the past 8 years trying to resuscitate the power sector.
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