$90bn. That is apparently what it would cost to increase our electricity generating capacity to 40000mw by 2020. Not nearly enough electricity for a country our size but certainly more than the 4000MW capacity we are currently struggling to maintian. One thing is clear, the government does not have a $90bn to invest in electricity. Private sector investment is desperately needed but these private investors don’t seem to be interested. Why?
At this point we should take a detour to understand what really drives investment. Investment is driven not just by the desire to turn a profit but by the potential to make more profits than could be made elsewhere. This potential for profits is driven by the price of the commodity in question which in turn is driven by the demand and supply dynamics. Hence if there is too little supply of a product the price should be higher than the standard price ( the price at which the cost of producing that commodity is just covered) which should give investors the opportunity to make more than normal profits and should drive investors into production of that commodity hence increasing supply and reducing prices eventually. The key point is that price fluctuations below and above the “standard price” act as a kind of referee guiding investors and ensuring that supply always keeps up with demand. Of course this all assumes that the markets are working and there are enough participants etc etc. In the event that the markets do not work and the price needs to be set by a third-party this rule must still be followed if private investors are expected to continue their investments and ensure adequate supply.
Back to our need for electricity. We are at a point where demand has outrun supply to such an extent where PHCN is now seen as a ‘back up’ supplier. Not to be relied upon for anything remotely important. We have got to this point mostly because the ‘rule’ for pricing electricity has not been followed and the government has not made up the required investment to at least maintain the status quo. It cannot afford to. It has come up with all sorts of fancy agencies to try to convince private investors that it will follow the rule with the latest contraption led by NOI. Unfortunately the private sector knows the truth. The govt cannot be trusted to follow the rule. The govt will cave in every time to the pleas of the populace for electricity costing too much which in turn means losses for investors. That is all fine and good if the government can back up its actions with its own investments. But it can’t. The price of electricity in Nigeria now should be sky-high seeing as electricity is nowhere to be found but it is not. It is still lower than the prices in Ghana and South Africa, two countries that are in much better shape than we are. It may even be lower that the “standard price”. Investors are not in the business of throwing away money, they are not charities. If we want to make any progress in our struggle for stable electricity it is time we start to think of pricing solutions that do not involve a government agency somewhere setting prices.